It’s easy to see that when you sell a business, the buyer is purchasing all of your equipment, FF&E, cash flow and inventory. Those are quantifiable assets to which a tangible value can be attached. These assets are routinely thought of as “the business.” However, the buyer is also buying several even more important elements of your business that cannot be included on a bill of sale. These non-tangible assets include your reputation, your employees, customer and vendor relationships, your knowledge and your business operations.
To maximize the value of your business, an owner should minimize the reliance on the individual and increase the reliability of the system. A new owner needs to feel great comfort in your system. A buyer is trading cash and debt for your business. They have a strong belief that this trade will make them a better return than any other thing they can do with that cash and debt. If they don’t believe that a transaction will never be closed. To give the buyer the greatest likelihood of success, the business has to function without the owner quickly after closing. That is the reason the system has to be reliable.
If your business is dependent on one person or a small group to function your system is not highly developed. To the degree the owner has a monopoly on knowledge and relationships the value of the business is being diminished. It is common in a small business for the owner to be responsible for most of the revenue creation of the business. Often the owner started the business and knows all the customers and has the majority of the business knowledge. Many times that is because the owner has deliberately wanted to maintain that control. However, that creates risk for the buyer. The buyer has to believe the business will prosper after Elvis has left the building.
How is that accomplished? As a part of our process, we meet with the owner well in front of a possible sale. We can identify areas of consolidation and help build a process that will support the business functions while freeing the owner to work on growth issues. If the decision has been made to sell the company before implementation of a new system can occur, we can work with you to develop a transition plan that will show the buyer how to implement the changes post closing.
As an owner, your primary focus should be to create customers, employees and vendors that are loyal to your business and not just to you. In doing that you will create happier, more involved employees and provide more consistent customer service. In the end, that will lead to a higher sales price and a more successful legacy.