Dear Aunty B,
I’ve come to the realisation that our company exists for the purpose of employing staff (and myself) rather than to make decent profits for shareholder distribution. Is this a normal situation?
It is a sole director company, I’m approaching retirement and I’m looking at options for handing over management to others. If I am no longer an active employee and the business is not set up to make profit to support me in retirement, how can I justify drawing a salary?
Is this normal? For lots of micro businesses it probably is. But Tom, it shouldn’t be. If buying yourself a job and giving a wage for a couple of mates is your priority, it means you are not focused on building the business and delivering profits for shareholders.
It also means that you find yourself in exactly the position you are in. You can’t sell your business because it revolves around you and barely makes a profit. And you certainly can’t justify drawing a salary.
I suggest you postpone your retirement, meet with an adviser and get some ideas around building processes so you have something to show for the hard years of work and not just a wage. Because let’s face it; you probably could have earned more working for someone else.
Your Aunty B
Paul D Hauck from ICT Strategic Services writes: Wow – it’s rare to find admitting a problem we see fairly often – so I guess it is “normal” in some sense. We most often see this among software development firms, where the principal(s) really love to write software, and see the rest of the business as a way to support them in doing so. The impact is often apparent in that sales is considered a “necessary evil”. They sell only until they find someone to pay the bills for a while, then they go back to what they love – writing code.
You’re quite right (of course) Aunty B, that there’s little prospect of a comfortable retirement from these business, and they’re usually too small to turnaround. On the plus side, they’re often selling themselves short – not in the Opes Prime way, but by charging as little as they need to make the payroll. Given sufficient scale and motivation, a real sales arm can sometimes extract a premium on what they’re already producing, and squeeze out a profit. Either way – it’s time to get out of that comfort zone.