Who Will Run the Business Tomorrow?

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It's well understood that a massive change in the demographic makeup of the U.S. workforce is underway. After decades as the dominant presence across industries, baby boomers are heading toward retirement age, ceding the stage the generations that followed them.

In the aquatics industry, the aging out of personnel might be felt most profoundly at the highest levels of individual businesses. While there are certainly major corporate players in the field, the broader pool and hot tub marketplace is driven by smaller, privately-held, often family-owned businesses.

How those shops navigate the succession to new ownership will have a pronounced impact on the industry. More personally for those individual owners, the effectiveness of their succession plans will set the comfort level they enjoy as they step away from day-to-day work.

Rod Sterling is the founder and owner of Sterling Advisory Group, which concentrates on the pool and hot tub industry. He has over two decades of experience providing builders, retailers, and service companies with consulting related to exit strategies, and he cautions that most business owners haven’t adequately prepared for the all-but-inevitable stage when they try to sell off what they’ve spent a lifetime creating.

RELATED: Keeping the Family Business in Business: What You Need to Know About Succession

“Many of these people, in terms of succession plans, might have a strategy for selling the business, but they typically haven’t tied that strategy to the actual value of the business,” he says.

Business owners are too often shooting blind, says Sterling, setting their succession plan without putting in a comprehensive effort to gauge, enhance, maintain and highlight the value of what they’ve built. And that process is most effective when it’s spread across the lifetime of the business.

“They day they start their business, they should start planning their exit,” insists Sterling.

Realistically, most business owners haven’t been engaged in succession planning from the day they first opened the door. Even so, Sterling says proprietors should expect a successful succession plan will take at least five years. That means many aging pool and hot tub operators should be engaged in the process starting right now.

For those getting underway with their succession planning, Sterling offers three key tips to increase the likelihood of a smooth transition and a lucrative close.

SHOW YOUR PROFITS

Small businesses often run their operations strategically lean, in part to lower the amount they pay in taxes. Sterling says they should instead concentrate on profits and operate with a willingness to show how well they’re doing. The approach will pay off in the long run.

“When you go to exit, you’re going to get paid in some multiple of your profitability,” notes Sterling. “The more profitable you are, the more money you’re going to make when you sell the business.”

Strong profitability is going to make the business more appealing to prospective buyers. On a purely logistical level, the transition is also likely to be far smoother.

“When you go to get funding from a traditional banking institution, if you don’t show profitability, it’s hard to get bank financing to sell it,” Sterling says.

SEEK PROFESSIONAL HELP FROM OUTSIDE THE BUSINESS

If it’s not already in place, Sterling suggests creating a formal board of advisors. At the very least, be certain to have a strong team of external professionals working on behalf of the business: a good accountant, a good lawyer and a good banker.

“Business owners need professional advice on how to begin putting the steps in place, both fiscally and structurally, to make an exit easier,” explains Sterling.

RELATED: How to Pass Down the Family Business

Meet on a regular basis with someone who’s already implemented an effective succession plan. It doesn’t necessarily need to be a fellow professional from the pool and hot tub industry, but it should be an entrepreneur who ran a business that operated somewhat similarly.

“Most people are going to sell their business one time,” says Sterling. “You want to get all the professional help you can get for that one-time event.”

STRENGTHEN THE ORGANIZATION

For a business to be appealing to a potential buyer, it needs to be obviously sustainable. Operations should be smooth and organized to such a degree that they’re not reliant on the constant attention of the owner.

“I ask people this question: ‘Is your business situated in such a way that you can leave for two weeks and the business will operate smoothly?’” says Sterling. “If it’s working well, when you walk away from your business to go on vacation and hand the keys to someone else, bills still get paid, trucks still go out and jobs still get done. If you can’t do that, you’re not ready to exit.”

It can be especially tough to focus on strengthening the general operations of the business when the notion of retirement looms, but if basic procedures aren’t clicking along cleanly and efficiently, a lot of potential buyers will quickly lose interest. Once again, a shrewd investment of time and energy will yield significant dividends.

One of the reality checks Sterling provides is the guarantee that moving through a succession plan and sale of a business is going to be stressful. Being properly prepared isn’t going to eliminate the stress, but it can help minimize the strain. And less stress is exactly what leaving the business behind should provide.

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