Turning a Lifestyle Business into a Commercial Business by Dallas Romanowski

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Many business owners start their business as lifestyle companies to support a certain type of lifestyle that they want. Some founded companies because they wanted to create and build. Others want to be their own bosses. Still others want to control their own destiny.

Whatever the reason, many businesses start and evolve into lifestyle businesses. This is great for business owners, their families, and their businesses in general, but it can be a big challenge when you start planning for the future of your business.

When you start thinking about planning for the future of your business, you might feel like you can plan while still doing business as usual. However, planning for the future success of your business rarely means you can continue to do business as usual. For example, many business owners don’t know what their business is really worth. Not knowing what the business is worth can be part of the status quo, but it makes planning for future success much more difficult.

Likewise, it may be normal for you to capitalize on certain advantages of ownership. Things like perks, bonuses, and even the personal influence factor in what kind of lifestyle you might expect for yourself and your family. As you begin to plan for the future of your business, you may find that these benefits could disappear if you leave the business, which can affect your lifestyle.

One way to solve these problems is to turn your lifestyle business into a business venture.

When we use the term “commercial enterprise”, we mean that the enterprise must have transferable value. It cannot simply act as a way to support your lifestyle, as features that support your lifestyle are likely to be less valuable to, say, a private equity group or a strategic buyer. These characteristics may include things such as your personal relationships with customers or suppliers who know and trust you; handshake agreements; or flexible payment terms for your favorite customers. Additionally, running a lifestyle business usually requires your constant presence to ensure that the business actually supports your lifestyle.

Lifestyle companies have your back right now. Business enterprises can support you, your family, and often the business itself, now and in the future.

If it ain’t broke, why fix it?

For many lifestyle business owners, the very thought of changing a business that has brought them the wealth, success, and fulfillment they are used to can be shocking. “This company has done great things for me, my family and my community. Why should I want to change this? »

The answer is simple and a bit blunt: potential buyers generally don’t care about the owner’s lifestyle.

The things you might consider “good” aspects of a business – supporting yourself and your family, perhaps maintaining a culture – often don’t matter as much when an outside buyer makes due diligence. Where you see strength, they will find flaws. They may question practices that fail to maximize profits and cash flow, even if those practices align with your values. These facts might cause you to resist turning your lifestyle business into a business venture.

Many of the same factors apply if you ever plan to transfer your stake to an insider, such as a manager or family member. Insiders look for the same kinds of factors as outside buyers in a company. While a lifestyle business may adequately support you now, you should think about what will happen when you eventually opt out (whether by choice or otherwise).

Turning a lifestyle business into a business venture can be difficult, but there are some things you can do to begin the transition.

  1. Find or form the next level direction: Top-level management can be the catalyst for building on your current success. It’s often a great selling point because it shows the business can work without you.
  2. Document systems and processes: When your employees know what they need to do to maintain business cash flow and how to do it, it becomes much easier for the business to run effectively and efficiently.
  3. Put yourself in the shoes of a buyer: Think about what you would look for if you were considering buying a business. If you discovered a business that supported its owner but also required their presence at all times, what if that owner wanted to leave the business after you bought it?

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As a member of the Business Enterprise Institute (BEI), Cornerstone Business Advisors is an authorized distributor of BEI’s exit planning content and tools.

The Cornerstone team includes former C-level executives, successful entrepreneurs and advisors who offer unparalleled experience in delivering advanced, personalized and results-driven solutions for business leaders. As a member of the Business Enterprise Institute (BEI), Cornerstone is an authorized distributor of BEI content and exit planning tools. We developed the Performance Culture System™ to help clients implement best practices and drive high performance across their organization. For more information, visit www.launchgrowexit.com, call (910) 681-1420, or email [email protected]


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