Business owners – does anyone know your company as well as you do?
If you answered no, then your chances of finding the optimal buyer for your business just dropped. Why? Because when buyers size up your company as a target for acquisition, they want to know it has great prospects with or without your guidance. If you fall into the trap of building a business that is too reliant on your vision, ideas and dedication to succeed (or if you make all of the daily decisions), it becomes very difficult to exit for the optimal value.
It all boils down to this – RISK is a buyer’s least favorite word and something they seek to reduce at all costs. A company that relies solely on the guidance of its owner constitutes a major risk. Will the business continue to grow without the influence of its owner? Is the company’s success dependent on the personality of its founder? Are the relationships with key clients managed by the owner? These questions severely impact the value of your business in the eyes of potential buyers.
“The transferable value of your company is what someone is willing to pay you for your company without you. If you haven’t worked on making your business transferrable — meaning it works without you — you’re going to get less when you sell your company. Period.”
So, ask yourself these three key questions:
If you feel your business suffers from a severe case of owner dependence, here are five helpful ways you can reduce this reliance.
1. Build Your Management Team
First things first – build the key players in your team. Hiring the right people that are passionate about your industry and understanding how your business works is critical in demonstrating its future success to potential buyers.
These will be the people that will build on the foundations you laid for your business, contributing ideas, hard work and taking responsibility for its long-term growth. Hopefully, by choosing the right people, your business will run smoothly whether you’re there or not.
2. Delegate, Delegate, Delegate
It’s not enough to simply hire the right people: you need to empower them to make decisions. Of course, we understand it can be difficult to delegate responsibilities when you believe you know how to run your company better than anyone (a very dangerous trap to fall into by the way).
But, a buyer needs reassurance that your business will operate well without your presence. Resisting the desire to delegate hinders company growth and buyers will be unsure about its potential when it’s no longer in your hands.
3. Document Key Information
You may have all the answers, but how can you prove it? Even if you and your team have a crystal-clear view of the processes that make your business run, it’s important to document these so prospective buyers can grasp them.
Take the time to note your procedures down to help familiarize interested parties, as well as bring potential new members of your management team up to speed quickly. We understand that most entrepreneurs loath “paperwork” like this. However, if you take the time now to document your procedures, it will pay off handsomely when you negotiate with buyers later.
4. Talk Up Your Team
If you have built the perfect management team, don’t be afraid to shout it from the rooftops. A potential buyer needs to know the business will grow without you and one of the best ways to do this is to show them how capable your management team is. Endorse their knowledge and expertise – remember, these are the key assets of your company’s growth, so they will be expected to play that role for the next owner.
Above all else, talking about how good your team is takes attention away from how big a role you play, which is what buyers want to see. So when you create your organizational chart and bios for your key people in your offering memorandum, be sure that your bio is not the longest!
5. Build with the Exit in Mind
Finally, it’s essential to take the mindset that you will one day exit your business. It may not be tomorrow, next year or in the next ten years, but it will happen, which is why it’s vital to prepare for it now. This approach will ensure you follow the above steps – by building an effective team around you, as these human assets will enhance your company’s valuation.
Overall, this attitude will help you avoid the red flags buyers pick up on and will end up enhancing the appeal of your business. If you’d like to learn more about how to adopt this mindset and sidestep the trap of owner dependence, download our complimentary white paper How to Make Your Company “Buyer Ready”.
For a more in-depth look, join us for a complimentary executive conference, which are held throughout North America all year round. The experienced M&A professionals at Generational Equity will guide you on building a buyer-ready company and creating the optimal exit strategy, as well as getting to know you and your ambitions for your business. In just a short space of time, you will leave with a clear understanding about your business future, armed with valuable knowledge on how to get there.
Find out when we will be bringing an executive conference to your area next on our website or call us today on 972-232-1121.
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
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