It is sometimes astonishing the number of entrepreneurs that don’t plan for the future. They work their fingers to the bone, putting in early mornings and late nights to see their business grow and succeed, but they do not plan for the future. You do all of that work for years so your business becomes more valuable but there is no exit strategy for you to get your value back out. So what should Grand Rapids’ business owners do to plan?
Sam Bravata formed his small business in 1977 and saw it grow from a single Caladonia location to locations in Alaska, Caledonia, Coopersville, Dutton, Kentwood, Middleville, Norton Shores, Plainwell and Rockford. Now in his 80’s Bravata is trying exit from his Sam’s Joint restaurant chain. The problem is Bravata has not put together a solid succession plan for his eventual departure from the business.
As a result of not putting together a succession plan, Bravata has had to resort to selling off his chain piecemeal. He is selling locations for prices ranging from $350,000 to $795,000. Luckily for Bravata there is some interest in buying these locations and he actually has some contracts already in place. The issue still remains whether or not all the locations will sell and Bravata will get the full value of his business in the end. This is on top of the increased cost of having to facilitate multiple sales, negotiations, and other details involved with each transaction.
Bravata could have eliminated the worry of getting the full value of the business by simply setting up a succession plan. This plan could have set up a scheduled phase out of his role while his ownership interest was purchased from him over time. He could have also had the security in knowing that the business he built would be in capable hands after he exited because he could have groomed his successor as he phased himself out.
For those that fear the legal fees and other cost associated with putting together a succession plan, the costs on the backend are much higher. Look at Bravata’s situation. Instead of one succession plan, he might have will have costs association with 9 locations. These costs can become even greater if you were to pass away before your business is liquidated because of the probate and estate administration fees.
These things do not even get into what happens to your business if you were have a heart attack or experience some other form of an early passing. Chances are your family will not be able to fill in for you and liquidating the business will likely be at a fire-sale price. Some form of succession plan that will ensure that the business can compensate you for at least a portion of the value of your ownership interest is important if that situation was to arise.
Planning for the future of your business is not fun but it’s very important. Planning early makes it that much easier because that gives you time to put the most comprehensive plan in place and receive better rates and plans from an insurance carrier. In the end, you work so hard for your West Michigan small business to become what it is so why not ensure that your business is safe and you are going to receive the full value of your hard work.
Source: “Sam’s Joint owner looks to exit business” by Elijah Brumback of MiBiz