Aaron Hall: I’m Aaron Hall, business attorney in Minneapolis. Cliff Allen: Hi Aaron. Aaron Hall: Cliff. Cliff Allen: Nice to meet you. Aaron Hall: Cliff, for business owners who plan to sell their business at some point, what differentiates you as a business consultant in helping those business owners? Cliff Allen: Well there are a couple of things that clearly differentiate me from a lot of consultants. One is the fact that I’ve spent 40 years in business.
And the other is how I spent those years. I had a number of years in big companies, which kind of built the foundation for my expertise. And then I was an owner or an operator of small to medium sized companies for about 10 years. And then I’ve been consulting to that market for the last 9 years now. Aaron Hall: How soon before sale should a business owner start working and prepare for the sale of a business? Cliff Allen: I think from the day they incorporate, from the day they set their business up.
One of the problems that I deal with is things that were done poorly upon initiation of the business. Aaron Hall: Could you give some examples? Cliff Allen: Well the most common example probably is something you’re familiar with. Partners will not formalize the partnership relationship. And the question I ask entrepreneurs when they’re thinking about starting with a partner and resisting having some kind of formal buy-sell agreement is how much would you like to be partners with your partner’s spouse? And that really gets their attention. But I think the moral of the story is there are two kinds of concrete in the world, that which is cracked and that which will crack.
And it’s the same thing that’s true for partnerships. The only difference is how you work your way through those issues. Aaron Hall: So 5 to 10 years prior to the sale of a business. Is there anything a business owner can be doing to prepare for that sale? Cliff Allen: Yeah. I think they ought to get up every morning and build their business so it’s ready for some kind of transition, even if the sale isn’t the right answer because it may not be.
Aaron Hall: What about the sale of a business that involves a personality? In other words, it’s a professional service provider for example, where’s it largely based on the personality, the skill set of an individual. For example, [inaudible 00:02:42], physical therapist, attorney, CPA, it’s— Cliff Allen: The secret, in my mind, there is to bring in junior partners well in advance, because frankly they’re not all going to work out. They’re not all going to be the kinds of people who want to be an entrepreneur when it comes down to it.
And so when the founder retires, the transition should be well in place. They should be of council already, you know in the law world. But they need to be confident in the replacement. Their customers need to be confident in the junior partner and who’s going to take it over. Aaron Hall: Do you have any tips for business owners as they’re contemplating getting closer to the sale of the business or their own retirement? Cliff Allen: The big thing is that they need to make sure their company operates without them. I ask early on in my relationship with a client, how well does the business operate when they take a week off? Are they comfortable? Or are they on the phone trying to manage it from a long distance? And that’s really the proof of the pudding, how well the company continues to operate. Not that the management is making exactly the same decision the owner would make, but they’re making good business decisions and keeping, advancing the ball.
Aaron Hall: Interesting. Other tips or advice for business owners? Cliff Allen: Well, I think another thing you’re probably familiar with is never expect in the next generation to be the solution. So if it’s a sale or a transition to family or a transition to management, an outside management team, those are all viable opportunities. But the fact is that the next generation isn’t necessarily the right answer. They need to have the ability, the interest, the decisiveness, and they have grown up in a different world. They haven’t grown up in the same world that their founder parent has. Aaron Hall: I’m going to play devil’s advocate for a second. Entrepreneurs often feel like they can do everything themselves. They have figured out how to run a business and be successful. Why not just buy a book on preparing to sell your business? What is the advantage of utilizing a consultant? Cliff Allen: Well especially someone with my experience, I think I perform the wingman role. And I can’t do it for them.
I mean there are some things that I’ll be glad to get my hands dirty and dive into the business and fix things and make problems go away, but I think even I need someone on my wing, to help me keep focused on the things that need to be worked on. Aaron Hall: So an objective perspective on applying this process? Cliff Allen: Very much so. Very much so. And I—When you wake up in the morning, you go back to work. And if [inaudible 00:05:34] not there, you’re going to get back into the swamp. Aaron Hall: It reminds me of attorneys. We often will hire another attorney to represent us because you can’t represent yourself objectively. You’re always biased. Cliff Allen: Very true. Aaron Hall: To what extent is there a common model that everybody follows when preparing to sell a business versus customizing that depending on the circumstances of the business? Cliff Allen: There are a number of, I call them boilerplate, that doesn’t mean they’re bad.
Boilerplate approaches to analyzing businesses and then working on the spots that need [shoring] up. But I consider myself a custom home-builder. And I look at the situation. I do a complete audit of the company and the owners and the management team, and determine where the soft spots are, and then work collaboratively to figure out what the plan is to strengthen those areas. Aaron Hall: Is there anything else you would like to share with business owners who will, at some point, be selling their business? Cliff Allen: Well again, just to repeat, that they need to think about that every day. And even if they choose not to sell when it comes down to it, they’re going to be in such a better position in terms of the value of the company. And they will have seen the value grow year after year. And in fact, one of the things that I often talk to my clients about is not selling, building it so it’s sustainable, run by professionals, and keep it part of his portfolio.
Aaron Hall: Interesting. Thanks for coming, Cliff. Cliff Allen: Thank you.
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