Selling a business: top operational factors to build value

Keep your Operations manual current and complete

If a hidden camera recorded the comments of prospective buyers touring your business behind closed doors what would it reveal?

Just like home buyers, prospective business buyers spot what’s worn, cluttered and dated.  Like moths to a flame, they’re drawn to the defects, adding up renewal and revitalizing costs.  Some may see the business as an opportunity; all will see it as worth less money.

Like financial factors and organizational factors, operational factors can add or take away value. We’ll start with the most conspicuous.

Clean up the shop, warehouse, office, store:

• Dirt and dust say you don’t care.  Show your customers and staff that you do.  Clean and freshen up all store, work and rest areas.
• Do your assets need repair or replacement? Deal with it.
• What about your inventory. Do you have more than you need to sustain average levels of sales? Sell off the excess. Take the same approach to eliminate unneeded files, procedures, equipment and programs.

Tighten up operations: non-performing or unsatisfactory employees, non-performing or unsatisfactory suppliers, slow or non-moving products or services:

• If an employee isn’t working out, let them know. Give them a chance to improve. Provide coaching, an improvement plan and feedback. If they’re unwilling or unable to improve, start progressive disciplinary action. The steps that you take when you prepare to fire an employee matter; you do not want to end up paying out thousands for unlawful dismissal. It’s best to talk to a lawyer to understand your options, says Jay Humphrey of Jay C. Humphrey Professional Corporation. Jay was one of several professionals who sat down with me  last fall to discuss ways owners could add value to a business.
• Are family members who work in the business competent in their assignments? Are they held to the same performance standards? They should be.
• Are your suppliers punctual; do the supplies arrive in good condition? If not, take it up with them. If they’re at fault, review the penalties. Can you just “walk away” and go elsewhere? If the contract isn’t exclusive you may be able to dual-source. If you terminate early, there may be penalties.  Again, legal advice may be in order.
• Do you set and monitor profit margins for each product? You may need to keep some slow-moving items in your inventory if they’re high profit or critical to operation. Consider discounting and selling the balance.

Selling a business: top organizational factors to build value

Find ways of retaining your key personnel

Can a potential buyer see himself in your business or are you blocking the way?

When preparing to sell or build value in a business, you need to step back. Strive to become dispensable, says Grant Mellow, ActionCoach.

Grant was one of several professionals who sat down with me last fall  to discuss ways owners could add value to their business.  He told us that ActionCoach’s definition of a business is a commercial, profitable, enterprise that works without you!

“Many businesses are dependent on the contribution of the owner for success,” Grant adds. “If you want to add value, then make sure systems run the business and have a great team running those systems. If your business lacks systems and relies on you then it has less value.”

Working ON the business, not IN the business can be hard, especially for those whose business has been their means of self-employment such as a mechanic who started a garage or a baker who opened a bakery.

The greater value comes when the business is making money without its owner’s involvement in the day-to-day activities. This gives the owner the option of “retiring on the job” with income and flexibility in their life.

Selling a business: top financial factors to build value

Bad record-keeping is the top roadblock to selling a business

Does your accountant dread your visit? Bad record keeping is, in fact, the biggest roadblock to selling a business.

Buyers want a business with a proven track record of consistent financial performance with solid/growing revenue and earnings. Yet, most of us are rather flabby when it comes to fiscal fitness.  Spending some time with a trainer/coach can boost your strength and health.  Let’s start with some top financial drivers of business value.  Focusing on these will make it easier for you to sell your business and get you more money–then as well as now.  Assess your own business, determine which factors affect your business the most and prioritize what you want to work on.

Keeping (in the) good books

A proper set of books prepared with proper accounting software is a necessity. Your documents need to be current and correct, demonstrating timely remittances and filings.

Compliance is essential: issues with the Canadian Revenue Agency (CRA) or others can freeze your accounts and destroy your business.  Continuity is also important.  Are you dependent on a single employee who could leave?

Outsourced bookkeeping provides efficiencies that small businesses can benefit from.  Businesses pay for work that’s done, not standby hours. Clean and compliant books will contribute to a good relationship with your accountant and save you dollars there, too.

A good bookkeeper will also help you understand your numbers. They can do forecasting, financial analysis, identify cash flow risks, and provide much more than effective use of a software program.

It’s important that owners keep records and communicate changes to the business. They’ll often dispose of assets or sign a new lease and forget to advise the person doing their books.