The Facts of Business Life

by Bill McBean

  Accounting and Finance at Level 5

  Accounting and finance has a unique place at virtually all five levels of a company’s life. From the creation of pro forma financial statements showing the cash needed and potential profits at Level 1, to providing support for your business’s growth at Level 3, to helping you maintain success by alerting you to threats and opportunities at Level 4, to moving onto center stage as you begin developing and implementing your exit plan at Level 5, it is the one department that can tie all the business functions together. In addition, accounting and finance can describe and demonstrate how processes operate the business, how they work, and how they are controlled. What all of this means is that it is in a unique position to not only tell the story of the business’s success but also to back it up with facts. And facts are what’s needed whenever an owner exits because they help justify the value of the business to the buyer, to the owner’s family if succession is chosen, and to whoever may buy the company’s assets if it closes down.

  When you are selling a business, for example, potential buyers will rely on those facts to make both their valuation and buying decisions. Buyers will also spend countless hours reviewing your financial statements, checking the balance in accounts such as inventory, and checking your business’s use of generally accepted accounting principles (GAAP). This is critical for educated buyers because it tells them a great deal about the business, builds trust in what you are selling, and gives them an overall sense of how the business works and how it will work when you leave. This in turn gives them confidence, which will be reflected in how much money they will be willing to pay for the business. However, if your books are sloppy and don’t accurately reflect the business, important questions will go unanswered because there are few facts to fall back on, except for whatever claims you may make, which will mean little without backup. And this, too, will be reflected in the money paid for the business. In other words, if you don’t understand the power that financials have when selling your business, you will pay a huge price for it.

  Accurate financial information is also important in a succession because it helps you justify the business’s value to your family as well as back up any claims or questions. It also plays a role in calming emotions among family members, and is critical when an estate has assets to divide or sell, as well as when the government is to receive a percentage of your windfall. In addition, in a situation in which some members of the family know little about business and its complexities, if the information is accurate they can have an accountant review the business’s accounting practices and satisfy themselves that they are being treated fairly. Not surprisingly, there have been many instances in which the lack of such information has resulted in families becoming divided.

  Finally, as mentioned earlier, you may prefer to simply close your business down. In situations like this, the more you know about business in general, the better you will be able to improve the timing of your exit, prepare for it, and weigh your options and recognize what assets others may be interested in buying.

  You at Level 5

  Making the decision to leave the company you’ve spent years building into a successful enterprise is in many cases a very difficult one. And to make matters worse, there are several traps you can fall into while you are in the process of deciding when and how you should leave. The first of these has to do with age. As with virtually everything else in life, the prospect of leaving your business looks different at 30 or 40 than it does at 50 or 60. Not surprisingly, the idea of exiting usually seems considerably more viable at higher ages. Someone at 60, for example, who wants to exit before he or she turns 65, is likely to be a lot more receptive to offers, or more aggressive in finding someone to buy the business, than someone who is only 40. And, in fact, a majority of owners do use age to determine when they will retire. I believe, however, that doing so is a mistake.

  To my mind, age should have very little to do with your exit decision. We are all programmed to think of retirement in terms of age because the vast majority of people work for someone else, whether it be the government, large publicly traded companies, or small businesses. But as an owner, and therefore self-employed, you do not belong in this category. Unfortunately, some owners fall into this age trap. But you don’t have to. You should make an effort to be more aware of your business value, your health, your interest in continuing to operate the company, and what you want for your family. Only when you have taken these into account will you be able to make a truly considered decision. And if you do, you will be able to make the decision that’s right for you.

  Another trap that some owners fall into is an emotional one. The bottom line, so to speak, is that the more emotional you are about the exit decision, as is true of virtually all decisions, the more likely you will be to make a mistake. The decision to leave, as well as such decisions as how much to accept for your company or what kind of conditions are included in the contract, should be made with as little emotion as you can manage. Doing so is not always easy, but it’s nevertheless important that you make these decisions the same way you made all the other important decisions in your career—carefully, intelligently, and dispassionately. In fact, having a good, strong understanding of business will actually help you do this because when all the reasons to retire are compared to all the reasons to leave, what appeared to be a difficult decision can become remarkably clear.

  A third trap you should do your best to avoid in making the exit decision has to do with, for lack of a better expression, exhaustion. The reality is that most owners can only take a business so far, not from a lack of talent or knowledge but from a lack of energy, that is, not being able to maintain the continuous mental discipline needed to run a business or keep up with the constant change that is a given in the war zone. In other words, owners get tired, and some things that used to be easy become challenges, just as they do for professional athletes. No one likes to see a great athlete stay too long and embarrass him or herself, and it’s the same in business. At some point every owner reaches the top of his or her game, and they have to recognize when this is beginning to happen and start making decisions based on what’s good for them and for their businesses. Not surprisingly, the more you know about business, the more likely you will be to recognize when that time has come, and the more effectively you will be able to deal with it, regardless of how you choose to make your exit.

  Knowledge, as the saying goes, is power. And that’s as true in business as it is in every other endeavor. As I have essentially argued throughout this book, you don’t just have to know the business you’re in, you have to know business. In other words, while the first six Facts of Business Life are all essential tools for you to use in starting, building, maintaining, and eventually leaving your business, the seventh fact is ultimately the one that ties them all together.

  The market is a very rough place, and there’s no room at the top for people who aren’t willing to do what has to be done to be successful. Ultimately, though, what is comes down to is owner vs. owner, and it’s the owners who have the most business skills and knowledge who will always remain standing while their competitors wonder how they are able to do what they do so well.

  Conclusion

  Success—it’s why owners do what they do. And one of the really cool things about success is that you have the freedom to define what success means for you and your business. Unfortunately, that freedom is also a trap. The trap lies in that if you don’t define success for yourself in financial terms and map out how you will achieve that success, the odds of your business failing or having limited success are significantly higher. That’s just the way it is. But it’s your choice.

  Success, in my mind, is made up of two macro realities. First, having defined what success means to you, you need to have the courage and drive to commit yourself to achieving it. Second, in order to improve and grow your business, you have to be willing to try new and different ideas and take additional risks. It’s true that when
you do this, mistakes—and even failure—will sometimes result. But failure can be a bittersweet pill because by learning from your mistakes and understanding why they occurred, you can turn them into opportunities you may have never realized existed if you hadn’t tried to stretch and improve your business.

  For example, after nearly 100 years, Babe Ruth is still a baseball icon, especially for the home runs he hit. The truth is, though, that while he hit an extraordinary number of home runs, he had nearly twice as many strikeouts. Even so, he would never have hit the home runs he did if he hadn’t stretched his talent and learned from his strike outs. Michael Jordan understood this success/failure concept as well as any athlete has. He was cut from his high school basketball team, and was not heavily recruited for college. He’s even admitted that, “I’ve missed more than a thousand shots. I’ve lost almost three hundred games. Twenty-six times I’ve been trusted to take the game-winning shot, and missed.” But like the Babe, he took his mistakes, or failures, in stride, and used them to make him a better player. And the result, of course, is that he became one of the greatest professional athletes in the history of sports. And it’s no different in business. If you want to succeed, you have to continuously challenge yourself and your business to improve. And if you don’t, it will leave you and your business to the not-so-tender mercies of your competitors who do.

  One of the other particularly interesting things about success is that, to some extent, it is an elusive target. It’s not that you can’t attain it, but rather, that as your ownership career develops, your definition of success changes. This happens because once you reach your success destination, moving on to another success destination doesn’t look as formidable as it once did. It’s the competitiveness in you, which continually drives you and your business forward, through Levels 3, 4, and 5. In fact, when most successful owners look back on their careers, they realize that where they finished is not where they thought they would end up. This happens because in your search to improve and challenge your business, you are essentially always changing your definition of success. And this, in fact, is one of the great benefits of being a business owner—having the flexibility to create something better, if you choose, and ending up with greater success than you ever dared to dream about.

  There is one last point I would like to make. On the day you welcome your first customer, you will be beginning a marathon in which you will be competing not just against other companies in the marketplace, but against time. A successful ownership career is measured in time, usually decades, and it goes by faster than you can imagine, especially when you look back on it as I have on mine. You remember the successes and how they were achieved, and you remember the painful experiences and realize what you learned from them. You remember the great partners who teamed up with you, and the great employees who helped make your dream a reality. And you realize that all of these individuals changed your life, as you hope you changed theirs, knowing that together you beat the odds and proved wrong those who said it couldn’t be done.

  Ladies and gentlemen, start your engines. And enjoy the ride.

  About the Author

  A graduate of Mount Royal College in Calgary, Alberta, and the University of Saskatchewan in Saskatoon, William (Bill) McBean began his career with General Motors of Canada Limited (GM) in 1976. After holding several management positions with GM, in 1981 he accepted a position with the Bank of Nova Scotia (ScotiaBank) as manager of a sizeable commercial lending portfolio. Two years later, however, GM approached him about opening a new automobile dealership in Yorkton, Saskatchewan, and, along with ScotiaBank, offered to lend him the required capital. Accepting the offer, he started the business the following year, and it became profitable from the outset.

  Although the Yorkton business became one of the most profitable GM dealerships in the region, in 1992 McBean was presented with an even greater opportunity in Corpus Christi, Texas, where he and his friend Bill Sterett purchased an underperforming automobile dealership. Applying his business expertise, McBean not only turned the company around, but bought out several additional poorly-performing import and domestic automobile franchises. Under his leadership, the company grew from $32 million to $160 million in sales and from 75 to 300 employees over a period of 11 years. During that period, the car manufacturers he represented continually awarded him and his companies honors for business excellence. Because of its success, the automotive group attracted the interest of several major public companies, and in 2003 was purchased by AutoNation, the world’s largest automotive retailer.

  Both before and since selling the group, McBean has started several new businesses, and he is currently general partner of McBean Management, an investment company. He is also executive director and chairman of the board of both Our-mentor.com, which provides mentoring to business owners (including buying and selling companies), and Net Claims Now, which provides companies in the restoration industry with invoicing, collection, and business lead-generation services. McBean and his wife, Lynnda, reside in both Texas and Florida.

  Index

  A-list products

  Accounting and finance

  Added value

  Advertising

  Amazon

  Apollo 13 mission

  Apple Computer

  Ashley Furniture

  Asset protection

  benefits of

  creating company

  customer-employee-owner dynamic

  maintaining success and

  maximization of

  ownership and opportunity

  protecting products/services

  survival to success

  tangible/intangible assets

  when moving on

  Assets/asset sale

  Automotive sales

  Balance sheet

  Barnes & Noble

  Benchmarking

  Bennis, Warren

  Brands

  Business acumen

  Business failures

  Business knowledge

  accounting and finance

  benefits of

  employees and

  product focus

  realities of

  successful owner

  Business life

  control and

  facts of

  leadership

  marketing

  marketplace as war zone

  preparing for the future

  protecting company’s assets

  understanding the industry

  Business life cycle

  creating company

  maintaining success

  moving on

  ownership and opportunity

  stages of

  successive levels of

  survival to success

  Business plan. See also Planning

  analysis of

  destination or vision

  development of strategies

  elements of

  finding right opportunity

  goals

  implementation

  mission statement

  objectives

  review

  strategies

  summary and communication

  Business purpose

  Business success

  Business valuation

  Cash and cash flow analysis

  Cash flow statements

  Caterpillar

  Coca-Cola

  Collins, Jim

  Communication skills

  Company assets

  benefits of

  protection of

  realities of

  tangible/intangible assets

  Company culture

  expectations of

  leadership and

  Competitive advantage

  Competitive analysis. See also Marketplace as war zone

  Competitiveness

  Consistency

  Control

  benefits of

  defined

  of employees

  of inf
ormation

  procedures and

  of processes

  of product

  realities of

  of self

  Control balance

  Core values

  Covey, Steven

  Creating company’s DNA (Level 2)

  accounting and finance

  achieving objective or goal

  analysis, planning, and implementation

  asset protection

  attracting the customer

  benefits of control

  benefits of leadership

  benefits of marketing

  benefits of planning

  building/maintaining a team

  business knowledge

  business owner

  control and

  control of employees

  control of processes

  control of product

  employees

  external marketing

  from survival to success

  gathering information

  how company operates

  individual development

  information control

  internal marketing

  keeping the customer

  leadership

  management and

  marketing and customers

  marketplace as war zone

  mental image to actuality

  planning and people

  prioritizing and meeting financial goals

  product/services you sell

  protecting company’s assets

  protecting employees

  protecting products/services

  protecting tangible/intangible assets

  selling the customer

  takeover attempt

  Customer base

  Customer delivery

  Customer-employee-owner dynamic

  Customer retention