IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog has been provided by Jessica Martinka of Martinka Consulting (www.martinkaconsulting.com).
Transitioning from Corporate Executive to Business Owner
Moving from corporate executive to business owner is challenging, popular, rewarding and overwhelming, which is the number one emotion felt by business buyers. Here’s why it’s overwhelming plus two other differences between owners (often founders) and business buyers.
One of our clients summarized being overwhelmed by saying he didn’t realize that he had to know how absolutely everything in the business worked. He went on to say he didn’t have to do everything, but he had to know who was to do it, when it needed to be done, and what it looked like when done right. He got up to speed very quickly and has done very well with his company. In the corporate world there were layers of staff, tasks were delegated, and they “just get done.” Not so in small business.
Business owners want to be in control, which means they are often horrible delegators. They tend to treat the business like their puppy, with a leash around its neck. It doesn’t matter if it’s being part of every decision, not taking employee feedback, or simply having their fingers in every project.
On the flip side, the executive with corporate experience and management skills has learned to not fear delegating. The employees see it as a breath of fresh air and are excited for the positive changes. When the new owner listens to the employees’ ideas, lets them act on those ideas, and is willing to take risks, it makes the business better. The result is a win-win.
Second is understanding how profit and cash flow are different, and, very important, realizing cash is king.
In the corporate world executives work on the big picture, they don’t have to watch cash flow. They have budgets set, don’t have to worry about when customers pay, making payroll, or juggling other expenses.
Contrast this with the small business owner who has to be on top of the day-to-day cash flow, which is always on their mind. Paying attention to money coming in and going out of the business, the timing of bill due dates, and making sure customers pay when they are expected to pay are all things owners are critical factors to success.
All the fun parts of ownership are wasted if you’re not focusing on cash flow.
The bottom line: cash flow is not profit, and profit is not cash flow. You need both to sustain and grow a business. A buyer wants to come into a business that she can grow. Before you can grow you need to have enough cash flow for the expansion.
Profitability helps it grow, and cash flow is the day-to-day driver.
A third difference between business owners and a corporate executive buyer is that owners like wearing many different hats (sales, operations, bidding, management, etc.) and executives prefer to devote a fair share of their time to strategy and vision.
A goal is often to scale the business and get it to the point it can run day-to-day without the owner’s involvement. Realize this last statement doesn’t mean the owner can disappear. Very few small to mid-sized companies can succeed with the adult supervision only an owner can provide.
We’ve had very few buyer clients whose acquisition was in the same field as their job. Direct industry experience sounds good to a lot of sellers but what is really important is relevant experience, which means leadership and management of people, processes, money, and systems. It comes back to the old saying about how an owner should work “On” their business not “In” their business.
Conclusion
The owner who delegates, let’s the employees do their jobs, understands cash flow and other financial metrics has less chance of being overwhelmed. When not overwhelmed they have the time and energy to concentrate on the big picture, which is growth. Because if you’re not growing, you’re stagnant and being stagnant is one short step away from decline.
Jessica Martinka is with Martinka Consulting where they are known as The Escape Artist® for helping executives escape the corporate world, companies escape their plateau, and helping owners prepare so they can sell with style, grace and more money. You can reach Jessica at 425-319-6984,jessica@martinkaconsulting.com or www.martinkaconsulting.com. Their work is based on John Martinka’s books, Buying A Business That Makes You Rich and If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want)? and Company Growth By Acquisition Makes Dollars & Sense are available in paperback and for the Kindle at www.amazon.com.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.