The more your business revolves around you, the more risk buyers see.
“If you can’t take a vacation without either checking in once or twice a day or your business gets derailed,” says Dave Clough of mPower Advisors, “then your business is not ready for an ownership transition.” The less the owner has to be involved in the daily operations the more attractive the busines is to a buyer.
Work yourself out of the business by developing an experienced, empowered management team, and repeatable processes that depend less on key individuals. The less the business is dependent on you and your knowledge or relationships, the less risk buyers face in a transition. And less risk translates to increased salability and potentially a higher sale price.
If you put yourself in the buyer’s shoes, how would you want the company to operate. You would probably want the owner to introduce you to key people saying for example, “This is Janet, and she is our financial guru. She needs very little of my help and provides me with weekly data that shows a snapshot of our financial health. You’ll need just 2 hours to understand her full job function.” That would help confirm your purchase decision. On the other hand, if as the prospective buyer you find that the owner puts in 60-80 hours a week and has to continually oversee all activities or fix lower level issues that arise, you would be less inclined to even make an offer. As with buying a house, a fixer-upper does not attract premium offers
Here are some red flags for a buyer:
- The owner is the best salesperson or manages the key customer relationships.
- The owner is the primary producer, floor supervisor, project manager, or installer.
- The owner is in QuickBooks daily to manage the finances.
A prospective buyer has less risk if the current owner is the visionary and chief strategist, managing the company via a dashboard of metrics.
Assuming that you want a premium price, yet you are deeply in the operations of the business, what do you do?
- Across the organization, push activities to the lowest level of competence, and tap into everyone’s highest/best capability.
- The owner, GM, or manager should not be doing deliveries, or picking up supplies.
- This may require hiring lower level people to pick up these tasks.
- Owner delegates activities that can be done by others.
- After pushing tasks down, others should have more time to pick up responsibilities
- Hire key people if you can’t groom existing people to do the needed job
- Create processes so that people don’t have to remember to communicate important information. Automate if possible.
Taking these steps will improve your current situation and make your business more attractive to a buyer.