Run your business like you’re going to sell it
What buyers want is a healthy, well-run, business that doesn’t rely on your constant involvement. Don’t you deserve the same?
I’m excited to share a concept that will change how you look at your business and gradually change how you operate it. New perspectives lead to new actions that generate new results.
I always recommend that business owners approach their business as though they’re preparing it for sale – even if they have no intention of selling it any time soon.
Why is that? Well, have you ever sold a car? Before you sold it you probably fixed it up so that it was nice and clean and possibly in the best shape it had been in years. And you thought, “This car is really nice now. I wish I’d always kept it like this. I would have enjoyed it more.”
It’s the same with your business. When you decide to sell it, your investment banker or business broker will tell you that, in order to get the highest price, you’ll want to get it cleaned up and performing well. And when you do, you’ll enjoy it more yourself and you’ll love the reliable growth and increasing profitability.
So why not start now so that you can enjoy a well run, growing, profitable business? And of course if it’s always in tip top shape, you’ll be ready if you decide to sell it or if someone walks up and says “Wow that’s a nice looking company, will you sell it to me?”
I’m suggesting here that you raise your standards for yourself. You can turn your business into a growing and profitable, well-run, company that you thoroughly enjoy and that buyers will gladly pay a premium to own.
Growth and Profitability
You also want to start now since buyers want a history of growth and profitability. They’re exchanging (risking) their capital for an anticipated stream of future payments, so they look carefully at past performance. But because past performance is only an indication of the future, not a guarantee, they also want to see how the company generated that performance so that they can judge the likelihood of similar future performance.
Then there’s the issue of the company’s over-reliance on the owner’s involvement. Buyers don’t like this. They know that most owners don’t want to continue running the business after they get their money. (Sure there can be an earnout that ties the seller to the business for a period of time, but it doesn’t ensure the seller’s continued commitment and most owners don’t like earnouts. They want their money up front.) The other problem with an owner-dependent business is that buyers see it as a single point of failure and therefore inherently more risky. Perception of risk always reduces the amount a buyer is willing to pay.
What’s the solution? Simple. Set your company up with the people, systems and business practices that make performance reliable and your involvement mostly optional because you’re no longer an employee, you’re just the owner.
When you professionalize how you run your business and move yourself increasingly out of the day to day you’ll have created a smooth, reliable, profit-generating, machine that gives you ample time to do other things. Sounds great, right? And of course any future buyer will be happy to pay full price because they’re getting a reliable, low-risk, profit machine that doesn’t rely on the owner’s continued presence.
It’s not as hard as you may think to get your business into selling shape so that you can fully enjoy it while you own it (and so that it’s ready for a generational transfer if that’s your preference). Think of it as a small remodeling project with huge results. Yes there’s work involved but there are only so many things to do.