By Dave Driscoll
Making preparation a priority well in advance of your actual desired departure date gives us time to enhance the value drivers of your business, while also identifying the aspects of the business that will detract from business value.
The best lens to view the value of your business is through the eyes of a buyer. Think about it; your opinion of your business value is biased. As the owner, it’s hard to separate the emotion from the reality that a business must support itself, as well as the owner. And the risks associated with ownership should be commensurate with financial returns. Basically, the financial gain must be worth the risk!
Ultimately, that’s the criteria a buyer will use to decide whether they should pursue the purchase of your business.
Recently, I met with two different business owners hoping to sell their businesses in the next several years. Both have strong businesses without any perceived or immediate threats to their futures.
The businesses are of investment caliber, meaning the business provides a living wage for the owner, while also producing additional cash to qualify as investment returns. To explain, if you were to hire a general manager to run your business on a day-to-day basis, the cost of that hire naturally would be subtracted from the total cash flow the business generates. If the business produces additional cash beyond the cost of the general manager, the excess cash would be considered return on investment (ROI).
So far, so good, for our two owners, but there is more to be considered regarding how well they are positioned to sell…
Remember, we are looking at this from the buyer’s perspective. Both businesses completely revolve around the owner. An owner-centric business presents two big concerns for a buyer considering buying a business for potentially millions of dollars:
Does the buyer have the confidence in themselves to match the skills of the seller?
Is the business’ success dependent on the personality of the seller?
The business should not be dependent on the owner for successful operation and profitability.
Between the personal sense of responsibility and the associated ego boost, of course owners enjoy being the center of activity for their businesses! But at the end of the day, owner-dependence will damage the chance of selling a business for maximum value.
The solution is to create a structure in which the business becomes less dependent on the particular skills of the owner and more reliant on the talents of the staff responsible for running the business.
Delegate authority and responsibility to competent staff, and share the success of their efforts to build the ultimate sustaining value in your business.
An excellent way to test your company’s owner-dependence is to go on a real vacation (no checking voicemail and emails multiple times per day!). Can your business continue to function and succeed if you are unavailable for a few weeks or a month? If not, make sure your staff receives the training and support needed to build ability and confidence. Likewise, you must grant your company leadership the true authority to lead as needed. Delegating authority can be frightening, but a business that is owner-dependent is worthless when that owner leaves.
Who would have thought that “Gone Fishing” is an excellent way to prepare to sell your business?
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