The primary goal for many business owners is accelerating business value so the business can provide them financial independence. Typically, accelerating business value is a matter of making the business attractive to potential buyers. But what do potential buyers look for, and how can you build a business that both helps you achieve your goals and is attractive to potential buyers?
Today, we’ll examine how Exit Planning provides a unique path to accelerating business value, why building a sellable business is the same thing as building a good business, and which elements make a business attractive to potential buyers.
Exit Planning Helps Accelerate Business Value
A common misunderstanding about Exit Planning is that it focuses strictly on the long-term endpoint of business ownership: leaving the business. This misinterpretation of Exit Planning can lead business owners to miss opportunities for value acceleration.
However, Exit Planning can have tangible effects on both short-term and long-term business value acceleration.
Exit Planning can give business owners unique strategies for accelerating business value because many of the elements that are essential to Exit Planning also make the business more sellable. And while every business is unique, there are common elements that make businesses more sellable than others—Exit Planning addresses many of these elements.
In short, accelerating business value and planning for your eventual business exit are one in the same. They each focus on what you must do to position your business to sell for top dollar when it’s time for you to leave it—by choice, death, or otherwise.
What Makes a Business Sellable?
Some of the most important elements that make a business sellable include the following:
- Independent management teams
- Strategies to ensure sustainable recurring revenue
- Turnkey systems and processes
Not coincidentally, these elements often appear in well-run, successful businesses. In other words, even if you never intend to sell your business, the things that make a business successful often make that business sellable as well. Additionally, even if you have no intention of ever selling, these elements can help the business run more smoothly while you own it and give you a backup plan if you change your mind about never leaving.
Let’s look at how each of these elements affects business success and salability, and how they can help accelerate business value in both the short and long term.
How Independent Management Helps Build Value
An independent management team is one that has the ability and authority to make decisions that can take the business to the next level. They still report to you, but they also take some of the responsibility for important decision-making off of the business owner’s shoulders, which makes the business less reliant on the business owner.
In the short term, an independent management team can allow you, as the business owner, to focus on areas of the business that are your strengths, rather than having to do everything all by yourself. For example, the management team may help expand your customer base using their accrued business relationships or create, document, an execute on operational efficiencies that improve cash flows.
In the long term, an independent management team is essential to a successful pursuit of your post-ownership goals. Whether you sell to an outsider, employee, or family member, the independent management team will drive a good portion of the business’s value because that team will essentially be the ones running the business after you leave it.
The right independent management team can even give you more time to dedicate to your personal financial strategies in the context of how the business is performing. Because remember: The endpoint of a successful business ownership journey is the ability to leave the business when you want, to whom you want, and for the money you need for financial independence.
The Role of Sustainable Recurring Revenue Strategies
Creating sustainable recurring revenue is difficult. Fortunately, with an independent management team and help from your Advisor Team, creating and installing strategies that position your company for sustainable recurring revenue often becomes easier.
Sustainable recurring revenue is the result of a complex web of elements. Things like a diverse customer base that isn’t concentrated among a few large customers, the ability to innovate, and buildingproducts and services that cannot be commoditized.
Sustainable recurring revenue can help bolster the business’s performance in the short term while making the business more attractive to potential buyers. The reason why is simple but easy to overlook: Potential buyers generally prefer to buy companies that regularly make money over businesses that they need to salvage or rebuild themselves.
Turnkey Systems and Processes Are Key
In general, a business that is easy to run is worth more to potential buyers. As a business owner, what seems easy to you may not be as easy for a potential buyer to do. And since vanishingly few business owners want to sell their businesses to someone else and then work as an employee for the new owner, it becomes crucial to document successful systems and processes that will stay with the company after you leave it.
Again, even if you never intend to sell your business, documenting the systems and processes that make your business run well can improve its performance in the short term. It helps make the business less reliant on you and can provide a safety net if you were ever unable to run the business for any reason.
For example, say you have a family crisis that requires your full attention for an indeterminate amount of time. Documentation of systems and processes could help the company continue to run well even if you aren’t there to run it.
We strive to help business owners identify and prioritize their objectives with respect to their businesses, their employees, and their families. If you have questions on this topic, we can help with more information or a referral to another experienced professional.