What Laying Floor & Exiting a Business Have in Common
The last few weeks have seen us tearing up carpet, tack strip, underlay and glue and replacing it with tongue and groove floor boards. In the process of measuring, cutting, cutting again (yep, should have measured twice), hammering, the occasional cuss-word and some cold beer I got to thinking about the similarities with preparing a business for transition.
While the immediate result of the new flooring is a more desirable living space, the ultimate goal is to increase the value of the home at the point of sale sometime in the near future. Any real estate person will tell you that some parts of a home have an extra-large influence on what can be achieved at sale. Kitchens, bathrooms, and in our case flooring are examples. Other parts — cabinets in the garage and the condition of outside paving for example — don’t have nearly the influence on what a buyer is willing to pay.
A business sale has similar dynamics. Some parts of the business can have an outsized influence on the potential selling price (or if it can be sold at all). Here are a 4 critical areas to invest in now so as to maximize the wealth created in a future sale.
Get the books in order
Develop a set of financial accounts that is transparent, consistent and ideally can be validated by an outside expert such as a CPA.
Secure revenue
Where possible find ways to secure and/or demonstrate to a buyer that current revenue will be at minimum sustained into the future. In some businesses this might mean securing contracts. In others (such as retail) where contracts aren’t part of the equation, find ways to evidence customer retention (simple customer loyalty programs are one such way).
Build the bench
Many small to medium businesses are critically dependent on a few people. Should the proverbial bus go through and take out a particular staff person, it can get pretty ugly for a while. So, build up your bench of talent now. Buyers gain real confidence in knowing that staff are cross-trained and able to step up should a key staff member leave (which is a more likely occurrence at the point of ownership transition).
Show how you get it done
Most small business organizational knowledge is tacit — that is it lives in people’s heads and and results in an answer of “I don’t know exactly, I just do it” to the question of “how do you do that”. While such knowledge can’t even be fully made explicit (try documenting an intuitive sense of something), some things can and should be. A good place to start is documenting processes and systems so that any new buyer can have confidence that on Day 1 he or she has a good grasp on how to keep the day-to-day transactions going.
And yes, this might sound like a drag in the midst of everything else you have to do. House renovation creates similar feelings for me (dang it, should have measured one more time). But the common motivating factor in both house and business “renovations” is to ensure that the best sales price can be achieved at some point in the future.
(Andrew Taylor is a partner at Orange Kiwi, www.ockiwi.com, a firm solving organizational problems with simple, scalable solutions that last.)
