Entrepreneurs are builders, do-ers, inventors and improvisers. They have to be. Starting a business requires an inordinate amount of passion and enthusiasm. Early on, owners continually pivot to meet the needs of an ever-changing customer base.
However, when a business grows past the startup phase, some owners flounder. After all, in the early days, the owner was the chief cook and bottle washer. They answered phones and signed paychecks. If the toilet was clogged, they plunged it. If they worked hard and stayed hands-on, they usually achieved some success. After the startup phase, a company grows into a collaborative effort. As more employees join the ranks, the founder often transitions into an executive role. This kind of high-level supervision feels uncomfortable for many entrepreneurs. Perhaps that’s why I run into so many business owners who want to sell their business. Once the thrill of creation is over, some entrepreneurs begin to feel bored or, worse yet, trapped.
1. An Exit Strategy:
To be an attractive asset, a company must be able to function without the owner. Buyers are looking for businesses that are set up to run without daily supervision. That means that the owner must develop an exit plan that cedes decision-making power to members of an executive team. As the owner prepares to exit, they may discover that some systems and controls need enhancing. This is the time to create or reinforce a system that runs without the owner present.
2. A Solid Business Valuation:
Secondly, A business valuation is often a mandatory step in a business sale, and they’re needed to secure loans or financing. These assessments are also helpful if a partner wants out and they can even be used in divorces. An objective valuation is useful, even if the owner is years away from selling. An audit by a trusted third party can help a company understand what assets are worth, including land, facilities and equipment. A thorough valuation can also include the market value of projected sales and even count the executive team as an asset. Importantly, a solid business valuation can determine an asking price. Many business owners get unsolicited offers for their business. Having a valuation in hand helps the founder assess these offers. Whether the owner plans to sell now or years from now, knowing the value of the business is the first step in any sale.
3. The Business Owner Is Not Needed Daily:
Thirdly, When preparing a business for sale, it’s essential to have highly trained talent in place. But that talent pool shouldn’t include the owner. While cash flow is a primary concern for potential buyers, they also want to make sure a team is in place to ensure the continuation of that cash flow. Part of what makes any sale attractive is that profits no longer rely on the founder’s passion and skills. If owners want to sell their organizations, they need to fire themselves. Many people start and run successful businesses, but very few know how to structure businesses for sale. Developing an exit plan early in the process can affect decisions through every stage of a business. Keeping these three prerequisites in mind can give an entrepreneur more options at every stage of business growth.