Is your business for sale? Most likely not, as most companies are not actively for sale at any given time. What would you change about your business if it was soon to be for sale? What would you change and improve to be sure you received the very best offer?
If you know there are improvements to make for a future buyer, ask “Why not make them for myself, right now? Why settle for less than peak performance?”
Financials should be in great shape, up-to-date, clearly showing the many details of your business and making it clear that revenue, expenses and profit and owner wealth are realistic. If yours are not, ask your CPA to make them “buyer ready.”
I work with my business owner clients on three aspects of companies other than financials that can impact the purchase price. Read about the improvements owners like you are making even though their businesses are not currently for sale.
Positioning and Brand Strength
A CPA firm was positioned as a “me-too” firm for years. They mostly offered tax returns to corporations and individuals. They performed audits when necessary. They did a small amount of payroll and bookkeeping. They did nothing to break out of the mold.
There were two choices: aggressively pursue more of the same or undertake an all-out effort to re-position the firm. We undertook the positioning effort. He would position his company as Number One in a specific niche.
His positioning goal was to be the Number One comprehensive advisor for owners of companies worth $5 million to $75 million. He automated almost all compliance work (tax returns) and assigned audits and other historical reviews to his staff. He would be the primary spokesperson for the Advisory services and the brand ambassador.
Nine months into the effort, every client offered the Advisory service has been retained and quite a few new ones have come on board. Although he is not planning to sell his firm, it is in great shape, should he choose to.
Fees and revenue based on value
While many industries (law, accounting, architecture, design, consulting, professional services of all kinds, IT services, and others) typically charge for their expertise on an hourly basis, there is an inherent conflict that will erode the revenue over time.
It makes sense for current owners to switch to a fixed fee model where the fee is commensurate with the value the buyer receives from the seller. Overcoming angst and years of “that’s the way we do it” mentality isn’t easy. It is necessary though if you want to have a healthy business yourself and one that would be appealing to a buyer.
One professional services client agreed to make the switch with my help. We thoroughly studied invoices for the past two years, looking for trends and patterns, and identifying one-offs. With this data we were able to confidently create a model of value-based fees, knowing that it would be refined as he switched more clients to it.
The owner devoted 8 weeks to face-to-face conversations with many of their most valued clients, showing them how the value-based fees would benefit them and what they could expect. 98% of the clients he talked with were enthusiastic. They particularly loved the promise that no clock would be running at anytime.
After one year the P&L demonstrates the effectiveness of this change. Any prospective buyer would have confidence acquiring this company.
Culture that Supports Your Outcomes
Culture presents one of the hardest challenges of an acquisition. Culture, the sum of attitudes and behavior, too often “just happens.” Often a culture grows from the founding owner’s attitudes and behaviors and people copy it or adapt to it and no one ever takes a good look at it. If a company’s current culture would be a barrier to a buyer, it is also likely to be a barrier to reaching your most desired outcomes today.
Culture changes start from the top and must be attended to every single day. It’s not something you can change by bringing an expert trainer. You can’t put up posters and circulate slogans. People will copy the owner, so if the owner changes, the people will change.
The General Manager of an HVAC company I worked with was very brusque and always, always in a hurry. He’d bark out answers to questions and hurry through the building. So it was common for others to do the same. Most challenging was that the Customer Service manager copied the General Manager. Imagine the quality of the customer service when all the reps were surrounded by hurrying and barking all day long! Yet when I made these observations to the General Manager and the Customer Service Manager, they were genuinely surprised.
We took extensive steps to have the two managers slow down and speak more pleasantly to everyone. For the first couple of months I reminded them almost daily. And then in about the third month I was visiting and as we walked comfortably through the building the GM chatted pleasantly with quite a few people.
They are now seeing tremendous improvements in customer satisfaction, which reduces customer churn. This is great for the current owners and should they decide to exit, a buyer would find a culture that supports their significant revenue goals.
The Wealth Impact of Exit Readiness
Owner wealth is the compensation you earn for the risk and effort you put into running the company. Thinking in terms of “exit readiness” even if you’re not planning to exit will push you to higher EBITDA (earnings before interest, taxes, depreciation and amortization) which is the best indicator of owner wealth.
Why not start today? You are worth it.