Build a Business That Is Sellable
Create the right strategy for preparing your business for sale, whether it be an employee, family member, or another entrepreneur.
As a small business owner you've most likely dedicated most of your life to your business. In many ways, it's like your baby. You've put all your savings and energy into it for years and years - so it can thrive and truly succeed.
But what happens when it comes time to sell? Finding a buyer can be the biggest challenge for owners looking to exit their business.
Nearly three quarters of small business owners in Canada will be faced with this challenge in the next 10 years, leading to a transfer of assets worth more than $1.5 trillion.
Unfortunately, only about 20% of businesses listed for sale will sell in any one year. It doesn't mean they never sell, but on average it tends to take much longer, with two-three or four years as the typical length of time to get a business sold.
Despite the fact that every business owner is going to leave their business at some point - few Canadian business owners have taken the time to prepare their business for sale. Less than 18% of owners have a written plan for leaving their business.
Don't know how are you going to get your money out of your business?
When potential buyers look at your business they will be reviewing the valuation of your business. A valuation is not about determining what a company is worth in the current owners hands, it is about the company's transferable value!
There are 6 primary value drivers that a potential buyer will evaluate. Each driver is a characteristic of a business that either reduces the risk associated with owning the business or enhances the prospects that the business will grow in the future.
Simply put, the better your performance in these key areas, the greater the selling price of your business and quicker it will sell. When you develop these value drivers in your business, there is a likely result that your business will sell in a higher range of the multiples associated with your industry.
Primary Value Drivers to Prepare Your Business for Sale
Stable and Predictable Cash Flow
Consider revenue and the net cash flow of your business as the first introduction to a buyer. Revenue and cash flow is the number one attraction. A business with an established pattern of growth will bring a premium price when it is sold. Making recurring revenues comprise a material portion of a company’s overall revenues, the recurring revenue will be valued at a higher level than non-recurring revenues. Examples of recurring revenues are maintenance contracts, monthly support agreements, subscriptions or other revenue streams that are contractual and repeating in nature. Buyers are willing to pay the highest amount when their perception is that cash flow is predictable and will increase into the future.
Reliable Financial Information
As does recurring revenue, this value driver also has two aspects. The first relates to financial controls or reporting. Many companies lack reliable financial reporting and Key Performance Indicators (KPI's) to such an extent that buyers can’t determine what the company has or track the source of its revenue streams. Usually, this problem is correctable, but it takes time to do so. More importantly, sloppy financial reporting can indicate to buyers that there’s an underlying problem, the most benign of which is that owners and management lack a clear understanding of their own company’s financial performance.
Diverse Customer Base
Buyers typically look for a customer base in which no single client accounts for more than 8-10% of total sales. A diversified customer base insulates your company from the loss of a major customer. For example, if your three top customers generate 25-40% of your sales, a buyer will be concerned that one or more of them would leave upon learning that you sold your company. To a lesser extent this may also be a concern to inside buyers if the biggest customers are loyal to you, rather than to the company or other employees. Customer concentration then, is a risk factor to be avoided regardless of the exit path you choose.
When an owner can describe realistic opportunities for growth that specifically illustrate the reasons why cash flow and the business itself will grow after it is acquired, a higher value can be achieved. A documented growth plan demonstrates the viability of the company’s future and may identify opportunities that a buyer had not considered. Growth plan considerations include: What additional products and services can be sold to existing customers? Are there additional markets that a new owner should pursue?
Operating Systems and Procedures
Building a Business Operating System (BOS) is a prime value driver. The establishment and documentation of all business procedures, roles and accountability systems demonstrate that the business can be maintained profitably after the sale. Repeatable and teachable operating procedures ensure the business is successful without being reliant on any one person. It includes the procedures used in the business to generate its revenue and control expenses, as well as the methods used to track how customers are identified and how products or services are delivered.
To paraphrase Michael Porter of Harvard University’s Business School, competitive advantage is the product or service that a company offers—either better or more cheaply—over time than does its competitors. Your company’s competitive advantage is the reason your customers buy from you instead of from your competitors. You may well know your company’s competitive advantage if you have one. If your company does not, you are competing on price alone and this will need to be corrected to be considered by a buyer.
The Pathway Value Driver Program
First, we complete a business assessment to create a set point to begin from.
In step 1, we create a comprehensive evaluation of your current business position to formulate a complete strategic plan that will prepare your business for sale using the value drivers.
Change is a pertinent ingredient of growth because proactive change is positive. It can be painful, certainly, but PROACTIVE change is almost always positive.
Next, we develop a strategic plan that includes the value drivers.
In step 2, we articulates where your organization is going and the actions needed to make progress.
We set priorities, focus energy and resources, strengthen operations, ensure that employees and other stakeholders are working toward common goals, establish agreement around intended outcomes and results. This may include the development of an operations manuals, sale and marketing manual, growth plan and cash flow plan that provides an attractive document for future buyers.
This can also include focusing resources to increase sales to existing customers in to increase, the development of reoccurring income, and expanding your existing customer base to increase revenue and profit margins.
Now we get to work. Think of me as a temporary partner — together we create and action each of the stages.
In step 3, we begin the execution of our plan by developing each of the value drivers for your business.
Most often businesses do not have a written operations plan, sales and marketing plan or growth plan. As your temporary business partner, we identify all business procedures, roles and accountability systems for the business to create a complete BOS for a prospective buyer.
If boosting your businesses sales is needed, we execute a Proactive Plan that includes the generation of new sales and marketing campaigns that deliver new revenue from existing customers. The development of reoccurring income, and expanding your existing customer base will also assist increasing your revenue and profit margins.
Review and Reassess. To ensure we are are on track, we ensure our milestone are being completed.
In step 4, we review all the work we have done and evaluate the current state of your business to ensure improvement is taking effect.
Developing a strategic plan and implementing value drivers will take several months to complete. By taking the time to review the work we have done provides the opportunity to reassess the work and make any strategy updates that may be needed.
Once your business has successfully developed each value driver, it will be time to for you to connect with a business broker or real estate agent to complete the next stage of your business ownership transfer.
Proactive Pathway's Value Driver Program for Small Businesses
This program begins the moment you commit to it.
Together we complete a comprehensive assessment – this way we know exactly where you are starting at (a set point), your primary challenges and where we need to begin creating change. This way we can get the fastest results for you.
At our second meeting, we will review the assessment and create the pathways for an 18 month plan.
Next, we will meet again the following week to begin step 3. I will begin developing your plan and defining your value drivers that you will need for step 2.
Together, over the next 24 weeks we will implement the value drivers for your business. As your temporary business partner, I will help you develop and implement each of the value drivers.
Business confidentiality is a priority. Systems and procedures are in place throughout the whole consulting process to protect the identity, information, clients and customers of your business.
I take confidentiality seriously and sign an NDA agreement at the start of an engagement.
I take steps to make sure that you are only contacted by private e-mail and private phone numbers to ensure employees are not informed of your decision to sell until you determine the timing is right for you.
What Does Business Consulting Cost?
Well, consulting doesn’t cost – it pays.
Business consulting is an investment that usually begins to pay off immediately and will continue paying off as you transform your business. Everything you learn can continue to be used to create a business that can thrive without you.
If you qualify – and do the work – I offer a guarantee:
If the 6 value drivers are not integrated with your business after 24 weeks of consulting, I will work with you at no charge until that is true.
Consulting rates for small businesses earning less than $700,000 per year start at just $6,000 for 24 weeks of consulting and implementation.
The Real Cost is NOT Getting Business Consulting
Here’s some free business consulting for you:
How much money do you want to get for your business?
How much was your latest offer or assessment worth?
Subtract the two figures. This is how much it is costing you – each and every month – that you put off learning what you need to learn, or changing what you need to change.