Warning signs that your family business is NOT ready to sell – With solutions

If you drew an organisation chart that shows your role in your business, how many lines on it lead to you? Are you at the top of a traditional Christmas-tree-like organisational chart, or are you stuck in the middle of your business, like a hub in a bicycle wheel?

As anyone who has tried to fly BA during their IT issue in 2016 knows, a business with one point of reliance (hub) is only as strong as that point. The moment the hub does not function, the entire system stops.

This is why hub-and-spoke managed businesses are less valuable, mainly because it is the hub that wants to leave.

It is vital this issue is tackled as they make the business easier to exit, whoever the next owner is (family, management or an outside party). Removing the risks help ensure your family legacy is more likely to survive the transition and in turn allows the buyer to raise more funding and you to be paid more on exit. Important for your own pension.

So below is a list of 9 warning signs you’re a hub-and-spoke owner and some suggestions for pulling yourself out of the middle of your business:

1. You control the purse strings 

We have heard many an owner say “nobody cares like me, it’s my money”. If you sign the “cheques”, what happens if you’re away, unexpectedly, for a couple of days and an important supplier needs to be paid? Consider delegating this task, up to certain levels, and then change the mailing address on your bank statements so they are mailed to your home (not the office). That way, you can review all payments and make sure the privilege isn’t being abused.

2. Your mobile phone minutes are the highest in the business 

If your employees are uncertain about what they are allowed to do, it will show up in your mobile phone usage, due to the calls to staff to help them through problems. Do your people have the right experience? Sometimes more expensive people, with industry experience, will be a lot more self-sufficient and only slightly more expensive than their cheaper “blank slates” that need constant hand holding. Consider adding your hourly rate to your employees to find the true cost of inexperienced staff! Also, every call identifies a training point. As owners, our instinct is to provide the solution. STOP. Instead always ask them for their solution first. You will quickly find out if they are asking because they do not know (training issue) or because they expect you want to be asked (delegate authority). This will also help you sort the wheat from the chaff and promote those staff that deserve it.

3. Your revenue is flat when compared to last year’s

   A lack of sales can be a sign you are a hub in a hub-and-spoke model. Like a hose pipe, you have only so much capacity. No matter how efficient you are, every business dependent on its owner reaches this capacity. Can you narrow your product or service lines by eliminating technically complex offers that require your personal involvement, and instead focus on selling fewer things to more people?

   4. You are never really on holiday 

   If you spend your holidays sorting problems from your mobile or logging onto e-mails, it’s time to cut the leash. Start by taking one day off and seeing how your company does without you. Your “in-tray” when you get back identifies what needs to be sorted. Work up to a point where you can take a few weeks off and come back to a clean desk.

   5. You spend more time negotiating than a union boss

   If you find yourself constantly having to get involved in approving pricing and discounts, you are a hub. Consider delegating to your front-line, customer-facing employees a range within which they can negotiate. You may also want to tie the salesforces’ bonuses to gross profit margin and not sales, so they negotiate profitable deals not just volume.

   6. You close up every night 

   If you’re the only one who opens or closes the business, (the usual steps of counting cash, locking doors, setting the alarm), then you are very much a hub. Write some basic procedures (close-up routine, e-mail footer to use, voice mail protocol, purchase order approval levels) for your business and train your staff in its use. Better still train a staff member to train the employees and ensure all new employees are inducted on their first day on the job.

   7. You know all of your customers by first name 

   If there is one thing to do above all else, this is it.  It is the biggest risk in any business, whether it is for sale or not. Ask yourself what happens to your family’s wealth, if you walk under that proverbial bus?

Do not misunderstand, it is good to know your important customers, but if it is only you it is a sign that you rely too heavily on your personal relationships to glue your business together. Consider replacing yourself as a deal maker by hiring a sales team, and as inefficient as it seems, have a trusted employee shadow you when you meet customers, so over time your customers get used to dealing with someone else.

8. You get the tickets

   Suppliers’ wooing you by sending you free tickets to sports events can be a sign that they see you as the key decision maker in your business for their offering. Again, being the key contact means you are the hub of your business when it comes time to exit. Consider appointing one of your trusted employees as the key contact for a major supplier and give them a spending limit you’re comfortable with.

   9. You get cc’d on more than five e-mails a day 

   Employees, customers and suppliers constantly copying you into e-mails can be a sign that they are looking for your tacit approval or that you have not made clear when you want to be involved in their work. As in 2. Above, do they need knowledge or authority? Start by asking your employees to stop using the cc line in an e-mail; ask them to add you to the “to” line if you really must be made aware of something – and only if they need a specific action from you.

Conclusion

In all of the above there is a clear difference between delegation and control. When you delegate you have to let people make their own decisions and mistakes (yes the same ones you made, it is called experience), but that does not mean you have to lose control.

Set authority levels, but ensure your reporting systems provide you with the information you need to control the business (e.g. bank statements to home, daily deals list for pricing checks). If they execute well let them know (they will be as nervous as you). However, if you spot something you disagree with resist “telling” them so, but perhaps seek clarification for their actions (do they know something you don’t) and if required “gently” re-set their course.

Only if they have confidence in your backing will they start making decisions and not keep referring to you.