As a business owner, your efforts are focused on keeping your business viable and operational. As you near the point where you will want or need to sell your business, we at Cunningham & Associates think there is a way to stack the deck in your favor.
If you’ve followed some of our previous posts, this will be old news. However, a necessary reminder of exiting small business owners’ harsh reality is that nearly 80% of all small businesses fail to reach a transaction. Many times, this results in a shutdown, liquidation, and total loss of any additional possibility for value creation.
Fortunately, you can improve upon many areas, thus increasing the likelihood that your company ends up in the 20% of businesses that do transact, and likely at a higher value.
Stacking the Deck or Counting Cards?
Perhaps stacking the deck is the wrong analogy, implying cheating or deceit. Let’s consider counting cards as a better reference. We’re using our deep-rooted knowledge, analysis, and hard work to gain a statistical advantage over our opponents.
In this case, it’s the other businesses for sale in the marketplace that likely have not planned accordingly for an upcoming sale. Following a continuous and predictable improvement system, we can gain an edge immediately apparent to any potential acquirer.
Assessing your Business’s Value
With most goals, we want to know where to start and what our benchmark is. At Cunningham & Associates, all projects begin with an Assessment, and the Growth to Goal model is no different. This assessment has three components: financial, industry comparison, and operational. Today, we’re going to focus on a few areas of low-hanging fruit within most businesses.
Developing a Strategic Plan
In most engagements, we spend a significant amount of time with our clients learning the ins and outs of their personal and company goals. A consistent question we ask is, “Do you have a strategic plan?”
We quite frequently receive a response of “yes,” which is a good start. However, when we get into the details, we either uncover one of two cases:
- There’s no documentation or dissemination of the plan to the team.
- We’re handed a dusty 200-page manifesto that was drafted as a masterpiece, then shoved in a drawer never again to be seen or tracked.
As a business owner, reviewing your strategic plan with your team, asking for feedback, and collaborating on changes needed will be looked upon favorably when preparing to sell your company. The incoming owner may not have the same strategic vision you do, but what they will have is a team who has banded together, shown work towards a common goal, and demonstrated a strong sense of loyalty to a bigger purpose.
Ensuring Structural Stability
Do you have any? How effective are they? Putting yourself in the potential buyers’ shoes, they are assuming a too high level of risk and uncertainty. The more stability you can prove will certainly increase how favorable your company is viewed.
Reviewing an org chart needs to be done objectively. We frequently use a Jim Collins analogy comparing a company to a bus. First and foremost, do we have the right people on our “bus?” If we can establish that we have the right people, we need to determine if we have them in the right positions.
Simply promoting from within due to time with the company, personal relationships, etc., must be reviewed for its impact. Having a strong and well-trained organization with the right leadership in place working toward a common agenda will significantly increase your odds of a transaction.
Creating Systems and Controls
Building on the middle management team’s effectiveness, we need to review and understand the current organizational systems and controls. If your company has undocumented or a complete lack of systems, that must change.
Another significant risk an incoming owner assumes is that the trained personnel will turnover and leave them scrambling – because they went with the trade knowledge. If you take care to review and document each system, there may be a learning curve, but the new owner won’t be lost.
Detailed system review should be a continuous improvement item we strive to update regularly. Procedures, sales systems, accounting systems, and reporting systems are just a few areas that should be well documented and known throughout the organization.
Working together with your team, you should complete a detailed review and process map for each member that would be included as part of a standard due diligence package to a potential buyer.
A Quick Summary
We think planning to sell your business should be done just like many other projects, beginning with the end in mind. Business owners often sell their company and then react to the lifestyle their resulting net worth provides.
Planning ahead, we can determine your business deficiencies, what your net worth shortfall is, and blend those to create an organizational improvement project, following the C&A Way, Growth to Goal Model.
If you want to evaluate whether your company is maximizing its potential value, contact us today. Fill out our online form now to get a free assessment.