subject: Family Business Management - Become a Passive Business Owner [print this page] Family Business Management - Become a Passive Business Owner
If I sell my business today, pay my taxes, brokers and professional consultants, and I then invest the remainder conservatively, will I continue to be able to enjoy my current lifestyle? Most entrepreneurs have asked themselves this question. After creating a successful business, they question whether they can net enough money from its sale to maintain their lifestyle. Regularly after calculating the potential returns of investing the sale proceeds, they realize they can earn more money by holding onto the business and becoming passive owners.
Many business owners consider passive ownership instead of selling their business simply due to economics. Why give up the cow and the milk? These same business owners also feel that they have lost balance. they're making a living, but aren't enjoying life. They need to come and go as they please without impacting the profitability of the business.
for entrepreneurs to enjoy the very best of both worlds, the business must be structured so that an owner can think a non-active role while having a rewarding entity. In an ideal world, the business would become an investment arrow in the owner's investment quiver. To accomplish this, the business must be absolutely systemized with an informed management team in place . Do not expect to become a passive owner overnite - it is a two- to three-year process. Time, the owner must concentrate on cleaning up the business and putting the house in order, so to speak, so the new management team can run the business in the owner's absence.
Passive possession, under the best of circumstances, is risky. When you're not hands on with your business on a daily basis, there are events transpiring over which you exert small, if any, control. Clearly, under these circumstances, you should rely upon the competence and integrity of your management staff. Your top priority is to assemble a trustworthy team to operate the firm without your daily oversight.
An owner wants to educate staff how to be employers and demand that the management team acquire the talent sets needed to run the company efficiently in their absence. Locking in non-owner managers with an incentive or bonus program will make sure the business' continued smooth operation. The management team should become terribly familiar and ok with all relationships that impact business operations ; for example, legal and financial advisors, suppliers and distributors, to name a couple. Alarmingly, many owners file info relating to the business only in their heads. When they are not around, their management staff and employees cannot access the info that is's buried deep within an owner's grey matter. That's the reason why owners need to create and document systems for both vital and non-critical operations. They must then make sure that these systems are followed to the letter.
Many business owners do not realize the emotional impact that reducing their inclusion in the business will have on their day-to-day lives. They must fill previously booked work hours with other activities. A lot of owners have been so busy building their business nevertheless , that they haven't developed any hobbies. How are they going to fill their days, keep their sanity and not drive their spouses crazy? One month after her partner changed into a passive owner, an other half lamented to me that she married him for dinner, not breakfast and lunch. He was driving her mad.
Passive ownership can be a great exit plan but it's not for everybody. On the surface, passive ownership appears ideal but it does have pitfalls. Owners never truly leave. Succession planning is hard to do. Owners do not receive any upfront cash as they might in a sale, and they continue to assume all the risk. That being said, passive possession can be advantageous if the business owner takes the effort and time to do it properly. Passive owners can reap the benefits of continued possession and a steady money flow to maintain their lifestyle, while having time for family, travel, golf, pastimes and other interests.
