Aspiring entrepreneurs are flooded with statistics and warnings: businesses that do start are starting smaller, are less healthy, and are far less likely to succeed than ever before. But these potential owners are also flooded with encouragement, words of inspiration from successful entrepreneurs, and support.
Starting a business is tough, but leaving a business requires just as much planning, timing, thought, and strategy. Well-groomed businesses position themselves to exit as successfully as they entered, and, hopefully, more so.
The goal of grooming a business is to increase its salability; in other words, you want to make it as attractive as possible to potential buyers. There are six attributes that these businesses tend to share. They have:
- Maximized profits and cash flow. Businesses have already taken steps to shore up their operations. Profits and cash flow have been maximized by any number of initiatives, including price increases, reduced waste, improved production techniques, improved customer relations, lower operating costs, etc.
- Remove owner’s and other non-business expenses. A step in normalizing your financials, you have to remove the owner’s compensation and factor in the cost of hiring a manager at market value to replace him/her. You also want to remove non-business expenses; for instance, if you’ve paid an investment advisor for consultation, you would deduct that expense.
- Cleaned up the balance sheet. A clean sheet indicates that you have no non-performing assets including bad customer accounts, slow turning inventory or obsolete fixed assets. This is a vital step in grooming your business.
- Determined if any further capital expenditures is warranted. While you want to minimize expenditures, you also want to make sure that your business remains operational. Are there any expenditures you need to make to ensure functionality and salability? Should you invest in product innovation or marketing? Are these actions going to provide the necessary ROI?
- Maximized sustainable sales levels. Buyers are looking for an upward trend in growth. Sustainably high or optimized sales levels indicate good health and reduce the risk to buyers.
- Secured long-term relationships with customers and suppliers. To increase attractiveness, and help edge that growth upwards, well-groomed businesses take the time to shore up supplier and customer relationships. Are agreements firm and contracts transferable? Can you extend them? Renegotiate? How can you develop exceptional customer service, loyalty and strong working ties with customers, vendors, suppliers, lenders, and others in the B2B community?
Another attribute that well-groomed businesses share is that they begin this process in advance. Whether it is one, two, or three years before a possible sell date, owners begin to position themselves advantageously. Not only is this to their benefit because you have a business to run, it is for the good of the future owners.