Business #1, the owner shows you a procedure manual with each process documented to the smallest detail. 

Business #2, the owner tells you he and his employees have “everything in their heads” and just “wing it” as they see fit.
You, like me, would take the documented business every time. So what is the value of having procedures documents?

1. Best practices and hard learned lessons (and costly) are captured to avoid repeating past mistakes.

2. New employees can be easily trained from them.

3. They provide consistency of how things are handled for employees and clients.

4. When you lose an employee, their knowledge does not leave with them.

5. The procedure insures all employees follow the exact same process.

6. It will impress a perspective buyer should you decide to sell your business.
Here are a couple of recommendations for writing procedures…

• Have each employee detail their own procedures they follow every day

• Have employees follow a template for SOP (Standard Operating Procedures). Contact me and I will send you one.

• Appoint one person to review each procedure and ensure consistency between them

• Create a process that makes certain procedures are reviewed every six months (once a year at a minimum)

• Establish and document a control process that keeps the most current procedures readily accessible to all employees.

Read my eBook “How to Prepare Your Business For Sale” for more imformation.

You know you need a Business Plan, Strategic Plan, and Marketing Plans, but have you thought about having an Exit Plan?

The primary reason you need an Exit Plan is that someday you are going to exit your business, one way or another.  Isn’t it reasonable to make sure your exit meets your goals and objectives? 

Please consider the following questions:
• How soon do you want to leave your business?
• Do you know how much your business is worth?
• How much money do you need to take out of your business to meet your goals?
• Do you want to sell your business to a third party and cash out?
• Would you like to transfer your business to a family member or employee(s)?
• Do you have anything in place in case you die or are disabled prior to your planned exit?
• Have you determined the best exit strategy that will reduce your risks and reduce your tax burden?

These are just a few of the many questions that Exit Planning helps you answer and design the appropriate action plans.

This subject is covered in more detail in my eBook “How to Prepare Your Business For Sale”.

You could go on-line and list your business for a very low cost, but is that really wise? My professional opinion is that you should stick with a good business broker (business intermediary).

The scenario is similar to the home owner who does not want to pay the real estate agent a commission, and think they can save by listing it themselves.  Typically the buyer ends up with the price close to where it would have been, after agent fees, with a lot more work and stress in the process.

Selling a business is much more complicated than selling a house.  You can get an idea of what your house is worth by comparing it with houses in your neighborhood.  Try that with your business.

And even if you found a business nearby of similar size, there are many factors the go into determining the value.  Things like:

Customer base
Employees
Cash flow
Industry niche
Performance measures
Organization
Systems documentation
Etc.

With these and many other “Value Drivers”, you can see how difficult it is determining the right value on your own.

Another factor in selling a business is the emotional factor.  You could be offended in negotiations when a potential buyer points out the problems and issues with your company.  You really need a third party to do the negotiations between a buyer and seller.  It helps in real estate and even more in selling a business.
 
Lastly, you have too many dollars at stake to go it alone.  A good business broker who has been around the block will help you in ways you can’t imagine.  The broker could possibly get you hundreds of thousands of extra dollars because they can find a strategic buyer that will pay a premium for your company.

I am not a broker, but I work closely with them for clients who want to maximize the value of their business.

Be sure you find a good broker that closes a high percentage of their deals.  The national broker statistics show that only 18% of the listings actually sell.  Good brokers can be in the 90% range.  Be careful, get references, follow your instincts, and do your homework.

Read “How to Prepare Your Business For Sale” for more information.

REASON #1 – YOU DON’T HAVE A CLUE WHAT THE REAL VALUE OF YOUR BUSINESS IS.
The chances of you being able to tell me within + or – 10% what the value of your business is slim to none.  I have spoken with many Business Valuation Professionals and they tell me that 90% of the time an owner has it overvalued and the other 10% have it undervalued.
Remember the famous Jack Nicholson line from “A Few Good Men”, “You can’t handle the truth!”?  That is where many business owners are.  They live in this fantasy land, not knowing what the real value, the true “Market Value” of their business is.
So, Reason #1 is all about starting from a position of truth and reality.

REASON #2 – IT GIVES US SOMETHING TO WORK FROM
Know the true value of your business gives us some answers we need to pressing questions.  Here are a few…
• Will it sell for enough money for me to retire?
• Can I sell it now or should I build the value and sell it later?
• What do I need to do to increase the value?

Work only with a Valuation Expert that will be able to discuss with you why they valued it the way they did and what you need to change or improve in your business to get a higher valuation.
The focus of PE³ is to help owners increase their business value by working on what we call the “Value Drivers”.  Value Drivers are the things in your business that you can be working on between now and the time you chose to sell. 
In conclusion, here are your Action Items…
• Know the Truth
• Work on the Value Drivers

Work on the things that drive value in the mind of the buyer!

I said simple, not easy.  It can be very difficult to see through the eyes of the person who might buy your company.  You are too close to your business to see it objectively.  I discuss this at length in a complimentary report on my website called “The Secret to selling your business at a premium price”.

In my eBook on “How to Prepare Your Business For Sale”, I take the reader through more than twelve “Value Drivers” that will affect the sale price and salability of a business.  When you work on improving these focus areas, the sale value goes up dramatically.

If your business is worth $2 million today, can you imagine it being worth $4 million in just three short years?  I think it is a goal worth striving for.

In another blog I discussed the importance of obtaining a professional business valuation to determine the current value of your business.  This will also help you understand the “value drivers” of your industry and what it would take to dramatically change the value of your business.  It is very important to know where you are before you can plot a course to get where you want to go.

Doubling business value in three years is simply asking for a 26% value increase each year.  Let me give you three areas of focus to get you started:

• Improve cash flow
• Improve the skills of your employee team
• Demonstrate increased customer satisfaction

Set a goal to double the value of your business in three years and take action NOW!

Read my eBook on “How to Prepare Your Business For Sale” for more information.

Investors interested in buying your business are not likely to be planning on running it on a daily basis.  You need to demonstrate that your company can function for long periods of time without you.

Are you a business owner who hold’s tightly to the reigns?
Do you delegate critical processes and responsibilities to key employees?
Can you go to Europe for 6 weeks with little concern about your business?

Here are some specific recommendations for developing some key leaders in your company.

• Look at your current employees and select several key leaders (if no one fits the bill, you need to start with recruiting).
• Perform skills, attitude and ability testing on each employee (contact PE³ for testing resources).
• Evaluate test results and look for strengths that can be utilized and weaknesses that need to be developed.
• Create a Leadership Development Plan for your key employee(s).
• Invest in training and resources to develop their skills.
• Consider methods to ensure employee retention (it would be disastrous to lose a key employee(s) right before a sale).
• Consider developing a Non-compete Agreement
• Begin delegating important roles to key employee(s)
• Monitor closely.  You can delegate authority, but in the end it is still the responsibility of the owner to insure the outcome meet expectations.
• Take a long trip.  I know owners who have admitted their business actually ran better while they were gone.  I hope you will be able to make the same statement.

In his book “Good to Great”, Jim Collins makes a great analogy of getting the right people on the bus, and the wrong people off the bus.  As the owner and leader of your company, you need to have the right people in your business if you want to sell it for a premium price.  Without good management, you may not be able to sell your business at all.

This subject is covered in more detail my eBook “How to Prepare Your Business For Sale”.

The answer is vague but there are many things to consider before that question can be answered.

There are some situations that force business owners to sell their business, even if the timing is not ideal.  Common issues that can force an untimely sale are health problems of the owner or family members, divorce, or even partnership difficulties.

Assuming these are not your current circumstances, I would recommend you wait a few years for the following reasons;

  • It will give you time to work on what we call “Value Drivers”, the things that will affect the sale price of your business.

  • Waiting will allow the current economic climate to settle down.  Because of the recession and the difficulty buyers are having in finding financial capital, waiting could be advantageous.

No matter what your situation, the best advice we can give is to work on your “Value Drivers”.  

There are also some good strategies for transferring your business to family members or employees, if that is your objective.  Transferring to insiders has its challenges, but can be done effectively with the right help.  You will not need to wait for the economy to change or value drivers to improve on an insider transfer.

Order “How to Prepare Your Business For Sale” for more information.

I am sure you are watching important financial numbers like…
   • Sales
   • Cash flow projections
   • Quick Ratios
   • Gross Profit %
   • Net Profit %
   • Inventory turns
   • Days receivables outstanding
   • Etc.

I would like to propose you monthly watch a different metric…

Business Estimated Market Value

Most people don’t watch this because it is very difficult to measure and can be subjective.  I created a metric for my printing business in the early 90’s that I watched every month along with a list of 20 other financial ratios. 

The best way to create this metric would be to have a business valuation done first.  You would then need to work closely with your business valuation expert to determine a formula you could use.  We will talk more in future blogs about getting a certified business valuation.
I determined a formula based on EBITDA.  I added back some owner SDE (Seller Discretionary Earnings) and then multiplied by my “multiplier”.  Your Business Valuation professional will help you with determining that number or they may use a “discount rate”.
Business owners need to start thinking about ways to watch the really important number, the true value of your business.

82 out of 100 businesses fail in their attempt to sell their businesses. 82% failure rate very sad. I think of all those owners with high hopes of fast cash and money to fund their next adventure. Some will try again, others will liquidate, and others will just hang on as long as they can.

It doesn’t have to be that way. There are four key strategies that any business owner can follow to increase their value and the odds.

Strategy #1 – Perspective! You must understand the potential buyer’s perspective. You have to see your business through their eyes. This is had to do because owners are too close to the business to see its flaws like an outsider can.

Strategy #2 – Planning! Develop a transition plan. Get help from experts. I like to find out the exact market value of a business with a certified appraisal and study those things that are driving down the value. Develop a plan to improve each value driver that will increase the sale price of the business.

Strategy #3 – Performance! Know your performance numbers. Clean up your books and compare your profit performance and many other metrics with other businesses in your industry. A potential buyer will scrutinize them very carefully.

Strategy #4 – People! Focus on the people that make up your organization. Make certain you a staff that a new owner would see as an asset and realize he needs them to stay successful. Ideally the employees would be able to function for long periods of time without the owner’s presence.

In conclusion, a business owner can greatly increase the value of their business and the likelihood of finding a buyer. It will take effort, planning and the help of experts, but the dividends are incredible!