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Ever! Part One |
See also:
Your Biggest Sale ... Ever! -- Part Two
Your Biggest Sale ... Ever! -- Part Three
Your Biggest Sale ... Ever! -- Part Four
t is axiomatic that every enterprise is established and sustained "to make a profit." The rudiments of every venture are the aggregation of selected resources that managerial skill can then transform by "adding value" thereby enabling these enhanced resources to be "sold" at a price yielding the recovery of all of the costs incurred by the merchant plus a "profit."
I The traditional child's lemonade stand is as fine a model as the more complex paradigms offered by the General Electric Company. The child assembles lemons, sugar, ice, juice extractors, pitchers and glasses; these components are employed to manufacture chilled lemonade that can then be presented for sale on a folding table with a colorful plastic table covering beside a well-traveled neighborhood sidewalk. If the youngster (perhaps with parental guidance) has developed a good economic model, the quarters that thirsty passersby are eager to pay for a glass of chilled lemonade on a hot summer day should recover all of the costs incurred and produce an attractive "profit" for this afternoon of work.
This is the model of profitable revenue generation for the micro-business as well as the colossal transnational corporation. Every venture is built upon a stream of revenue generated through the sale of products and/or services. Companies like Wal-Mart Stores, Inc. record thousands or even millions of sales transactions a day. Project- and job-centered businesses like The Bechtel Group, Inc. and the Lockheed Martin Corporation experience "lumpy" revenues as progress payments and final contract completion payments are received. Small contractors often receive only a few progress payments each month.
Of course, ongoing sales transactions are the lifeblood of every business. Management skills are directed toward sharpening the effectiveness of purchasing, improving the efficiency of operations, shaving the costs of distribution, and employing pricing strategies to enhance revenues and margins. Attention is focused properly upon the relentless improvement of daily operations. Well-managed, the enterprise is expected to provide an attractive level of income and returns to its shareholders and as well as economic benefits to employees, suppliers, customers and the community.
However, your biggest sale will be the eventual sale of the business itself. Trite aphorisms abound: "Everything is for sale ... including the business itself'" or "Even Chevrolet is for sale ... if GM receives the right offer." Daily decisions over a period of many years are — hopefully —all being made to enhance the value of this ultimate sale. Some might say that the only reason to establish a business is the expectation of its eventual sale — profitably — but this may be an exaggeration. However, many smaller businesses overlook the implications of this ultimate sale and fail to undertake proper preparations until the disposal or divestiture is almost upon them.
Once a venture has been launched successfully and the operation is stable and profitable, the owner/managers should begin to address the questions of their anticipated endgame. What, when, how ... and why? What is envisioned eventually happening with the enterprise? Will it be sold? If so, to whom? How is this sale likely to occur? Approximately when is this sale likely to occur? And what should we do if an unsolicited offer is received for the business? To many of us, confronting these questions squarely can be as troubling as writing our last will and testament. But a lot of unhappy surprises and even disasters may occur if these questions are avoided too long.
There are at least two dimensions to this anticipated endgame — operational considerations and legal considerations. Operationally, it is common for most smaller businesses to be run to enhance the immediate needs and benefits of the owner/managers. Simplistically, this means lawfully minimizing tax obligations and minimizing exposure to personal/corporate liabilities. These objectives are often manifested in efforts to "expense everything possible," "charge everything possible to the business," and remove every possible asset from the business to reduce exposure to liability. Assets and even separable operations may be held in the name of entities or persons other than the business itself.
Implementing these objectives engenders an unpleasant mindset of deceptiveness and secrecy. Often not maintained in actuality, a second set of books of account can be conjured up to ascertain what "the real proft in fact is." Open management has to be eschewed since true performance of the enterprise can be shared with only a few trusted employees — who may feel themselves to be enmeshed in intrigue. These tactics may minimize the short-term tax obligations and enhance the real payout to the owner/managers of the closely-held business, but — albeit legitimate — the longer-term effects upon the valuation of the venture can be deleterious.
The continued examination of the eventual sale of the business itself will be the focus of subsequent columns.
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Revised: July 28, 2023 TAF
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