Even if we’re not planning to sell, entrepreneurs should always have a business positioned and ready to go
A record number of businesses changed hands last year and the year before that. There’s been a dip in 2019’s first quarter, but the signs are still there for a booming buyer/seller market. Close to 12 million businesses will be sold in the next 10 to 15 years, representing an estimated $10 trillion worth of assets.
There’s just one problem and it’s a major one. Few owners heading for the exit are ready to do it right. The UBS Investor Report speaks for itself:
- 75 percent of business owners believe they can sell successfully in under a year (good luck with that if your business can’t run independently of you)
- 58 percent have never undergone a formal business appraisal
- 48 percent of businesses don’t even have an exit strategy
Not having an exit plan is an obvious problem for businesses that are poised to sell. But frankly, not having a strategy in place is also a mistake for entrepreneurs who plan to hold and grow their venture for the foreseeable future. We all need to position our business to sell well ahead of time, and a key component of doing this is making sure the organization can run without us.
Positioning a business to attract buyers should start early
As business owners, we should always be preparing our business for a sale, whether the timeline to doing it is one year or 10. We must develop the ability to show prospective buyers that our business will run like clockwork without daily hands-on control and be an asset to their life, not an aggravation. Essentially, this means we need to implement a decentralized command structure and solve the main problem that every entrepreneur faces once business grows to a certain size: letting go.
Because owners must wear multiple hats, we often can’t trust people to take ownership of jobs. In response, we tend to micromanage and find ourselves stuck working in the businesses instead of on the business. When entrepreneurs find themselves incapable of letting go, key operational tasks become their job. Solving this classic problem far ahead of a sale is key to creating a business that’s attractive to buyers. And the benefit of doing this early—beyond setting the business up for faster growth and ultimate success—is reaping the rewards of less stress, better employees, and ROI while we still own it.
Implementing best practices will improve the business now and set you up for an easier and profitable sale later. Some resources I’ve found incredibly helpful include Built to Last: Successful Habits of Visionary Companies by Jim Collins and Jerry Porras. This is a great guide that emphasizes how trust in your people frees up not only an entrepreneur’s time but also propels a business to become an industry leader rather than an also-ran.
Another essential resource is Built to Sell: Creating a Business that can Thrive Without You by John Warrilow. His approach boils down to this: if you want to attract an outside buyer, increase the value of your business by increasing its multiple, which is calculated by dividing enterprise value (equity plus debt minus cash) by annual revenue. Some of the elements to boosting a multiple include:
- Increasing customer satisfaction: Can you show proof of happy customers? Buyers like happy customers because they’re likely to come back.
- Financial performance: The ability to demonstrate clear top-line revenue and bottom-line profit is vital. Conducting an audit will collect and present your business numbers.
- Growth potential: Can you show a buyer ways your business is poised to scale up?
- Hub and Spoke: Do you run your business, or does it run you? Buyers aren’t buying themselves a new job; they want to purchase something that will serve them. If you can prove your company runs without you even having to show up, you’re suddenly a much more attractive prospect.
That last one is key. When we get sucked into the daily operations of our business, it not only takes over our life, it turns off potential buyers.
I’ve found myself in this trap. Often, the hardest things to let go of are the ones we may not like but we are good at; better at than any of our current employees. Escaping this situation depends on instituting smart processes and developing members of your team to take your place. This takes effort but the payoff is exponential—to our businesses, their eventual profitable sale, and our sanity, focus, and full potential as entrepreneurs.
I’ve helped my entrepreneur clients develop total trust in their team and enjoy the freedom that follows; to designate fearlessly and to live their lives by design. We have to take control and then let it go to get it back again. It might seem like a contradictory concept. But if you start the Value Builder journey as I did, you’ll see how clear it all becomes.
You’ll learn how to document and implement processes so every employee knows their responsibilities and role by heart. You’ll unleash the growth potential of your company by focusing on your own strengths and the strengths of your staff. It becomes a little easier every day to let go and step out of the office for longer periods of time.
The day will come when all your people know their jobs so well that things flow whether you’re onsite or not. You’re now the boss of a business that runs itself … and one a buyer would be happy to acquire, whenever you decide to sell or not.
Schedule an appointment with Cesar to learn how to trust your people and position your business for personal freedom as well as profit.