No matter how successful your organization is and how proud you are of the business you’ve built, there will come a day when you’ll need to step aside. Whether you sell the business to a private buyer or decide to go public, relinquishing control of a company you founded and have nurtured since day one can be painful.
However, even if the final decision is still off on the distant horizon, taking into consideration the inevitable passing of the torch will help you sell your business at a higher value and make the transition smoother for everyone involved. By shoring up your exit strategy well ahead of time—or at least, starting to turn it over in your mind and initiating a discussion with your business advisor—you’ll be in the best position to proactively and positively impact the outcome.
Start working with these six strategies—the “Six Ps,” as I call them—sooner rather than later. Consistently implementing the “Six Ps” throughout the development and growth of your business will help you maximize the enterprise value of your organization when the time is right to move on.
Strategy 1: Nail down your PRODUCTS (and/or services)
Get clear about exactly what you offer and exactly how you stand out from your competition. Become comfortable articulating it in words, in writing, in front of large groups and during intimate gatherings. Identifying your sustainable competitive advantage—and communicating it quickly—will increase the value and attractiveness of your business to potential buyers or investors.
Strategy 2: Maximize your PROFITS
This might sound like a no-brainer, but take a hard look at your numbers. Potential buyers certainly will.
If yours is a great product that is filling a true market need, you should be achieving a reasonable profit margin. Start-up entities might require a few years to break even or reach profitability, but this is to be expected. However, if yours is a mature company, you should be posting a trend of profits that you can demonstrate to buyers. The historical and future trend of growth is key to many deals where the purchase and sale value of the enterprise is based on a common metric being a multiple applied to earnings.
Strategy 3: Strengthen your PROCESSES for delivery
Potential buyers are going to look for ways that your product or service complements their investment portfolio. If you possess efficient processes that they can apply to other businesses they own, your company will suddenly appear even more enticing (read: more valuable). Take the time to refine and develop every aspect of the processes you use to bring your product or service to market. Get your distribution channels, franchising models and any other integral processes squared away, as they all have concrete ancillary value to buyers. Solicit unbiased input from your business advisors, if needed. Their perspective can be extremely valuable.
Strategy 4: Shore up your governance and controls PRACTICES
When was the last time you took a close look at the basic nuts and bolts of how your company is run? Buyers will scrutinize every aspect of every business practice, reviewing the entire scope of your organization, from operations to overall governance (ex. board of directors), to the effectiveness of your internal controls. Remember: well-run businesses command a higher value. If your infrastructure and systems need updating, the time to act is now.
Strategy 5: Make sure you put the right PEOPLE in place
You’ve probably heard the old business adage, “Great deals depend on three things: management, management, and management.” Evaluate all the individuals in every department of your company: is everyone in the ideal position? Future buyers will prioritize well-trained, solid performers—and their offer price will reflect it. If you’re a sole-proprietor owner, ask yourself truthfully if your business can continue to prosper without you. If the answer is “yes,” then you have done a great job of putting the right people in place. If not, you should act now to identify and fill the gap in skills and positions.
Strategy 6: Start PLANNING early
This one is probably the most important of all since it underscores the other strategies. The bottom line is: be prepared. Whether you’re thinking of selling within the next year or within the next decade, it’s never too early to focus on the future. Your business advisor can help you draft a plan that will break down each of these components into manageable steps so the whole process is less overwhelming.
Products, profits, processes, practices, people, and planning…these six fundamental components of your organization will determine the strength of the sale. By paying attention to the things that buyers will be looking for, you can make sure that you position yourself for a profitable sale and an enduring business that continues to succeed, long after the reins change hands.