Transitions Digest

By Chuck Chrissis, The Growth Coach®

Equally important to thinking and acting like a CEO is the opportunity to become a sculptor of your business. Make time to craft and mold your business so it will run more effectively and deliver more consistent results. Actively shape and re-shape it to make operations smoother and more efficient. Turn chaos and confusion into order and discipline. Rising customer satisfaction and more predictable profits will follow. It’s time to standardize and document your business.

Challenge old beliefs about how your business should work. It’s never too early or too late to shape or re-shape your business. It doesn’t matter if your business is 20 years old, 2 years old, or still on the drawing board. Begin to mold the company to run without you being woven into its very fabric. Design it to run without you supplying all the energy and effort. You can’t control everything and everyone, nor should you. In short, behave like a strategic business owner. Let go!

Do this by creating more than simply a job for yourself. The ultimate goal of starting a business is to sell it one day at the highest possible premium to your employees, family members, or an outside buyer. You deserve an acceptable return on your time, talent, and capital.

No matter the size, age, or industry, every business should be prepared to be sold. Yours is no different. This “start with the end in mind” strategy should help focus you on building an effective business model that doesn’t have you at the center of its universe and doesn’t rely on your presence, personality, and perspiration for its success. In other words, you should not be the business and the business should not be you. This work-in-reverse approach not only maximizes your selling price, but minimizes the challenges and headaches while you own and run the business.

As mentioned earlier, your goal is to design and re-design your business to work without you. Your business model should be sculpted in such a way that it can be replicated easily and often in cities across the country and around the world. All that’s necessary is your vision, not your physical presence and exertion. Whether you intend to expand or not, such a goal will help focus you on building a systems-dependent, not owner dependent business that will generate repeatable performance and consistent results.  And you must get others to help. Without them you don’t run a business – you work a job.

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What is an effective business system? It is simply an integrated web of separate processes, procedures, and policies. A business system is your documented instruction manual for “this is what we do, and how we do it” at our company. A business system allows you to get consistent results through other people. What tremendous leverage and freedom that can give you!

Some typical operating processes are:

• Selling
• Marketing
• Manufacturing
• Inventory Management
• Order Processing and Fulfillment
• Customer Service
• Billing and Accounts Receivable
• Procurement and Accounts Payable
• Facilities Management
• Accounting and Finance
• Human Resources
• Information Systems

With such processes fully identified and explained, your employees will deliver amazing consistency by minimizing employee discretion. Such a system will also free you from having to touch every transaction, make every decision, answer every question, and solve every problem. You can manage by exception! Such a carefully crafted approach affords you breathing room to think and behave like a strategic business owner. You will also have time for the personal activities that matter most to you.

Without a business system in place, it’s unlikely you will be able to obtain a premium price for your business. A potential buyer may be unwilling to invest in an enterprise that is dependent solely on you for its day-to-day operations and survival. If it’s obvious that you are held hostage to your business, you may not realistically expect to achieve a sale price you find acceptable. If it’s obvious the business is systems-deficient, then it’s unlikely an objective third party will offer you a price that reflects the time and effort you have put into your business. Rather, emotion, not reason will come to rule the transaction and may very well derail it.

To maximize your company’s eventual selling price, realize that buyers want to acquire a smoothly-running, money-generating machine. They want to purchase a business system that runs on near autopilot. They want to buy a fully documented and organized business system that gets predictable results. They desire an asset with a proven track record, predictable revenue stream, and growth potential. Give them this by first taking the opportunity to step back, let go, and become a sculptor of your business.

 Let us know your insights by commenting on our blog post below.  

By Chuck Chrissis
The Growth Coach®

Subsequent issues of The Exit Planning Digest discuss all aspects of Exit Planning. The provider of this Newsletter (Holly A. Magister, CPA, CFP®) offers you unbiased information about what you may need to know. Subscribe to our free Exit Planning educational newsletter to learn more about how to grow and/or plan for your business exit.

Posted on October 29th, 2009 under Building Value, Business Growth, Entrepreneurship, Exit Planning Digest. Tags: business processes, coaching, Exit Planning, exit strategies, process of selling a business. Comments: None

By Holly A. Magister, CPA, CFP®

Without a single doubt, there is only one obstacle or “deal breaker” that I have come across over the years that is insurmountable.  And it always surprises the Seller.  “What could that be?” you are wondering.
 
Well, before we get to that, let’s talk a bit about what makes a business valuable after the Seller departs for his/her golden years in retirement. 
 
A Buyer wants a business that will sustain itself in good times and in bad times.  Recently, we all have learned what those “bad times” feel like in more ways that most of us can count.  Those bad times have brought havoc to virtually every industry across every nation.  Long term sustainability requires a business cash flow to have a “quality” about it.  Positive cash flow is not sufficient; instead it must be cash flow that will endure.  (Cash flow quality will be covered in a subsequent article.) 
 
A Buyer wants a business that is not riddled with conflicts, lawsuits, and the like.  Essentially a poor reputation in the marketplace and local business community is very unattractive.  Nonetheless, it is typically not a deal breaker.  Many Buyers will take on such a challenge hoping their own ethically sound business practices will repair and rejuvenate the business and its future prospect for success.
 
A Buyer wants the Seller to be truthful about its past operations and future opportunities.  This is why we recommend you hire the best accounting firm you can afford to assist you in preparation of your financial statements if you intend to sell your business in the next three-to-five years.

A Buyer wants to know that the day the founding Entrepreneur receives his/her equivalent to the corporate “golden parachute”, that the business will continue to operate without a misstep.  Indeed, this is where deals break down.

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In all my years working closely with founding Entrepreneurs, I still find it highly unusual to find one truly preparing their business for that day.  Most Entrepreneurs are very good at doing many tasks.  You know them too…Jack of all trades!   It is their innate ability to do many things well that gave them the courage and energy to start their business in the first place.   No one is better suited to succeed in a business endeavor than someone who can handle many tasks coupled with endless stamina.  And for most founding Entrepreneurs, delegating anything to others is difficult at best!

Regardless of the stress that delegation to others may cause the Entrepreneur, it is wise and necessary to begin the process of delegation sooner than later.  When a buyer looks seriously at a business for its long term financial opportunity, they want a business that operates without the founder.  And they want to know that it has been operating without the direct contribution of effort from the Entrepreneur for a reasonable period of time. 

When the situation is not one where the business operates through the efforts of key management and other employees, many Buyers lose interest and walk away.  If they are willing to take on the challenge to replace the efforts and talents of the Entrepreneur post sale, the price paid is either reduced or contingent on future success of the business.  Neither consequence is a good one! 

Unfortunately, when the Entrepreneur receives negative feedback from a potential Buyer regarding the need to “replace” the CEO, they often say “I wish I knew the importance of this issue years ago”.   Don’t underestimate this matter and be one of those disappointed Entrepreneurs.

 Let us know your insights by commenting on our blog post below.  

Holly A. Magister, CPA, CFP
Enterprise Transitions, LLP

Subsequent issues of The Exit Planning Digest discuss all aspects of Exit Planning. The provider of this Newsletter (Holly A. Magister, CPA, CFP®) offers you unbiased information about what you may need to know. Subscribe to our free Exit Planning educational newsletter to learn more about how to grow and/or plan for your business exit.

Posted on October 29th, 2009 under Building Value, Entrepreneurship, Exit Planning, Exit Planning Digest. Tags: business planning, Exit Planning, exit strategy, planning for retirement, process of selling a business, sell a business, sell businesses, sell my business, selling a family business. Comments: None