Growing Your Business in Preparation for a Sale
Follow these steps if you realize your business value is not where you want it to be.
Many business owners come to the realization (often too late) that the value of their business is not what they want, or need, to meet their retirement goals or other personal financial objectives.
Evaluate the Timing
If this realization comes when the business needs to be sold, then they will need to adjust those objectives to the reality of the day. If, however, this realization comes two, three or five years before the owner would like to be out of the business, there are options that may be appropriate to meet his/her needs. One of those options may be to grow the business and tighten the processes to attract more sophisticated strategic buyers based upon synergistic, rather than financial, value.
As a former manufacturer who identified this exact issue and acted upon it (in our case, by doubling the business size in preparation for a divestiture), I speak from experience on this issue, both as to its potential and value. Now, as an M&A advisor and business broker, I witness, on a regular basis, companies that can benefit from a formal "sale preparation" process.
There are business consultants and service providers who specialize in this process, providing their services at either the macro or micro level.
The reality is that no one needs help to achieve this goal beyond, perhaps, the identification stage. Of course, you must have the internal skills, discipline, time, focus and determination to plan and execute this multi-year corporate transformation. In our case, we applied a "Needs Assessment" that would become the basis of the road map to be followed. We then undertook all of the implementation steps internally to achieve our successful outcome. This included building, training, documenting, reviewing and improving systems around quality, safety, communications, human resources, production, maintenance, sales, logistics, etc.
Fortunately, or unfortunately, what needs to be done is what should be done to enhance the value of most businesses from an operational and profitability perspective. In the process, you are often building the synergistic attributes that potential purchasers will value at the time of an acquisition.
Identify Value Drivers
This is not just a process of selling more stuff. It is about truly incorporating the value drivers that buyers look for:
- Your financial information is clean, tidy, correct and integrated across functions. It becomes surprisingly more useful as a management tool.
- Your sales history is trending upwards over time and not at the expense of margins. You know where, and upon what, you make money and have the ability to focus on more profitable outcomes. There is more growth to come following the same path. The fact that these discoveries around "what," "where" and "who" actually make you money is another great outcome of this process.
- You have built the famous "moat," or "barriers to entry," that give you a competitive advantage on the landscape. While these are seldom permanent structures, you have also learned how to continue to evolve and create new moats as needed in the future.
- You—the owner—are the strategist and visionary, but are not required for day-to-day operations. In fact, your business will continue to grow and thrive even with your prolonged absence. Both as an opportunity for continued corporate enhancement, as well as personal flexibility, this is a great change from those 70-hour weeks seemingly chasing the squirrel around the wheel.
- You have systems and documentation throughout your business to help your staff, existing and new, to meet operational objectives. These systems and documents are not static, they form and inform your business on an ongoing basis. Along the way, you will find a myriad of ways to make small and large improvements to every area of your company.
There are more value drivers, but you get the idea. This is not rocket science. To some extent there are gaps between "best practices" and "status quo" in most companies, and it can be a long and arduous path to implement change. It is even harder if you are already the busiest guy/gal in the company.
For companies of much less than $2 to $3 million in revenue (WARNING: Generalization Alert), this may be too much of a cost to "buy," or too much of a commitment to implement as one process. It is never, however, too early to start working on elements of this, whatever the size of your business. As Yogi Berra once said:
"You've got to be very careful if you don't know where you're going, because you might not get there."
Written by Erik Twohig