Selling your business is similar to a corporate employee cashing out their pension. It is the monetary reward for a lifetime of hard work and dedication that will ensure you move comfortably into your retirement years. It is not easy to think about selling your company when you have put so much time and energy into it, but knowing when the right time is to sell and planning ahead of time will improve your chances of finding the best seller and getting the best sales price and conditions for your business.
However, many business owners that are preparing to cash out and move on discover that they are the business, and without them, there would be considerable difficulty in running the company moving forward. Sometimes, the growth, development, and operations of the business are entirely dependent on the owner. Businesses that experience this are not fully independent; it is important to understand that one of the main strengths and assets of a company is its ability to be an operational entity on its own where a new manager has no trouble running operations smoothly without the previous owner.
If you are wondering whether your business can survive you, consider this hypothetical situation: if tomorrow you completely removed yourself from your role within the company, would the business still be able to function?
If the answer to this question is no, then there are a number of steps you can incorporate into your exit planning strategy that, with the help of a professional business broker, will prepare you to sell your company when you are ready to exit the business.
Create Systems
Documenting the standard way of doing things at your business should address the important points for your employees to know. This will allow them to resolve any situations or problems without coming to you for assistance. This is especially useful and relevant for new employees that will be hired once you leave the business, as well as for the new owner to transition smoothly, without requiring significant guidance from the previous owner.
Many owners are reluctant to record standard processes and protocols as it can be quite time-consuming, however, this time invested will pay off in the long run. An operations system should be created and updated throughout the business’ years of operation; however, if you have not recorded your business’ standard processes and protocols on a continuous basis, it is not too late to record the most recent system as any information at all would be of use to employees, both new and existing, as well as to the new owner. Make a habit of recording and detailing all company procedures, policies, and protocols in an organized database that can be easily accessed and searched by all employees. It would be useful to garner the feedback of existing employees to gain a better understanding of what procedures are especially important that you need to delve into greater detail, as well as to record any procedures you might have missed. An effective operations system will allow you to delegate more effectively, create more knowledgeable employees, streamline your operations, and will ultimately allow you to command a higher price when you are ready to sell your business.
Developing a Reliable Management Team
Every business owner has their own routine; it is crucial to have an established routine with your core management team as well. This core management team must be highly reliable where you can trust them with every aspect of the business. In your existing management team, identify which individuals fit within this criteria and develop their skills and understanding of the business before the process of selling your business starts so that when the time comes to transition, this core management team will be able to effectively assist with the selling and transition process.
Within this team, there must be open communication and transparency in order to build sustainable trust and loyalty. Having a strong management team can significantly increase the value of your business once it is open on the market, and create a smooth transition process for the buyer. You can do this by training and promoting current employees, or hiring experienced candidates to head up specific aspects of your business, such as sales or marketing. With a trusted and established management team, you can be assured that your business remains in the hands of experienced individuals who understand your business thoroughly and can run the business smoothly once it has been transitioned to the new owner.
Teaching your Employees
As a business owner, it is often tempting to have complete control over the business and deal with every problem yourself. However, educating your employees to recognize and develop a way to prevent problems before they happen can go a long way in adding value to your business by creating a more competent group of employees. You want your employees to be able to accomplish tasks and goals without constant guidance from you as you will not be as accessible to them after the transition to new business owners.
A way of teaching your employees to be self-sufficient is by stepping away from the daily running of your business to test whether your employees are able to maintain business operations without your guidance. Doing this will provide you with insight into the areas needed for improvement, as well as giving your employees time to learn working independently. Having your employees work independently will also act as a practice run before actually working without your presence under new leadership, as well as giving them time to adjust to the transition.
In addition, employee cooperation and motivation must be maintained during the transition. The high commitment of employees is one of the main success factors of a sustainable business and allows businesses to achieve higher levels of output and grow. You want employees to internalize organizational goals as their own goals during work time. Employee commitment and motivation is especially important during times of major changes in a business, for example, under new ownership. A way to encourage and stimulate greater employee commitment to the business is through encouraging employee ownership of their work. A method towards greater employee ownership is by allowing employees more autonomy and responsibility. This can be done by assigning them leadership roles onto work projects; this greater amount of responsibility involved encourages ownership over their work as well as increasing accountability. Providing them incentives, either through monetary, professional development, or recognition, will allow them to greater internalize organizational goals as their own. Some examples of monetary incentives include bonuses, profit sharing, and raises. Professional development incentives include promotions and higher responsibilities. Recognition incentives are less costly but are still a great way to motivate employees by being thoughtful.
Taking a Step Back
Slowly begin stepping back from your current level of involvement in the business. This will be an important stage of the process for your employees as it will help them to become less dependent on your guidance and supervision. It will teach them how to deal with situations that may arise without having your expertise to fall back on. You can do this over the course of months or years by taking more days off, or longer vacations. Taking a step back is similar to teaching your employees to be more self-sufficient; however, it takes place during the actual process of transition – when you have more concretely decided on selling your business. Doing this occasionally will ensure that when the time comes for the new owner to replace you and run the business that your employees will still sufficiently follow through with tasks and follow organization goals; your business will be able to sustain itself without you and not grind into a halt.
It is pivotal for you as a business owner to be able to distinguish between you and your company. If there is no distinction it will be very difficult for you to fully exit when you are ready to move on. Your business must be sufficient on its own without the original owner; this is a highly valuable asset as it indicates that the business’ foundation and success factors are of the business itself and not arising solely from the owner. If you think you may fall into this category of the owner and business being a single entity, consider implementing some of the points above to improve the value of your business.
Incorporating these steps into your exit plan, alongside a professional business broker, will provide you with a smooth transition out of your business, and allow you to sell your company for maximum value.