“Begin with an end in mind,” wrote Stephen Covey in The Seven Habits of Highly Effective People. This is the second habit, which means, “Begin each day, task, or project with a clear vision of your desired direction and destination, and then continue by flexing your proactive muscles to make things happen.” The same goes for building a company. One of the biggest disappointments for entrepreneurs is spending a lifetime building a business and then when they want to retire, not being able to, because the value isn’t there. A startling thought, huh?
Through my travels, I have attended a number of seminars and webinars and have also read about this topic, because as an entrepreneur, it is obviously near and dear to my heart. I’d like to share some of the ideas I have learned along the way to help freight agents and brokerage owners proactively monetize your life’s work:
- Have something to sell; your business can’t just be you: While recently rereading Simon Sinek’s Start with Why, I was reminded of the “Bus Test”. It consists of one simple question: “If you got hit by a bus, would your business still exist?” If the answer is “no,” you don’t have a business to sell. So what are your options? You can hire some people so there is an organizational structure in place that can run without your day-to-day participation. At some point in time, your precious shippers must become comfortable dealing with your employees and not just you. Remember, though, it’s important to have a strong, enforceable non-solicitation agreement so this same person or persons can’t just take your business elsewhere. Some people will have ambitions of owning a business one day, while others just want a job and not the responsibility of being a business owner. Many don’t have the means or the skill set to be a business owner, but make great employees. Either kind of person can serve this purpose, as long as you can ultimately pass the “Bus Test”.
- Look within your organization for a buyer: Maybe the person you identified to run the business in case of the bus accident is someone you can groom to take over and buy you out. Does this person have the managerial potential and ambition to actually run a business? If so, depending on your time horizon, you can create a short- or long-term transition plan. During this time, it is important to teach this person how to run the whole business and not just let them continue to perform the function they currently perform. Ultimately, your shippers must become comfortable that this person can handle all their needs without you in the picture. Remember that non-solicitation mentioned above, though, so the person you groom doesn’t just walk away with your business.
- Structure your business for acquisition by an outside buyer: Again, this involves looking within your organization for a successor who can move to the acquiring organization and run your organization without you. Having a phantom stock program in place where this successor gets a payment at time of sale and then another payment a year or two down the line can ensure they stay on for the transition and don’t steal the business (did I mention a non-solicitation agreement?). Also, this could help prevent as much as possible you being the person the buyer wants to stay on for too long post-sale.
- Be ready to stay for a while post sale: Oftentimes outside buyers want to ensure a smooth transition, so as much as you want to ride off into the sunset and lie on the beach or go play golf, unfortunately, I have been told many times, this is not realistic right away. Oftentimes there is an upfront payment and then an earnout based upon business performance. During this period of time, a buyer often expects the seller to stay on and work. Sad but true. So unless it is an internal successor, you will likely have to keep working in some kind of consulting capacity for one to two years. It’s important to plan for this.
- If you own a brokerage, consider becoming an agent temporarily until your customers transition and commit: All of the above ideas work for both agents and brokerages, but if you are a broker who is sick and tired of running the business, funding the receivable, and just wants to sell or book freight for a while before retirement, you can make a deal with an agent-based brokerage to function as an agent while the other key steps are put into place for you to monetize an exit. Then plan an earnout with the brokerage with which you sign up. At One Horn, we are willing to help other brokers retire, so I imagine other brokerages would do the same.
I know it’s hard to think about your eventual exit from the business when you’re right in the thick of it, loving it, growing, and pumped up to continue for many years to come. But like Covey writes, if you “begin with the end in mind,” you will be more likely to be able to afford the happy ending you envisioned.
In my next blog I will share some ideas on how to get the best out of your employees.
– By Cheryl Biron, President
Click here to subscribe and receive our blog once a month.