You will be asked tough questions when you decide to sell your business. Trying to piece together the answers in haste will only show weaknesses in your business and therefore reduce the perceived value.
The universe has a funny way of changing your best formed business plans. You may have the idea to sell your business in three to five years, but several factors could disrupt that timeline. Remember that business plan you put together so many years ago? Did it include an exit strategy? Did you craft a “pitch deck” for the new buyer? Did the business plan list the ideal candidates to purchase your business for full price?
Building a sellable business keeps you in control of the unknowns: the what, why, when, how, and who of selling your business. So many owners that I speak with have similar answers to these questions, and most of them lead to a lower valuation.
Your business was crafted by you, so without you, what is the business? Is it a pile of assets that don’t make money unless there is an owner/operator in place? Or is it solid processes that a new owner can jump into and carry the torch? Having a clear definition of what you do is critical for the new owner. Let’s go over some reasons why your business is too dependent on you.
You are the only signing authority. This makes sense if you are always going to be on-site, overseeing every transaction every day. Let’s plan a vacation and give signing authority to your trusted employee for an amount you are comfortable with. This will help you detach from the day to day. Make sure that you have the mailing address (physical and electronic) for your statements to be forwarded to your home and your outside accountant. This way, everything can be reviewed, and you can make sure the employee isn’t abusing their privilege.
Your revenue is flat from years past. Like running a marathon versus a relay race, you can be much more effective by having a team get to the finish line. Like forcing water through a hose, you only have so much capacity. Consider narrowing your product and service line by eliminating technically complex offers that require your personal involvement. Instead, focus your efforts on selling fewer things to more people.
Part of your vacation is spent checking in on your business. We have all done this; it’s our baby, and we don’t want to neglect it for fear of coming back from vacation with more headaches than usual. Try taking one unexpected day off and see how your company does without you. Let’s call it a scheduled pressure test. This will reveal the systems that have failures. Work up to a point to where you can take multiple days, then multiple weeks off without it affecting your business.
Why focus on a sellable business starting today? Let’s start with health. According to Baby Boomer Magazine, by age 65, two-thirds of all baby boomers have at least one chronic disease and have seen seven physicians.
Many business owners in the baby boomer generation think of their company as part of the community. They have a loyalty to their customers and a do-or-die adherence to doing the job right. To many boomers, the idea of selling their company might feel like dishonoring their employees and their customers. This is why so many owners are torn — they know they need to sell to fund their retirement, but they agonize over where that will leave their loyal employees and customers.
If you start your business with the idea of selling it, now is always a good time to sell, but never is OK as well. Most businesses can create a subscription model, allowing for residual income. Combined with the other factors, this is one of the most powerful strategies that you as a business owner can focus on. While researching and implementing this model, you will also fix the “what?” and most “why?” issues in your business.
Treating your customers as your best asset is a great way to grow a successful business, so how do you separate from those relationships without harming the business? Start early. Build a business that integrates customer relations experience across all employees.
Identify your target buyer now. You have sneered at your competitors for years — what if they are your new business partner or buyer? What about a business that is complementary to yours — a supplier for you? A current employee? Always be thinking about the who, and keep your options open. Put yourself in the shoes of a buyer and watch out for these traps from an acquirer. Is your vision and your employees’ vision the same? Would your customers’ answers be the same as yours when presented with the question: “Why do you do business with these guys?” Has your buyer been mystery shopping you? If so, would their experience align with your business as it is listed for sale?
Publication date: 6/3/2019