Insights

Road Trip!

February 7, 2023

If you have ever taken a family road trip, you understand the necessity of planning in advance. Navigation systems and GPS have made it easier, but advanced planning will make the journey more enjoyable. The most important decision is what is the intended destination. Once that is determined, there are a whole series of decisions that must be made, either in advance or along the way, to reach that ultimate vacation spot. The questions include which car we should drive, what roads we should take, how fast we can drive, whether we should pack a cooler or eat at restaurants along the way, what our budget is, and where we will stay.

Owning and operating your own business is like taking that family road trip every day. Business owners make dozens of decisions each day that determine the answers to some of the important questions regarding the ultimate destination for the business. Much like the road trip, however, it is most important to identify the intended destination. As the Cheshire Cat said to Alice, "If you don't know where you are going, any road will take you there." But once you get there, you may not like the destination. It would be like wanting to go to the beach and ending up in the desert because you were looking for sand.  

Start with the end in mind. Owner-operators must plan for the destination of their business, the route to get there, the speed at which the business grows, and how they will exit the high-speed highway. Just like the detour due to road construction, the route the business takes may change based on obstacles along the way. The speed at which the business grows is often constrained by cash flow. If there is too much traffic (competition that suppresses margins) or the vehicle consumes too much fuel (the business model or practices require a high level of working capital), growth will be slower. And while leaving the highway requires relatively simple decisions, exiting a business requires significant decisions, some of which can be made in advance but many of which will be addressed only once the decision to sell has been made.

Small and mid-size businesses run lean. They focus on the day-to-day transactional aspects of operating the company - sales, service, inventory, shipping and receiving, accounts receivable and payable, etc. Busy owners often neglect the more mundane, which are viewed in the same light as a root canal. These mundane parts of the business are much like the mundane parts of the car driving on a road trip. The vehicle service shop will likely do a 27-point inspection with each oil change. Owner-operators should make sure that they inspect the mundane parts of their operations to make sure they have no surprises that leave them stranded on the side of the business highway, including:

 

  • For many years, a local tire company advertised that "Tires ain’t pretty.” Much like the tires on the car, accounting systems are not pretty and are selected based on cost and ease of use for billing customers and paying vendors. These systems do the basic tasks necessary to allow the business to roll. Most business owners operate based on four or five key metrics. Data to analyze the business further is not collected. Financial reporting is viewed as merely an ugly necessity for preparing the dreaded tax returns.
  • Either fueling or recharging your vehicle is a necessity for driving. Likewise, filing and paying taxes is a necessity for operating a business. As businesses grow, they often become more complex and in need of more sophisticated tax counsel. Much like the continued use of regular grade 87 octane fuel while driving a Ferrari leads to poor engine performance, utilizing a less sophisticated tax preparer may lead to improperly or incompletely filed increasingly complex tax returns.
  • Every vehicle has a registration and a license plate, and every driver is required to have a license. But while an Arizona license plate works fine to travel to neighboring Utah, an Arizona business that establishes nexus in Utah will have to get a business license and probably needs to register with the Secretary of State’s office as a foreign corporation. Local authorities may fine or shut down the business for failing to get a business license. Not registering with the Secretary of State in a new state may limit a business’ access to that state’s court system either as a plaintiff or as a responding defendant.
  • Modern vehicles run on multiple electronic control modules (ECMs) which control the engine, the powertrain, and the body. Within each module is proprietary software that controls the functions of the car. Many businesses operate using proprietary processes, practices, and possible trade secrets. Automakers have taken steps to protect the software running in each control module by getting copyrights.  If a business has any proprietary or intellectual property it has created, it should take steps to adequately protect it.
  • No matter how good the vehicle is, without good drivers, the vehicle is just a machine. Each driver should have enough experience and training to drive the vehicle properly and must get adequate nutrition and sleep to be alert for the road trip. And like other passengers in the car, employees are reliant on each other for the business to be successful. Owner-operators should take the time to ensure that their employees are properly trained and provided adequate pay and benefits to keep the employees productive. In most businesses, the employees are the most valuable assets, and employment and non-compete agreements help to protect the company. Like a driver with narcolepsy, employees who do not perform well should not continue in their positions.
  • Even the best-maintained vehicles occasionally develop engine issues. Piston rings can become worn and cause that blueish cloud of smoke behind the car, or gaskets may break down, causing oil or coolant to spray all over the engine compartment or ground. All businesses today need to be cognizant of their impact on the environment. Whether a distributor, manufacturer, or service company, owner-operators should understand their waste streams, take care to prevent their discharge, and document all their efforts.


Getting Ready for the Exit

As drivers approach their Exit on the highway, they start to plan which lane to be in, how quickly to slow down, and which way they will turn at the end of the off-ramp. Depending on the Exit, their minds may start to think about the fun they will have at their destination, what they will order at the restaurant, or questions about which side of the visitors’ center the bathrooms are. But as owner-operators begin to think about selling their company, there are many more questions to think about. Reach out to our dedicated team at Benchmark International to help you with your exit and growth strategies.

 

  Michael_MacInnes-13(1.1)Author
  Michael MacInnes
  Director
  Benchmark International




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