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What Kind of Business Owner Are You?

By Generational Equity

Business Owners

Do you want to know the big question we ask business owners who attend our exit planning conferences?

We ask: What kind of business owner are you?

Why?

Because there is a significant difference between business owners that proactively plan for their eventual succession versus those that do not.

What is the difference?

Potentially millions of lost value when the eventual business transfer takes place. Every business owner needs to carefully consider this reality. If your largest single investment is in your business AND if you have no plan regarding what to do with it when you eventually retire, then you could not only be losing out on significant potential income from its sale but your family and financial legacy could be impacted as well.

There are only two kinds of business owners:

  1. Those that PLAN to exit
  2. Those that HAVE to exit

The fact is you will eventually depart from your business. As much as you want to put that off for as long as possible, the reality is, no matter how hard you try to avoid it, a business transfer will take place. Whether you assume that your children will eventually take the reins of the company or you hope your employees will buy you out, or best of all: A third party pays you a significant sum for your company, a succession event will occur at some time in the future.

How prepared you are personally and how equipped your business is for this transfer will depend, to a large degree, on two things:

  1. How much you personally obtain financially from the transfer
  2. How smooth the conveyance will be to new ownership

Both often play a role simultaneously in how the exit works, no matter what method you use to facilitate your exit event. In reality, you need to look at your succession not as an event that will take place at a point in time, but rather as a process that you need to initiate the day you open your doors for business.

Preparation Pays Off

Building a “buyer ready” business requires planning, thoughtful deliberation and hard work. But all this will pay off when you do eventually leave the business to a buyer. Building a buyer ready business essentially means that you are creating an entity that buyers will view as less risky than those opportunities where the company has not prepared for their succession.

Risk is the common denominator among all buyers no matter if they are strategic, synergistic, in your industry, outside of your industry, or purely financially driven. Each buyer will determine the level of risk and his/her comfort level with the preparation you have made to build a company that is ready for your eventual transition.

What are common traits that that buyer ready businesses have? What we have seen over the years and what we hear from buyers is this:

  • The business is not overly dependent on the current owner; middle management is being groomed to replace the founder.
  • There is little (if any) customer concentration issues, meaning no single client generates more than 20% of revenue.
  • Recurring revenue is present.
  • The employee base is stable and experienced people are in place.
  • Revenue and earnings are steady and even increasing.
  • Potential growth is possible.
  • Good financial reporting and controls are in place (the back of napkins are not used).
  • Policies and procedures are documented and followed.

These eight items, if focused on and addressed regularly, can have a huge impact on reducing the perceived risk in your business on the part of buyers. Keep in mind that no matter how well it’s managed and run, there is no such thing as a perfect business. In fact, many of these eight are moving targets and are “in the eyes of the beholder.” So, don’t look at this list today and become discouraged thinking, “Wow, there is not a buyer out there that would be interested in my company.

The reality is the path to being buyer ready is never-ending. The key is starting on it now and beginning to address any (or all) of the items above. Even if you haven’t addressed on one or more of these today, all buyers will be concerned about is that you have a plan in place to reach them. And if you are following your plan, then buyers will have significantly more confidence in your business than if you have no plan at all.

That really is the beauty of the Generational Equity exit planning program. All our clients are provided with A Roadmap for Enhancing Value document at the end of our initial evaluation. This allows them to clearly understand what needs to be done to both enhance the company’s value over time but also improve its salability in the eyes of most buyers.

If you are interested in moving from the category of being a business owner with no exit plan to one with a full strategy, then attend a Generational Equity M&A executive conference. To learn more about this no-obligation, complimentary meeting designed to help business owners begin to build a buyer ready business, please follow these links:

By Carl Doerksen, Director of Corporate Development at Generational Equity.

© 2017 Generational Equity, LLC. All Rights Reserved.

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