By John P. Corrigan, JD, MBA, CPA
Regardless of whether you want to ultimately sell your business and retire or transfer your business to family members, you cannot blindly continue along a path without evaluating where you are presently, as well as how long is the chosen path — and is there perhaps any other path to get you to the finish line you envision?
Many family business owners measure success as having cash in the bank after paying all bills and increasing sales and profits year over year without losing customers and key personnel. This sounds simple enough and most pest control operators would nod their heads and say “but of course…what else matters?”
What matters is the journey along the chosen path and having it be a paved, flat and wide path versus a narrow, hilly and dirt path with many potholes. You may be able to traverse the difficult path and get to the finish line, but consider the added cost to get there in terms of money and time expended as well as the frustration and stress endured in the effort.
So, fundamentally, where do you focus your efforts to achieve the smooth path? The process below is about introspection. It sounds simple enough, but focus, honesty and analytical skills are required to achieve the best result.
First, define the critical roles that exist within the business. Then:
- Determine the specific tasks that define each critical role;
- Assess whether the tasks can and should be handled by one or more individuals;
- Assess whether one or more people are handling the critical role and the specific tasks; and
- Assess whether existing personnel are properly handling the critical role and tasks.
For example, there may be 50 total roles in a company, but when boiled down, perhaps only five or six are really critical to the success of the business. All too often in a family business, the roles are built around the employees’ personal desires and family hierarchy, not particular skillsets that properly align with the identified critical roles. A successful business should not be expected to magically happen just because family members needing a source of income are given a title and told to handle X, Y and Z.
The lack of clarity in identified critical roles can result in poor task coordination, lack of direction and established priorities, insufficient authority to act on key tasks, fragmented responsibilities crossing multiple roles, miscommunications among personnel having similar fragmented roles on identified tasks and duties and more.
So, a business owner first needs to break down the business and frame out the critical roles and the underlying tasks that will define the role. For example, if sales/marketing is determined to be a critical role and not two different roles, then the underlying tasks may, for example, be to develop and execute one or more targeted campaigns seeking new customers using a combination of digital, print, media and cold-calls. Tasks that should not be added to this defined critical role would be managing the company website, handling customer service complaints, handling accounts receivable collections or ensuring technician licenses are maintained.
If a business owner has blended tasks that should be in different critical roles and then assigned such tasks to an employee (whether family member or not), then the efficiency of the identified critical role may be dramatically impaired, especially if the designated person assigned such responsibilities personally prefers to handle customer complaints and collect accounts receivable.
Another example may be the critical role of technician training, supervision and quality control. The underlying tasks to such a role may include hands on instruction both in the field and in the classroom, ensuring the services provided to customers are done on a timely basis, consistent each time and with an overall positive personality and image that shows customers the technician cares about the customer and providing above and beyond service. If the person assigned such responsibility had plenty customer service experience and sales training but little field training experience or mentoring skills or regulatory knowledge, then the critical role could be undermined by having the wrong person on the job.
A final example may be the critical role of developing customer routes to maximize revenues and reduce technician road time. If the assigned person was a part-time office worker with a degree in history that had no formal training to properly use the operational software to build a database for managing the routes and services rendered, there could be excessive customer service problems, other routing inefficiencies and systems that cannot produce appropriate metrics for a business owner to understand its customer base and what is working and what is not in the overall picture. In other words: bad data in means bad data out.
These are just a few examples of the overall introspection process that should be done on a regular basis and not every five to 10 years. Failure to look in the mirror at the two-part process is a recipe for disaster in terms of missed opportunities as well as problems that could have been avoided.
The process described above is not a magic bullet to solve all problems and ensure a smooth road in all circumstances. However, it is a solution borne of common sense and there is no reason not to embrace the exercise as something that can only help a business as years go by and the critical roles, tasks and people change.
With all three scenarios, the ultimate objective is to maximize the value of the firm at the exit date. As an accountant working to help PMPs build their companies and safeguard their assets, and as a broker helping PMPs to sell their firms at maximum after-tax value, I see many owners who as they approach exit date realize that their firm is worth far less than if the firm operated with the intention of selling from the beginning. Had the exit been planned for from the beginning, many decisions regarding recurring revenue, pricing, and type of work would have been made differently. Suppose you are starting your company from scratch, but with a definite exit date sometime in the future. Following these tips will ensure you “create your company with the end in mind.”
Pest Control M&A Consultants
John Corrigan, JD, CPA, MBA
Merger/Acquisition consultant John is a highly accomplished M&A specialist known for his ability to negotiate and structure both “Buy Side” and “Sell Side” transactions in addition to working with private business owners on internal matters including generational transfers and trust and estate planning strategies.
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