It pays to prepare your business for sale
I recently returned from a European vacation. After a week
hiking in the mountains in Eastern Europe (let me tell you, it’s nice being
where there are no phones or e-mail), we concluded the trip with a 180-degree
turn, a week in London.
While there, I picked up the Sunday London Times. The
business section had an article titled, “Grooming your firm to attract a
buyer.” A good article with wise advice. Let me share their top tips and then
add a few big picture items. Combined, they’ll really help you get a better
price, better terms and give the buyer a greater chance to succeed.
Here are their four tips (I’ve edited these for brevity
and put my comments in parenthesis) followed by my three big-picture strategies.
Amazing how that will get a buyer in the buying mood.
That’s why it may take longer than one year of preparation time. Especially if
you’ve been using a lot of tax avoidance strategies. I’ve always maintained
that a company with a healthy bottom line and a nice salary to the owner is
easier to sell than one where you have to justify all the expenses you claim
aren’t really necessary.
In the mid-nineties a client was buying a business that was
for sale because the husband was deathly ill. The wife, who ran the company,
took advantage of every strategy and loophole available to reduce taxes (and
then some). Expenses like the personal phone bill went through the company.
Although she never admitted it, I’ll bet some cash sales never made it to the
register.
She acknowledged the fact that if she hadn’t done all of
this maneuvering the price of the business would be $150,000 higher. She was
saving, at the most, $15,000 a year in taxes. That’s a lot of years to make up
the price difference.
Systems doesn’t mean process management like at GE, GM or
Boeing. It means documenting what you do, what’s worked, what hasn’t, etc.
It could be as simple as ‘we don’t order the customers product until the
deposit is received,’ ‘we don’t start a job until all the materials are
in’ or ‘we make bank deposits daily.’
How your employees interact with customers (what they do
and say) can be considered a system. In fact, anything that is done repeatedly
is a system and needs to be documented.
Look at marketing, operations, sales, production,
administration and financial. Keep a book of how different tasks are handled and
why. Make sure your employees are familiar with what you do in these areas and
why.
It all starts with research. Knowing what your customers
want, how to get the best deal from suppliers or scheduling employees so
you’re covered during peak periods and not over-staffed during the slow times.
My daughter works at Tully’s. She told me the new manager
is organizing things so that the employees don’t have to keep doing things
over and over (that should really be done once).
Okay, admit it. For many of you, the word marketing leads
to a cold sweat. It’s the topic that will always fill a room and generate
interest. It’s the term most used by owners to describe the potential of their
business, as in, “We’re not very good at marketing so if a new owner could
market the business there’s a lot of potential.”
The basics are really not that difficult. Again, it starts
with research about your customers. It’s knowing the problem you solve for
them, the benefits they perceive, where they come from and why they do business
with you.
The problem is that too many people confuse advertising
with marketing. They try something, it doesn’t work and they think that either
they don’t know much about marketing or that marketing doesn’t work. A
business owner in Renton with a retail customer base that is usually no more
than 5 miles from his store was going to spend thousands with a major radio
station. Yet most of the people hearing his ads were never going to come to his
store ¾
no matter how good the offer he made.
There are a lot of things you can do to groom your business for sale. The more time you take to do so the better. The more emphasis on profits and what creates those profits the better. There will always be a good buyer, willing to pay a fair price, for a profitable company.