Organization

CNC Shop Owners: What’s Your Endgame?

January 27, 2016

PassingBatonTypically owners of businesses like CNC machine shops put off thinking about the future of their company once they’re ready to retire, move on to a new challenge, or something unexpected happens. Let’s face it: few of us like to think about these things. We own our business because we like what we’re doing, we enjoy being our own boss, and we don’t want our success to depend on anyone else. We’d much rather focus on resolving today’s challenges, planning for growth and investing in new technology.

However hard it may be to imagine, the day will come when we just don’t want to run the business anymore, or are unable to do so. Sadly, if we haven’t planned for a future without us, everything we worked for could go down the drain. That’s why now is the time to ask some very important questions and use those answers to begin working on your exit strategy.

  1. What is your succession plan? Even if you can’t conceive of ever retiring, at some point you should loosen your grip on the reigns and let others take over certain duties. Give specific responsibilities and authority to the employees you believe are the most likely candidates to succeed you. This enables you to monitor their results while you are still in a position to step in if necessary. Once you’re comfortable that you have the right people in place, make them part of the succession planning process. This way you make it clear to all that the company has a future beyond its founder. Naturally you’ll want good legal and financial council on how to structure the transition of ownership.
  2. Who will be the next owner? Most shop owners have four basic options: (1) Giving or selling the business to family; (2) Selling to one or more employees; (3) Merging with another CNC shop with your eventual exit worked into the deal: (4) Putting the business up for sale through a broker. Regardless of who you wish to sell to, you need to make the business appealing to a buyer and to insure that you don’t short-change yourself. Some actions you should take:
    • Watch for other CNC shops about your size and type that are sold and keep track of the sale prices. This will give you an indication of your shop’s market value.
    • In addition to tracking sale prices, determine what attributes the shops that sold have in common that made them attractive to the buyers. Obviously revenues, assets, profitability, reasonable debt and other financials are important. So are a stable workforce, good reputation, brand identity and a solid customer base. If you have weaknesses in any of these areas, work to strengthen them so all are in good shape for the three years prior to your expected sell date.
  1. What about family members? If you have children or other members of your family actively involved in the business, the question of who will run things when you are out of the picture can be a very touchy subject. Naturally we want what’s best for our loved ones, and we’re pleased if they want to carry on the family business. Sadly, however, only 30% of family businesses remain in the family into the second generation, and 88% don’t make it to the third generation. The biggest problems with family succession tend to be squabbles between family members and a simple lack of ability. Therefore it’s vitally important to objectively evaluate the family members’ capabilities to determine if they are truly competent to run the business. It’s also critical that they agree on their respective roles once you are no longer running things. If there are serious disagreements over the company’s way forward and who will do what, you may be better off to sell the business to others. After all, it is your well-earned retirement that’s at stake.
  1. Get competent tax advice well in advance. Possibly the biggest mistake small business owners make is failing to structure their exit to minimize the tax impact on themselves and their heirs. Make sure the professional tax advisor you work with has a solid history of dealing with business owners. Otherwise much of what you’ve worked so hard for may end up with the IRS.

It’s a lot to think about, and a lot of work, but the reward is being able to enjoy the next phase of your life as you want to.