06 Jul May the Chain Be Unbroken
Several years ago, a fellow businessman was telling me about the numerous years of long hours and hard work he invested in building up his highly successful, one-man business. He was actually asking my advice since his attempt to cut back a few years earlier had backfired as his overhead expenses forced him to dip into his personal retirement funds to supply working capital to keep his business going strong. Retirement was now a major concern for this businessman. He had already seen many of his friends run out of money because they lived longer than they anticipated after retirement. His objective was to work less and to have his business continue to provide him with an income long after he retired. But of course, being a one-man operation, this plan was a bit problematic!
He realized that for his business to provide for his personal needs, he could no longer remain a one-man operation. He had learned (the hard way) that his business could not afford the lost production days. He determined he needed someone to transfer some of his clients to so he could afford to cut back some of his work time. He decided he would add an associate. This would enable the business to continue to produce an income even in his absence.
He made a list of benefits for the associate that included no financial risks, immediate income, prestige, community identity and acceptance through association with a successful businessman, introduction to his many business contacts, educational benefits, etc. He also wanted to provide incentive for the associate to stay with the business long-term, so he designed a plan for the associate to acquire ownership in the business. He realized that by making the associate a partner, they would both have their immediate and long-term needs satisfied.
In order for the business to provide this businessman an income as he worked less, he allocated a percentage of the income to be paid to the person producing the work (production income), and the remaining income was shared according to ownership in the business (the business profits). This system would allow his associate to maximize production income (he anticipated turning a lot of business over to the associate in addition to the new business the associate could bring into the business). And, if everything worked out well, the associate would be allowed to acquire ownership equity in the business and would then also share in the business profits.
This businessman hired a highly motivated associate businessman who both understood and appreciated the opportunity that had been structured for him. The associate had some great ideas, super enthusiasm and a genuine desire to help the business grow to greater heights. They executed an equitable, comprehensive contract that detailed all the obligations and responsibilities of each party. The contract also included a detailed formula for the purchase price and terms for the associate’s ownership interest buy-in as well as the eventual total buy-out of the businessman’s ownership in the business when he was ready to completely retire.
The businessman began to work less and his personal production for the business dropped accordingly; however, the profits of the business actually increased dramatically as a result of the energetic associate’s efforts. The additional profits allowed the businessman to enjoy a rather comparable annual income even though he was spending much less time in the office. They eventually hired an additional associate since the first associate was so busy. The business grew to even greater heights.
Business revenues and profits steadily increased. In a pre-determined period of time, the first associate acquired ownership equity in the business and began to share in the business profits. Now the businessman was spending even less time in the business. The associate (his new partner) assumed more and more of the business non-production related responsibilities, which allowed for even more personal leisure time for the businessman.
The businessman is now fully retired and receiving a considerable monthly annuity from the proceeds of the sale of his ownership equity in the business. For many years prior to his retirement, he had enjoyed working much less, had the opportunity to enjoy his personal life much more and experienced very little change in his income as a result of his shift in focus from the business to his personal life. He also took great personal pride and satisfaction that his business would continue to flourish long after his departure.
All this great fortune came from developing and implementing a comprehensive, long-term business plan that provided a reasonable reward for starting, building and operating the business. The greatest benefit of all was that this successful perpetual succession concept that the businessman had implemented in the business would someday allow the associate to enjoy these exact same benefits when he was ready to start slowing down toward retirement.
If you have not already guessed, the businessman is a dentist and he implemented one of PARAGON’s most popular co-ownership transition programs!
Contact PARAGON today for a complimentary consultation to discuss your career options. No obligation, just a very worthwhile education.
