Charles S. Wilson, CPA/CFF, CGMA, CBEC | CERTIFIED BUSINESS EXIT CONSULTANT | 281-993-4530 | charlie@wilsonaccounting.net
         

5 Pillars to Prepare Your Business For an Owner Exit

 

[fname], whether it is after each quarter or the beginning of the new year, it is always a good idea for small business owners to review their business plans and to align their business with any rise or recovery in the markets, properly timing the exit from their business.

 

Today I'll review the five pillars of business - sales, marketing, finance, management and leadership - and delve into a number of topics related to these pillars to assist you in focusing your efforts on aligning your business decisions with a future exit in mind.

A majority of small businesses are built around the particular skills of the owner-operator. Often, this owner, is also an effective salesperson - hence the revenues that are generated within the business. However, as a business builds - or, rebuilds in this recessionary period - that owner's ability to effectively wear these various hats diminishes.

 

At this point in time, the growth of your small business depends upon your ability to delegate these responsibilities. This delegation needs to occur across all five of the pillars of business. Without such delegation, the prospect of you transferring your business to someone else - including a successful exit for you - has limited chance for success.

Sales and Marketing

Are you the 'rainmaker' for your organization? Can no one else sell your firm's products and services better than you? Are you the only one who has the drive to set and meet the company's revenue goals each year? The smaller your business, the more this is likely true for you - and the harder it will be for you to exit. Marketing and selling your businesses' products and services should be a system. A marketing system and a selling system should exist. During this economic downturn, one of the first areas that owners cut is their marketing budget. The logic is rational, 'why invest in telling people about my business when they are not buying today?' Given that marketing efforts are (most often) directly related to increased sales, the decision to cut back on marketing is also, indirectly, a decision to reduce top-line revenue.

If you have made such a decision, now is the time to rebuild with a system for marketing and selling. When your exit is upon you, it is this system that the future owner of your business will value most. Your ability to build it is paramount to your exit.
The Financial Structure of Your Business

Who is in charge of the financial decision in your business? Does your 'finance person' simply keep the books and records of the company or are they empowered with decision-making authority as to where to invest the firm's capital? Given that 'finance' is one of the pillars of business, it is important to detail how the financial structure of your business is managed.

Remember, it is your responsibility to treat your business more as an investment and less as a job. When you do this, you will be able to explain to a future owner the capital requirements of the business. You will do so in an objective and impartial manner, showing them the opportunity to make a solid return on investment in owning your business going forward. A successful exit almost always includes the extraction of equity from your illiquid business. Understanding the component parts of your financial structure and explaining them in an objective manner is therefore critical to your future exit.

Systems and Procedures

Beyond sales, marketing, and financial systems, the overall operation and procedures of your business can always be updated and improved. Have you used this slow time in business to improve these operational components of your business? Think about it this way, the future owner or successor to your business will pay more for a company that has removed as much of the risk as possible. Risk in a private business often is centered on an owner's (or one or two key people's) personal involvement in the day-to-day running of the business. When you endeavor to build these systems, you show your future owner(s) that you are focused on a successful transition of the company’s operations and that there is value in the business beyond the contributions of only one (or a few) key people.

The Operations of Your Business

In addition to reducing marketing budgets, have you also recently cut ‘non-essential’ roles within your company? Are you aware that there are a lot of talented people looking for work? One owner recently commented that the employees have been very silent lately about the lack of raises. Of course, many are happy simply to have their jobs. It is a buyer's market for talented 'operators'. Consider this carefully as you redesign your business. What are the specific characteristics of the next person that you want to bring into your business? Given that you are thinking about an exit, it may be wise to screen your next candidates for a certain 'appetite for risk' - a certain disposition towards heightened future responsibilities, perhaps even including future ownership.

Management and Leadership

It was once said that a successful business owner surrounds himself with people smarter than him. Think about your management team and its ability to execute in your absence. Now may be the time to fill a role on that team . . . to begin an executive search for the right person to help lead the organization. This person may be the successor to the business, or may be the key person that you can groom over the next 2 to 3 years to handle the day-to-day operations of the business. Either way, your focus is on the business running without you. Take advantage of this 'buyer’s market' to bring more talented people into your organization.

When you are reviewing your new hires, be sure to look for the intangible quality of leadership within the candidates. A leader is one who will go the extra mile for the business. One who will inspire others to act in the best interests of the company. One who will 'walk the talk' and ask others to do the same. This type of person transcends the simple management of the business and goes beyond that, stretching themselves and others to perform at higher levels. Combined with strong management skills, the leaders in your organization are a reflection of your ability to delegate and have the business run better without you there. This sets the stage nicely for your exit.

Understand Your Exit Options to Make Better Decisions

The final piece of your business planning needs to include an idea of how you will exit. Each of the decisions that you make for the five pillars above, should be against the backdrop of how you intend to exit your business in the future. This simply means that as your business is tuned-up to run more efficiently, you should be thinking about how each of the improvements will aid your future exit.

For example: Your sales manager should be empowered to grow the top-line of your business without your input. The challenge here is that owners are reluctant to step-back from this level of decision making. Think ahead - your exit will eventually include you not being involved in your business - the ultimate 'stepping back'. Begin this process today with your sales and marketing team.

Your operational control should be transitioned to your chief operations officer. Your COO is responsible for running the systems of your business without your input or interference. Guidance is crucial, but so is that COO’s autonomy to make their own decisions. To address your financial controls begin to empower your financial officer with the authority to invest the firms' capital. Take your successor to your next meeting with your loan officer. Begin cleaning up your balance sheet with items such as officer loans that your buyer or successor will not want to see. Look ahead to when your future owner reviews your businesses' finances - what will they see?

Finally, involve others in your strategic decisions. This is key. Even if you still plan on running your business for many years, you need to recognize that the transfer of strategic ideas may take the longest time in your exit. Strategy, more so than other areas of planning, requires the creative process. Creativity is the life-blood and survival of most small businesses in this new economy. You should begin the process of discovering who within your organization has the most consistently creative, timely and relevant ideas, and collaborate with those people as part of your exit.

No matter who buys or succeeds your business, by addressing these five pillars of business, the systems, structure, and creative idea flow that makes your business unique will continue into the future. Now, while markets are slow and the summer is upon us, is the time to make these adjustments and to focus on this level of business planning to accommodate your future exit.

 

As always if you need some advice, you're welcome to email me of call me here at the office at 281-993-4530.

 

Regards, Charlie

 

Charles Wilson, CPA/CFF, CGMA, CBEC

Charles Wilson, LLC

307 S. Friendswood Dr, Ste B-2
Friendswood, TX 77546
281-993-4530 (O)
866-567-3975 (F)
charlie@wilsonaccounting.net



 



 


   
 
         
   
         

         

Charles Wilson, CPA/CFF, CGMA, CBEC is a Certified Business Exit Consultant and is affiliated with Pinnacle Equity Solutions, Inc., an Exit Strategies Training and Solutions company.  Parts of the content in this email are taken from previous Pinnacle Equity Solutions, Inc's. newsletter library and website in accordance with Charles Wilson's certification in Pinnacle's Certification and Membership Program. All Copyrights are the properties of Pinnacle Equity Solutions, Inc. and Charles Wilson, LLC and their respective owners.