Managers and top-level executives
who bowed out of corporate positions in some of the region’s large automotive companies face a cascade of
financial decisions. Primarily, how will
they spend a significant buy-out check?
“Some of these severance payments are
five or six figures — not your typical two-weeks pay for every year of service,”
points out Craig Johnson, president and
CEO, Franklin Bank in Southfield, Mich.
Designed to secure the future, it may be
the largest lump sum these executives
have ever received. The most responsible
decision is to not rush into any investment or spend without a solid plan.
Here, Johnson discusses how this new-found population of business investors
can plan their next career steps wisely to
maximize a severance windfall.
What is the first step for individuals who
are starting over with a severance check?
Put the money in the bank, take a deep
breath and don’t rush into anything.
Regardless of the size of a severance
check, this payment is a one-shot deal.
It’s a single installment meant to sustain
you for some time until you convert it
into a money-making opportunity. You
will not compound its value unless you
investigate conservative, profit-bearing
opportunities that will set the stage for a
new career, or at least generate revenues to cover your cost of living and
then some.
Of course, this is easier said than done.
The first thing you should do is meet with
your banker and trusted advisers and discuss how to move forward with your limited, though generous, allowance. You
may choose to use this money to go back
to school and learn skills to begin a different career. You may decide to purchase a franchise operation or existing
business.
What business purchase opportunities are
conservative options that would secure a
new long-term career?
If you believe you are suited to own a
business, there are a few different routes you can take to fulfill this goal. You can
launch a company or start up a new franchise. These are risky ventures, and any
entrepreneur will tell you that ‘square
one’ is a tough place to be if you expect
a steady future.
If you want to own a business, and play
it quite a bit safer, investigate existing
franchises and already established independent businesses for sale. When seeking franchise opportunities, research the
parent company’s track record. What
type of support will the parent company
provide in terms of training, marketing
and other business functions? Find out
what type of revenues you can expect,
average sales volume and the price of
franchise fees. How much of the profit
will you really take home? An existing
franchise location for sale is a much
safer investment than starting up a
brand new store. The same rules follow
for independent businesses.
What will the bank expect before it will
back new business investments?
First, you should surround yourself
with a team to assist in the purchase
process. That team should include an attorney, a CPA and a banker. A banker
certainly can refer you to professionals
who will assist in the business search
and purchase process. This is not like
real estate; you’re buying a business history with ups and downs. You want to
make sure you purchase a company with
a clean slate.
Your banker will expect you to collect
copies of the business’ last three to four
years of tax returns. You’ll need interim
financial reports, information on customers, and accounts payable and
receivable agings. You should conduct a
thorough tax search to be sure the company is not on the IRS’ ‘wanted’ list. You
can ask your CPA to investigate this. You
must obtain an employee list, and learn
whether there are employee or union
contracts.
Is business ownership a smooth transition
for a former executive?
Not always. And this is another matter
we discuss with those who served in a
management capacity and now want to
try their hand at being the owner. It’s a
different show when you own a franchise business. Your employees will not
work in the same corporate structure,
and your function will be vastly different
than it might have been in a ‘baklava’
corporation with numerous layers of
management. Are you ready to carry the
burden of an entire business’ success?
Not everyone is. But if you express a
tireless entrepreneurial spirit — you are
motivated to create a career for yourself
and others — then buying a business
might be the best investment you can
make with that severance check. A
proactive banker will help you during
this self-evaluation by asking the tough
questions.
CRAIG JOHNSON is president and CEO of Franklin Bank in Southfield, Mich. Reach him at [email protected] or (248) 386-9860.