business growth · strategic vision

So just how much is your business worth?

You have worked hard all your life to get to where you are now; the business is doing okay, it has allowed you to afford a certain lifestyle however you feel that without you being present things just dont happen. This leads to you putting in long hours, frustrated that at this stage you are unable to free yourself from day to day operations; you begin to wonder about how you are ever going to deliver on that dream retirement, the long awaited adventures, the return on your life investment?

So this business that has consumed you and your family’s life for so many years, what will it be realistically worth when it’s time to retire? How will you sell it and for how much? Even if you decide to keep it in the family through a succession plan you would still like to release equity so as to enjoy the fruits of your labour, but how? What is your exit strategy?

Considering you are still a critical part of the business I am afraid that unless you change how the business is run then you will most likely get a lot less for your business than you expect. To turn this around and maximize the worth of your business you need to:

1. extract yourself from the running of the business as much as possible; remember a potential buyer will be far more receptive to pay a premium for a healthy business run under management showing consistent profits & growth than one where they are really buying a job.

2. you will need to change from a tax minimization strategy to a tax maximization strategy at least two financial years before you would like to sell thereby demonstrating further the real returns for a potential investor.

So, where to start? First of all you need to make sure you have the right management team in place to run & grow the business without your involvement. These positions can be filled from your existing employees or head-hunted externally; there may even be a possibility of a Management Buy Out. A likely scenario would be a mix of your existing middle managers and either an external consultant or a new hire General Manager to drive the change necessary utilizing the skills lacking in the current team.

With the team in place it’s time to look at systems; what systems are in place? Does everyone know and understand the Vision & Strategic Plan for the business? Be open with the team about your plan to retire, ask for their input on options, it is critical to get the teams buy-in so that they do not feel threatened. If they are the team to deliver on the transition then they need to embrace the change rather than fear it. In my experience an off-site strategic workshop is the best way to achieve this, I would also recommend the use of a facilitator to ensure that the required outcomes are achieved and everyone comes out of the workshop feeling positive about the change both to the business and their careers.

Depending on the complexity of the business a series of these workshops may be required before the Vision, Strategic Plan & KPIs are in place for the whole business. Don’t rush this; these are the foundations , the building blocks of your successful Exit Strategy! An excellent resource is the One Page Plan from Verne Harnish‘ “Mastering the Rockefeller Habits“. Or try this easy to use software http://mystrategicplan.com/

Once the strategy and KPIs are in place to deliver on Your Exit Strategy it is imperative that a meeting rythm is established and adhered to. These will range from the off-site full day quarterly strategic review to the monthly and weekly management meetings all the way to the daily 10 minute departmental meetings. I know what you’re thinking, you and you’re people dont have time for this but trust me it works and what have you got to lose; if you keep doing what you are doing now and expect different results…. well you know the rest. These meeting are critical as they become the measuring stick; each and every employee gets feedback on how the company is performing, how their department is performing and therefore how they are performing and how they fit in to the bigger picture. Productivity rises, morale improves, staff feel empowered, they now know and understand where they fit in and the cause & effect their performance has on the rest of their team. In my experience most people want to feel that what they do makes a difference.

With the management team and metrics in place and regular two way communication clearly demonstrating that what gets measured gets results you should now have a business that operates without you and is delivering healthy consistent profits.

As your goal is to be able to sell the business, you need to ensure that the highest possible EBIT is achieved each financial year. Therefore you will need to forego any “extraordinary expenses” that you may have claimed in the past. Potential investors will use your EBIT multiplied by the normal ratio in your industry to determine the base they would be willing to offer in negotiations so this is an important factor in your likely sell price. Discuss how best to achieve the highest possible EBIT with your accountant.

So in summary, if you are likely to be selling your business in the next few years and you are currently a key part of the business I would suggest that the importance of metrics and whether or not you implement them will determine your eventual sell price.

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