Articles

Life Style Business or Building a Legacy Business

BUSINESS TIPS FROM THE EDITOR

April 2025

Richard T. Hendee, Editor
The Silver Fox Advisor

“Life Style Business or Building a Legacy Business”

There are almost 35 million small businesses in America today. There are no real numbers available as to how many of the 35 million small businesses are “Life Style” businesses, meaning that the owner or owners of the business are happy running the business to generate enough revenue to cover their individual life styles, while also expensing through the business many of their personal living expenses, like automobiles, boats, weekend get-away cabins on the lake, phones, insurance and travel for themselves and/or other family members.

Then one day these owners want to retire and they think that the business has tremendous value, and they attempt to sell the business for some inflated figure they have in mind. When potential buyers review the financials, the numbers do not meet the buyers’ return on investment hurdles, and the buyer comes back to the seller with what the seller thinks is a fire sale price, when in reality the counter offer is probably what the business is truly worth based on the actual financial results. Yes, then the seller will usually try to apply all the personal expenses as add backs to the actual financial numbers in an attempt to make a case that the business is worth more, but generally the actual end of the day sales price is much less than what the seller originally envisioned.

In addition, many times these “Life Style” businesses depend on the owner being the rainmaker and generating most of the revenues coming into the business as the result of their efforts. These “Life Style” business owners typically try to do everything in the business themselves and are very reluctant to share business data and methods to employees for fear the employee(s) will leave the business and go set up shop down the street and steal customers and clients. Yes, that is a legitimate concern, and it does happen in the real world.

The alterative to this “Life Style” business is what I call a “Legacy Business”. A “Legacy Business” is one in which the owners from day one decide to build a business that grows and lasts beyond their involvement. These owners hire the right individuals for key positions in the business, like a Chief Financial Officer, a Chief Operations Manager, a Director of Human Resources, a Chief Marketing Officer, and they let those individuals run their respective business units while the owner(s) focus on the business growth, expansion and bottom line profitability.

Then, when these “Legacy Business” owner(s) want to retire, the business has a proven track record and has built up value, and the balance sheet and income statements usually will demonstrate there is a business that a buyer can easily achieve investor return hurdles and can continue to grow without the seller(s) actually being involved in the business going forward.

If you need help with making changes in your business, I would recommend you seek an experienced business advisor, coach, consultant or mentor with a financial or business background for your Company: Contact a Silver Fox Advisor. Remember, having experience on your side always helps.

We encourage you to visit our Website at www.silverfox.org or www.silverfoxadvisors.com to select a Silver Fox Advisor and also to learn more about the Silver Fox Advisors and their businesses, as well as our great programs and community outreach endeavors.