By Dave Driscoll
Improving your asset and building a company everyone wants to buy
In September, we began a series identifying how to build a company that everyone wants to buy. To succeed at building a saleable business you need to look at the business through the eyes of a buyer.
What elements are most important to a buyer when weighing the risk to purchase your business?
- Cash flow
- Is what they see, what they get?
- Are the financials believable?
- Is past performance indicative of future expectations?
- Business operations and corporate hygiene
We committed to providing three tips over three months to help you prepare your company for that inevitable sale or transfer. Let’s recap:
Tip 1: Avoid owner-dependence to create the business that everyone wants to buy.
Can the business successfully function without you?
Tip 2: Logical and understandable financial reporting is essential.
What story do the financials tell? Is it believable?
Our final tip in the series involves providing a buyer with the roadmap they need to successfully operate your business post-sale. Narrating the way your business runs in detail will reduce the new buyer’s short-term risk by identifying the benchmarks they need to continue your company’s success.
Tip 3: The Business Playbook -HR policies and operations procedures ensure consistency and success.
Is the workforce trained in expected behavior and job performance?
Written (and enforced) human resources policies and operating procedures are very important to a buyer. Without a robust HR system and documented operational procedures in place, the risks are too high for the seller AND the buyer.
Prospective buyers have more confidence in acquiring your company when their risk of ownership is reduced. If your employees know their jobs and also have a written Employee Handbook that lays out policies, procedures, and consequences:
- Employees know what to do and what is expected.
- Procedures promote accountability, and when necessary, performance consulting.
- Job vacancies can be filled more quickly when someone is out temporarily or leaves the company.
- Accusations of favoritism are eliminated.
- Processes are standardized, ensuring efficiency for the company and consistent results for customers.
Every new owner is vulnerable to employees testing their mettle when they take over the company. Remember how substitute teachers were challenged to see if the class could take advantage of them? This is the same concept. But having a playbook provides the new owner with knowledge and reality checks for “that’s the way we always have done it.” Without the guidance of a playbook, the new owner can potentially lose control of procedures, promoting chaos, and, more importantly, negatively impacting the consistent quality of your product or service.
BUYER RISK: HIGH without good business hygiene
Buyers base their decision to acquire a business on historical performance with the expectation of continued success. A buyer is walking into a new situation, atmosphere, and company culture, so they must be able to learn and understand the processes reliably to continue meeting your customers’ expectations.
Without defined processes, the continuity and quality of production/service is also at risk of being interrupted if employees are unsure how to proceed with daily operations or troubleshoot. Employees who experience anxiety or fear about the new owner’s expectations will gain confidence knowing that the documented processes and procedures remain in place. Additionally, well-defined and enforced HR policies and processes protect the new owner from being cast as the bad guy, further reducing the buyer’s risk of ownership.
Solutions:
Create and follow a comprehensive employee handbook documenting everything from vacation and sick leave policy to safety procedures and grievance policies. Review the handbook every two years and update as needed.
Define job descriptions with detailed responsibilities and processes for each role and each operation, including open/close procedures, operating procedures, etc.
Institute a highly structured management system using an appropriate software system in conjunction with leadership and employee accountability over ALL areas of the business.
I hope this series of articles helps you build a business that everyone wants to buy. If you already have addressed these elements, congratulations! I encourage you to continue the process of improvement because, as we all know, it’s an ongoing process. If, on the other hand, you still need to implement these tips, start with small tasks and involve your entire team in planning, measuring, and celebrating along the way.
My goal is for you to succeed in envisioning, planning, and achieving your “Life Beyond Business.™”
Dave Driscoll is president of Metro Business Advisors, a mergers & acquisitions, valuation and exit/succession planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at [email protected] or
(314) 303-5600. www.MetroBusinessAdvisors.com
As seen in Dave’s monthly column in St. Louis Small Business Monthly
