Deciding to sell your business is a big decision, but preparing the business for sale can sometimes take years. There are many factors that must be considered and executed to be certain that the sale will hold up in the due diligence process, and that the highest sale value is obtained.
One of the hardest issues we must deal with when selling our business is pulling back from the day-to-day operations of the company. This can be a very difficult process, first because of all the blood, sweat and tears we’ve put into the business. However, it’s also difficult to break a lifestyle cycle we’ve held onto for so many years – working at all hours and wearing many hats whenever necessary. As business owners, it is hard to relinquish control and believe that someone else can perform the same functions.
Identifying Your Goals
All of these factors may be true, but herein lies the issue: if we are truly the only one that is able to run our business, we are potentially harming its value.
Try to see this from a potential buyer’s perspective: if everything runs through you, the owner, what happens to the business when you are no longer there? There is a tremendous risk from a buyer’s viewpoint, and they may want to discount the price of the business as a result. In order to sell this business you’d have to find someone exactly like yourself with the same skill set, but 25-30 years younger. Truthfully, that’s like finding a needle in a haystack.
You, as the owner, must identify what your personal objective for the business is. If it’s a cash flow and lifestyle business, then you may never need to sell it. If you want to prepare the business for a future sale, then you need to develop a process and a team where the business will flourish without you. It is counterintuitive to some degree. Major functions and areas of responsibility need to be handed off. Your ultimate goal is to become redundant and replaceable.
How to Prepare Your Business for Your Retirement
Below are suggestions as to how this might be accomplished over time:
- Keep your direct reports to no more than five. With your other responsibilities, this is a full plate. This will force you to delegate and organize.
- Organize around task functions and departments. Sales, marketing, operations, finance, technology and HR are all different departments and within each of these, there are task functions. Start by organizing and delegating responsibilities.
- Be clear around objectives, goals and vision. Have clearly stated goals and objectives where everyone understands what “success” is. If the team is guessing what you want to get done, then they may or may not get it right. If your desires have been clearly articulated, they may fail on execution, but at least they will be clear on intention.
- Start small and build. Assign various tasks to others and let them perform. Delegate tasks off your plate and start spending more time away from the office. Leave early, take long weekends, two-week vacations (maybe more?). This will give you and the team more confidence that the business can run without you.
- Build processes and automate where possible. A clear process map will reduce the chances of error. If you can utilize technology and automate the process, not only are you increasing the likelihood of success but you also drive costs down – a double win.
- Build a team. Build the best team you possibly can. Put your ego aside, stop thinking that you are the smartest in the room. Bring in bright, talented, passionate, younger individuals that you would trust with your life. Guide them, encourage them, mentor them – you set the strategy and let them carry out the plan. They will make mistakes, that is to be expected. Help them learn and not get discouraged.
Remember that the objective is to maximize the value of your business for a sale. Building a scalable business that can run without you is one area to consider. This is what buyers are looking for because it reduces the risk upon your departure and allows the highest sales price. Keep the end game in mind.