A Challenge: Owning Vs. Operating

Owning a business and operating a business are two different things and require different approaches by the entrepreneurial individual who is lucky enough to be chief cook, bottle-washer, and owner of the enterprise.

Q. I’ve been fortunate enough to build a successful business, so almost all of my time is devoted to daily problem solving. My lawyer keeps reminding me that, at my ripe old age of 62, I should be looking at my company more as an owner than an operator. What does that entail?

A. With hard work and a focused plan, a good operator will produce a solid bottom line. But the responsibilities of ownership go far beyond this year’s performance.

A hands-on owner is also responsible for preserving, protecting and utilizing the value that he or she has created.

Family members, individual workers, customers, vendors, and the community at large have a vested interest in the fortunes of the venture. Indeed, the greatest satisfaction emanating from ownership can be the ability to employ the wealth in an enterprise in ways that are personally rewarding to the owner and those constituencies who are important to him.

To satisfy his or her ownership responsibilities, an entrepreneur must successfully meet and master four sets of challenges that relate directly to the wealth represented by the enterprise.

First, the owner must work to protect the assets of the firm from a myriad of internal and external factors that can work to diminish - or completely extinguish - the personal wealth a company represents.

A poor strategic plan, fragmented leadership and conflicts in management can serve to dissipate wealth as can unexpected events such as an owner’s death or disability. Poor succession planning or inadequate preparation for taxes and transition costs can threaten the very continuation of an enterprise.

An owner is responsible for safeguarding not only the tangible and intangible business assets such as buildings, equipment, inventory, cash on hand and intellectual property which enable the firm to operate, but also his personal equity stake in the company.

Secondly, the owner must consider eventual monetization of his equity interest in the venture.

Shares of stock and partnership positions are nice possessions but, other than serving as collateral for an occasional loan, they can’t buy you a cup of coffee until they are “monetized.” Therefore, it is incumbent upon an owner to give early, careful consideration to the ways in which he will become an untrepreneur and convert his equity to real, negotiable, spendable dollars.

This is easier said than done. Often, when advance planning is neglected, the only route to wealth realization is through the sale of the business. Under the wrong circumstances, this can be devastating to the firm, its employees, its host community and, most of all, to the owner and his family.

Thirdly, an owner must give thought to how he will eventually distribute the business wealth he has generated.

Despite his fervent hopes and expectations, an owner cannot expect to live forever. Consequently, the best use of the wealth he created will result only from careful consideration of the ways in which he will allocate the equity of the businesses - or the monetary resources into which it is converted - to recipients who are important to him, especially family members.

This kind of preparation will ensure that the individuals and institutions an owner wants to favor with the fruits of his accomplishments do, indeed, benefit from his intentions.

Finally, an owner must be concerned with the continuation of the business. An owner naturally wants to see it survive and thrive, and this means that plans have to be made to provide for proper succession in both ownership and management.

This is an especially difficult task in a family business where issues are influenced by personal and emotional factors as well as operating logic. A strategic plan will typically help guide the firm through a transition from one generation of control to another.

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