By Dave Driscoll
Becoming a business owner is not entirely different than becoming a new parent…you have a nearly-desperate need to protect the new addition, you are full of excitement about the future, and equally exhausted by the late hours, lost sleep, and worry. Simply put, you are experiencing the euphoria of new love.
At this stage, it seems counter intuitive, and maybe a bit disloyal, to even consider that you will eventually leave your business. However, unlike parenting that never truly ends, you should anticipate that one day you will want and/or need to end your role leading this company. Even if you bristle at the idea of retirement and plan to work until the end, most owners don’t want their companies to die when they do.
Some simple strategies and habits, established from day one at your company, will make sure you have attractive choices and are in control when you eventually leave your business.
- Establish and document processes and procedures
All is fresh and new, and it’s important to establish everything from human resources policies to operational standards, and communication guidelines. This is a work in progress; as mistakes are (inevitably) made, lessons are learned, and exceptions to rules are necessitated, document the best practices and expectations. Continue to refine and update this documentation regularly. The goal is to ensure consistency and efficiency in delivering your products/services, as well as employee relations – all of which builds business value. Long-term, this documentation provides the ability for a new leader to replicate your success – a valuable reassurance for a buyer.
- Keep accurate, meticulous financials and review them quarterly
Creating a profit and loss statement and balance sheet should be a non-negotiable habit from the beginning. If you are not comfortable with bookkeeping software such as Quicken or QuickBooks, or just don’t have time, work with an accountant and make sure he/she knows the real story. If you aren’t sure where to record certain expenses or income, ask. Guessing will only create a bigger problem down the road. Your accountant should be your ally, helping identify opportunities and discrepancies as you build your success. Review your financial results quarterly to recognize trends, strengths, and any problems to be addressed promptly.
Of course you want to minimize taxes and enjoy the perks of business ownership, and you should. BUT document your discretionary spending, meaning the expenses that are not really essential for running the business. When the time comes, you can’t sell business value that you can’t prove.
- Build a strong second-in-command and empower employees
Do not do this alone! Owners are prone to shouldering all the responsibility and authority, but healthy businesses are not owner-dependent. Your company will bemore successful if you utilize and encourage your employees’ strengths. Consider who could eventually be your successor and give them real opportunities to learn and grow. Empower employees with appropriate authority and accountability; people perform best when they are valued as part of a team, rather than just a cog in the wheel. Your goal is to develop an organization that can run seamlessly while you take an extended vacation. Later, this will mean a new owner –whether an insider or a third-party – can count on the employees to maintain quality when you exit.
- Consider your customers and your competitors
Defining and understanding your ideal customer and how you can solve their pain points is an essential priority as you plan and build your business. Regularly reexamine and anticipate your customers’ changing needs in the face of societal and technological developments, as well as trends within your industry. Flexibility and innovation are valuable.
Differentiating your company’s offerings from your competitors’ not only benefits your customers, but can also make your business attractive as an eventual merger or acquisition target for a competitor who would like to expand with your complementary specialty. Could your company fill a niche that would be a valuable add on to a larger corporation? Rather than eyeing your competitors as enemies, consider that they could be logical buyers when you’re ready to sell your business.
Establishing this good corporate hygiene early in the lifecycle of your business is much easier than breaking bad habits and trying to recreate financial history when you are finally ready to prepare your business for sale.
Dave Driscoll is president of Metro Business Advisors, a business brokerage, valuation and exit planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or (314) 303-5600. www.MetroBusinessAdvisors.com