It’s the time of year when we should all be thinking about and planning ways to improve our businesses and ourselves in 2015. In my practice, I commonly run into businesses that aren’t in a good position to sell even though they may be profitable. This is usually because the business is too reliant on the owner for three things: knowledge on how to run the business, marketing power in the business, and actual management labour for the business. Here are some explanations of these issues, and tips for ways to remedy them and increase the attractiveness of your business:
1. Systematize Your Business, and Codify the System
Owners who have owned and operated the business for many years know all the ins-and-outs of what to do in every situation. Very few owners, however, properly codify the systems that they have developed to run the business efficiently. Very often, most of the knowledge is locked away inside the owner’s mind. By creating complete and detailed policies and systems manuals for the business, owners can effectively remove the need for employees or a future buyer to constantly refer to them to get the answer to a business problem. If a buyer can come into a business purchase knowing that, once he or she takes over, there will be detailed systems and guides in place to help them develop their ability to run the business, that business becomes significantly more attractive. Moreover, in small and medium-sized business sales it is typical for the previous owner to remain with the company for as long as multiple years in order to smooth the transition and teach the new owner how to run the business. With detailed systems in place, the amount of time the previous owner will have to spend with the company after the sale is usually greatly reduced.
2. Change your Branding from Personal to Corporate
One of the biggest fears of buyers looking at a business is that they will be unable to maintain existing relationships with clients, business partners and suppliers, and that as a result revenue and profits will fall significantly. This is exacerbated in companies where the owner has based all of the branding and marketing solely around himself or herself. Of course, this is also a natural result of starting one’s own business and running it from day one. Business owners looking to sell in the future should be extremely cognizant of the nature of their relationships with other companies and persons of interest. It is helpful if the business is big enough that the marketing and client relations can mostly be handled by a separate (talented) employee, but that is often not the case. By spending a couple of years focusing all marketing and representation of the business around the business name rather than on a cult of personality for the owner, you reduce risk of client attrition for a buyer and increase the attractiveness of the business.
3. Make Yourself Useless
Many owners I meet with have owners who work sixty hours or more per week running the business. It is typical and sometimes unavoidable that a buyer will have to accept a significant personal labour commitment in order to successfully purchase and transition a business. That being said, the most attractive businesses are the ones where there are management and systems in place that allow the business to run smoothly in the owner’s absence. If a business can afford to hire a manager and is profitable to the point where the owner can reap the benefits without a full-time personal commitment, the business is more likely to attract all types of buyers. Specifically, financial experts or private equity firms who have little interest in full time management will now become potential buyers.
Best wishes for a great 2015.