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Run
Your Business Like You Have To Sell It
By:
Richard Parker: Author of
How To Buy A Good Business At A Great
Price ©
 Industry
statistics indicate that the average
small business changes hands every five
years or so. If you’re thinking about
buying a business, or own one now, the
day will come (faster than you think),
when you’ll want to sell.
By
positioning your business to operate in
a certain manner staring today, you’ll
not only sell it for more, you’ll
actually make more money between now and
then.
The key to
selling anything is to make it easy for
someone to buy. This is especially true
when it comes to a business. There are
certain things that have an enormous
impact upon the eventual price you will
obtain.
A Problem
Later Is A Problem Now:
If there’s
something in your business that would
turn off a potential buyer, chances are
it’s also hurting your business today.
Typical examples are high customer
concentration, the possibility of losing
a key supplier or employee, contingent
liabilities, past claims, leases due to
expire, inaccurate inventory, poor
monitoring systems, etc.
While trying to build your business,
even if you have no plans to sell it,
look at it through the eyes of a
possible buyer. By simply identifying
possible issues, and fixing them, your
business will improve immediately.
Likewise, these matters will not come
back to haunt. Don’t think they’ll
disappear or that a savvy buyer won’t
uncover them. They’ll stick around and
hurt you today and down the road.
Keep Good Books and Records
Any business
broker will tell you that a business
with super-clean books gets the most
action, and usually the purchase price
is very close to the asking price. When
the time comes to sell, a business with
clean books and records will generally
selling in the shortest time frame
possible. In fact, this is usually the
number-one reason why deals fall apart
(outside of major, sudden surprises).
In operating your business today,
keeping great books will allow you to
always have a true grasp on your cash
flow and the ability to properly analyze
expense and other activity.
Systems, Policies and Procedures
I once read
that a company’s manuals, policies and
procedures should be explained in such a
way that the lowest-level employee can
understand them. If you incorporate a
methodology to deal with every possible
scenario that comes up, and modify it
continuously, think about the positive
impact that can have when the time comes
to train a new employee, expand the
office, or open a new location. Instead
of wasting endless hours getting people
up to speed, all you need to do is
“throw the book at them”.
Similarly,
every buyer is concerned that too much
of the business may be new to them or
that they won’t ever be able to grasp
the guts of the business. With top-notch
manuals, systems and procedures, this
concern will be completely eliminated so
they can focus on replacing you
effectively.
What
happens if you get hit by a cement truck
tomorrow?
Can anyone
step in and run the business? If they
can’t, and something happens to you, the
business will go down the tubes quickly.
Not only will they forfeit your income,
they certainly won’t be able to sell it.
So, if you are you “the business”,
better start working on your systems, or
be certain that you always look both
ways before your cross the street!
Unless an
individual comes from a like industry,
or is one of your current employees or
partners, they will be worried about the
transfer of your knowledge. Regardless
of how simple your business model may
be, training a new owner to do what you
do every day is crucial. The majority of
people buy businesses that are in new
industries (I don’t necessarily agree,
but that’s the fact). As they go deeper
into evaluating your business, they
usually get nervous by thinking about
all of the things they don’t know. If
you don’t have a simple mechanism to
show the new owner how to get up to
speed quickly, or if they fail because
your job role was too overwhelming for
them, you too can suffer if you’ve
participated in the financing.
Unreported Income – You Can’t Suck and
Blow!
If you’re in
a business where you remove “cash” and
don’t report it to the IRS, well of
course, that’s your business, and your
risk. The problem if you intend on
selling the business, is that you’re
only cheating yourself. Some people
claim that as long as you can “prove”
the figures you’ll be fine, but it’s not
that simple. You may not want to prove
the figures. If you’ve hidden it from
the IRS, do you really want a complete
stranger knowing about your “dirty
little secrets”?
Furthermore,
for every dollar you steal, you’re
probably saving thirty cents or so on
taxes. On $30,000 a year, over five
years, you’ve saved yourself a grand
total of $45,000 plus payroll taxes.
Now, if you take the same $30,000 per
year, and record it properly on your
books, the total amount will be added
back to the total figure that a buyer
will use to value the business,
including the payroll taxes. Here’s the
kicker: businesses sell at a multiple.
That same $30,000 will have a
two-three-times multiplier attached to
it. On the high side that $30,000 will
increase the value by $90,000. That’s
double what you saved by not reporting
it.
From an operational standpoint, that
same money kept in the business can be
used for all kinds of marketing or
business-building. Use it right; the
money can have a significant impact on
the business, which again will result in
more money while you own it, and two to
three times more when you sell it. Sure,
“cash” is sexy, but in reality it’s
nothing more than a temporarily high,
just like a “one-night stand".
When all is said and done, if you
approach the daily running of your
business like you have to sell it
tomorrow, you’ll find yourself
implementing strategies that will
immediately improve your business, and
will pay you multiple dividends down the
road when the day arrives to sell it.
For many,
owning a business is a dream. For some,
it will become reality. Your fate is in
your hands. Whether you choose a
start-up, franchise, or existing
business, it can be done. It’s up to
you. Currently, the market is in your
favor and the time is right, for you to
finally put yourself in a position to be
your own boss. |
