Am I ready to kill my child Rooms4Music?
At the beginning of 2019, my landlord offered to pay me the value of my business if I moved out of the property before the end of the lease so they could use it themselves. My immediate questions were:
- Should I agree to it?
- What will happen if I accept the offer?
- I knew that in order to solve the problem right away, I needed to find a new building quickly or shut down the business. But do you think I was prepared to do that?
Honestly? When I didn’t know what to do, an internal battle began within me. What kind of deal are we going to close? What does this mean for my bands? I felt ridiculous canceling all contracts with the bands since I had been trying to get as many bands as possible into the building for almost ten years. And now I’m supposed to evict them all at once?
I asked my tax consultant for advice. I asked him, “What would be the least expensive method of resolving this issue regarding taxes?”
He said, “You should sell the whole business to your landlord so that they can take it over and shut it down, use the building, and take all the assets inside with them. The other option would be to do an asset deal and sell the lease contract. But the money ends up in your company’s bank account. All of the earnings you make will have to be taxed at a rate of 30%. However, if you’re selling your whole business, Germany has a very nice tax rule: you can sell your business for very low taxes once in your life. That’s what I would advise you to do for sure.”
After I talked with my tax consultant, I had a long series of talks with my landlord. But they told us, “We’re not going to buy your business. We make computer software. We are not interested in buying a business that runs rehearsal studios.” which made perfect sense, of course. Besides that, they would have also gotten all my business’s liabilities. When you buy a house or a business, you don’t know what’s inside. So, because it would be risky to buy the whole company, they refused.
So, in the end, we had to resolve to find a different solution. That’s when I asked my tax consultant, “Give me a rough number—how much more would they have to pay to compensate for the additional tax load if we do the asset deal?” My tax consultant began calculating. Finally, after a week, well, it felt like a week, but it was probably only 3 or 4 days, he returned with a letter, for which he charged me about €1,400. Knowing the formula, you can calculate what he did on the edge of a stamp. But that’s how specialists make their money: they know the formula! Anyway, it was an expensive letter for a minor calculation. However, it turned out that they would have to pay 50% more for the asset deal than if they bought my business, so you end up with the same money after taxes. I forwarded this letter to my landlord.
The letter put me in a position to negotiate the price for the compensation. Still, in the end, they only offered about 10% more than the original price, which was not enough to make up for the lousy tax situation. I was pretty desperate and felt hopeless about the situation. On the one hand, I had the chance to get compensated for the total value of my business. On the other hand, I wasn’t looking forward to spending one-third of the money on taxes! I did not know what to do.
The Tough Decision of Selling Your Business
I took a break, removed myself from the stress for a little while, took a deep breath, and began using my decision-making meditations. I went to Lovina and spent an entire day there thinking about what I was going to do with my business when it was sold, closed, or relocated.
After some thought, I realized that my ideal scenario was for my employee Chris to take over the entire business. After a few years of working with him, Chris became the business’s good heart and soul. Many people even asked me, “Is Chris your son?” He looks and acts like you. “No, he’s not my biological son,” I replied, “but I feel a strong connection with him, and working with him is almost like working with a family member.”
Blueprint for selflessness: Richard Branson
I was in a terrible situation, and I remembered what I had read in a book by Richard Branson. When he got into trouble with British Airways over a legal dispute, they grounded all of his planes. He, too, was in a situation where he did not know what to do. That was around the time when the war in Iraq started. To solve his problem, he did something completely selfless. He just used a plane that was still allowed to fly, loaded it up with supplies for people in need, and flew it all to Iraq. Once there, he helped people from other countries get out of the country by flying them out. This was a completely selfless thing for him to do when he was also desperate.
This led me to consider starting a foundation instead of giving the money to the state as taxes. I would have rather given money to a charity, started my own charity, or changed my business from a commercial to a non-profit organization. I talked to my tax specialist about all of these options. But in the end, there was no way to get around paying taxes. Chris and I decided that it would be best to try to find another house or building—where we can keep running Rooms4Music and just move the bands there.
The long search for buildings started. We looked at many buildings. We looked at hundreds of buildings on the real estate market. We considered buying a building. We considered renting a building.
But we learned how fortunate we were with my old landlord because they didn’t raise the rent since I started renting the building. If I rented additional space, it was a little bit more expensive, but overall, they did not raise the rent. Now we saw that for all the buildings we looked at, we had to pay a higher price per square meter than we charged our bands. And if we had done that, we would have had to get the bands to pay more in rent. So, in real terms, in order to keep the business profitable, we would have to raise the rent for the bands by about 100%! And that wasn’t an option! Because most bands have at least one student, and that person always complains, “I don’t know how to pay the rent.” Most bands wouldn’t have been able to afford the rent for a rehearsal studio if it had been doubled.
Aside from thinking about charities and making donations, I thought about how I could best help my bands find new rehearsal spaces. So, I got in touch with all the other rehearsal studio owners in our area and contacted the media. I sent out press releases about the situation and called the TV station. The story finally ended up in another part of the news show from Südwestfunk. They reported the situation, and we later got in touch with even more people willing to rent out their rooms to take over some of my bands.
We also set up a service for the bands that rented our studios to help them load all of their gear into a rented truck and move it to their new location as soon as they found one. For my contracts, I usually had a four-week cancellation period in place. However, we dropped the cancellation time for this situation. So, whenever a band found a new place, I was willing to let them go without a four-week notice so they could move out right away, saving me rent and paying for the new studio on the other side. As a result, we could get all the bands out of the building on time because our contract with our landlord stated, “the building must be ready to take over by July 31, 2019.”
In my marketing strategy, I used an email mass mailing service to send out my press releases, offers for studios that were open to anyone interested, and news to my clients. I had to use this mass mailing system to cancel contracts this time. We sent out 137 lease contract cancellations in one mailing shot!
When I pressed that button to send the mass email, it felt like I was killing my own child!
When you run a business for nearly ten years, it becomes a part of your character. In Germany, we have a word for a GmbH (which is the German version of a limited company). It is also called “Juristische Person,” which translates to “legal person.” After ten years, the business was no longer just like a legal person; it became more like a person with a very specific character! Of course, it reflects the business owner’s character—at least at first.
This is because while Chris was running and operating it while I was away, it started to reflect Chris’s personality, and our clients loved it.
See, I grew up listening to rock music, and because of that, my target audience was rock bands that played acoustic music and good old Rock’ n’ Roll. But Chris is a musician who creates music electronically, and as the business went on, we started to get more and more people doing the same thing. They needed recording studios, not just rehearsal studios. Over the last two years, my business’s character has evolved to be more like Chris’s than mine.
I lost some of my connection to my business from a distance, and Chris got into it. As you can see, I previously discussed my ideal scenario in which Chris takes over the company. That’s why I asked Chris, “Do you want to do so?” After some thought, he said, “Klaus, I enjoy my job, but it is just that: a job. My dream is to become a musician, which is what I intend to do in the future.” I asked him: “So, is it okay for you if we close it down?” He responded with another question: “Did you ever seriously consider that?” And I said, “No, I don’t want to kill my child. I definitely want to find a different solution to keep this business going and provide space for musicians.”
A life-changing call we’ll never forget
At the time, I had no idea that my subconscious mind had already made a decision; after we learned that finding a new building was impossible, I agreed to the deal and decided to close the business. Within the same week, Chris got a call from a band, and they told him, “Chris, our DJ is sick, and this year we have 30 gigs to play. Would you happen to be available?”
Both of us couldn’t believe it!
We just decided to stop doing business with Rooms4Music, and then Chris got this fantastic offer a week later. The name of the band Chris got the offer from is called SDP. Now, Chris is a full-time member of this band, replacing the previous DJ. Nowadays, SDP plays at the biggest festivals in Germany, like “Rock im Park'' and “Rock am Ring.” They keep bringing tens of thousands of fans to the Munich Olympic Hall and the Stuttgart Schleyerhalle.
I’m so glad to see how he has grown and his dream has come true.
To do:
Which of my kids am I willing to kill today?
Make a list of your tasks and duties:
- you don't like,
- not providing customer benefits,
- neither creating earnings,
- nor new products.
Mind storming:
Mind storming is like brainstorming, but you do it alone, only by yourself.
- Listen to your inner voice and write down your ideas.
- In the beginning, you write down the numbers from 10 to 50. That tells your subconscious mind that it has to develop 50 ideas.
- Put yourself under positive stress and give yourself only 15 minutes for it. Because with the time limit the creativity explodes.