Even if business owners never say it out loud, they know that one day they will need to leave the business they have nurtured and cared for every day. Especially for founders, planning for that day may prove to be difficult. Business owners who take into consideration the inevitable will likely sell the business at a higher value. Implementing an exit strategy over time puts business owners in the best position to positively impact the outcome. Consider these “Six Ps” throughout the development and growth of your business that will help you maximize the enterprise value when the time comes to sell.
Products and/or services
What sets you apart from your competitors? Identifying your sustainable competitive advantage early on, and building on it will only increase the value of your business when it comes time to sell.
Profits
A future buyer will look at hard numbers, and great products or services that are filling a need should be resulting in reasonable profit margins over time. While start-up entities may need several years to reach break-even or profit levels, a mature company should be posting a trend of profits from the business. This is key to many deals where the purchase and sale value of the enterprise is based on a common metric being a multiple applied to earnings.
Processes for delivery
Buyers want synergy among their investments. Efficient processes that apply to other businesses they own increase the value of your company. Develop and refine the processes by which your product or service is taken to market. Distribution networks or channels, franchising models, etc. all have definitive value to a potential suitor.
Practices - Governance and controls
These are the basic nuts and bolts of how you run your company. Buyers will be looking at how your company runs on a daily basis to overall governance (i.e., – do you have a board of directors?) to the effectiveness of your internal controls. Well-run businesses command a higher value than those whose infrastructure and systems need an update.
People - Management and successors
It is often said that great deals depend on 3 things – Management, management and management. Who is your team, and is everybody playing the right position? The buyer will value well trained and solid performers with the ability to run the business. . One test for the sole-proprietor owner - can your business continue to run and prosper without you?
Planning - Be prepared.
While I made this the last “P” of the list, it could just as easily be placed in the first position. Whether you are anticipating selling/transitioning your business in 3 years or 30 years, put yourself and your business ahead of the curve before a buyer knocks at your door by addressing these items. It is never too early to focus on the future.
Wayne R. Pinnell, CPA, is a founding member and serves on the advisory board for the Center for Business Growth. Wayne has over 30 years serving business owners in his public accounting career. He is managing partner of Haskell & White, LLP, one of the largest independently owned accounting, auditing and tax consulting firms in Southern California, servicing public and private middle-market companies. Wayne consults with a number of companies on their general business operations including workflow, waste reduction, strategy, and growth/profit initiatives. He can be reached at WPinnell@hwcpa.com or 949-450-6200.