In my last newsletter I discussed the three exit strategies business owners can use when they decide to sell their business. As a review they are; outside sale, inside transition sale, and passive ownership. Of course there is the liquidation sale which happens when there is no future planning. Liquidate and see what you can get, however I do not consider this an exit strategy.
So what does a blueprint for exiting your business look like?
First: You must influence your personal company culture. Employees need to know the values and principles you have formed over the years of your business life so they understand the mission. What needs to be communicated is how you started the company and how you built it up. The values behind all that effort needs to be communicated to your employees, vendors, and anyone who will listen, especially potential purchasers of your business. By doing so you will gradually build a strong culture in your own organization that will remain in place whether you’re planning on being absent for a long period of time, or just a short period. A healthy culture makes your company more attractive to buyers and sets the course for more options such as inside sale, or passive ownership.
Second: Your cash flow needs to improve. Outside buyers are looking for companies with strong cash flow. With a strong cash flow, you will also have the cash flow for an inside transition. Your family members or employees can use this cash flow to buy you out over time (inside or passive ownership). In many cases by using inside transition with a healthy cash flow will save you substantial taxes when you sell the business. If you have good cash flow you can also choose passive ownership, which allows you to sit on the beach, read a book, cigar in hand and conduct your business while paying key management people good wages to run your business.
Good cash flows just don’t happen. The first place to start is to have consistent weekly cash flow meetings. You and your team will talk about how to increase revenue or decrease costs. You’d be surprised what these meetings will accomplish over time. In many cases these meetings will create money making ideas that were never considered. You must set the stage and be consistent with the meetings as they are very important.
Third: You need to start delegating your tasks which you work on day-to-day. Delegate everything you can. Future owners don’t want you around the business, instead they want your key management group. By doing all the tasks yourself you eliminate the growth of your company and your key management group of employees. Remember, you are not for sale it’s the key people who know what to do and how to get it done which the purchaser wants. You need to identify two or three things that you love to do and do well. These are the tasks to focus on. All the rest should be delegated. By doing so, your company becomes less dependent on you and more valuable to an outside investor. You are still important to the company but less dependent.
Fourth: Take more time off from work and away from the office. Turn off the cell phone, don’t look at your emails, start creating a life for yourself outside of your business. This is extremely important because it will create a mindset for the future when you do retire. Perhaps you want to enjoy traveling, doing more things with your family, golfing. Whatever it might be take the time now to enjoy it.
Fifth: Create a growth oriented company. Buyers are looking for companies that
are growing, and which are in the growth mode. For example, if you are running a business that is running at 100% capacity it will not be very attractive to investors because there is little upward potential. Investors also know they would be paying top dollar for your company. Investors are looking for companies that can double or triple in size. You must put systems and strategies into play that will grow your company. Putting your company on the road of growth requires new thinking and new ideas. Have a growth meeting once a month with your key management group, you’d be amazed how much business can grow when thinking in terms of new products and new services to sell to existing customers and acquiring new customers. You might find distribution channels, or new strategic partnerships. You might consider expanding or relocating into a new geographical area.
There are many ways to get your company in growth mode. The point is that you need to show your company encourages growth. Investors are not looking for a stagnant company. Be dynamic and futuristic, that is what investors are looking for.
By being in a growth oriented mode creates a great opportunity for you to start removing yourself out of the sales equation. Instead it is a time to start handing over more responsibilities to your management team. It takes vision, planning and determination. It doesn’t happen on its own. Growing your company will take time and patience. You need to train people, have them embrace your culture, and allow them to take over your duties. This strategy should be designed around a 2 to 5-year time horizon, maybe longer.
Run your business today like it’s on the market to be sold, much like you were going to sell a house today. If you were selling your home, you would have everything up to date. By doing so, you would receive the best offer. You’d be surprised how many great ideas that you come up with being in that mindset.