How Do You Differentiate Different Types of Value?
It can be challenging for an owner to judge the value of his own business. This is because it’s likely that the business has real personal value to him. There are plenty of reasons why the business can be important to an owner, including:
Personal history – For an owner who built a company up from the ground, he naturally will associate his life and key moments of his life with the business. It’s so integral to his life that he may have a hard time separating himself from it. This can also be the case with a family business, especially when the company’s history is intertwined with family history and fortune.
Power and prestige – Many owners come to appreciate being in a position to make things happen. This can be true both in the company and in their communities. Their sense of self may depend on being a person of power and influence, and, as such, they may dread selling and leaving their positions.
Money – While the goal of any business exit to to ensure financial security for the owner going forward, many owners know that they will experience a drop in their standard of living when they exit their companies. In order to maintain a comfortable lifestyle, they may feel they have to keep working. The business then represents personal prosperity and comfort to them.
Unique gifts or talents – Many businesses run as well as they do because their owners are unique. They may be very charismatic, great at networking and pulling in customers, or tremendously talented in other ways. For this type of owner, work represents an opportunity to shine. Unfortunately, in terms of the company’s value to prospective buyers, a one-of-a-kind owner represents a real risk to the company’s operation when that owner exits.
To many owners the opportunity to build and run their companies is priceless. This view of value isn’t helpful, however, when it comes time to sell.
Exit Coach Radio Podcast
In this podcast Vincent talks about how devastating it can be to a sale if the company does not have management and key staff committed to remaining with the company through and after a transition. This is a core component of exit readiness.
Buyers are looking for businesses that will be profitable from the day the paperwork is signed. They do not want “fixer upper” opportunities and will pass on companies that aren’t ready for a transfer of ownership. Any owner who wants to ensure his business will sell must install a system of working policies and procedures and create a capable and energetic management team well in advance of an exit. If he doesn’t have those two things in place, it will be virtually impossible to sell his business at any price.
Click here to listen.
How Capable Is Your Management Team?
This is a crucial assessment for an owner to make well enough in advance that he can make changes that will strengthen his team. Creating a well oiled group of people who can run the business in the absence of the owner is not a simple task. This is especially true when the owner has kept the ability to make decisions about the company entirely to himself.
It’s also common for a company to have people in key positions who are roughly the same age as the owner. This means they are likely to retire around the same time as he does or to have an incentive to leave when he does. Why go through a stressful transition if leaving is possible?
If this is the case, the owner has a lot of work to do. It’s very possible to develop a good leadership team or get current leadership to train and mentor younger workers for key positions, but this can’t be done overnight. An owner should also be prepared to create incentive packages for management to make staying on through and after a transition more appealing.
Ultimately, buyers look at a company’s current management to assess how risky an investment the business is likely to be. They want to see leaders who are capable, who work together, and who are focused on growing the company. If that is not your company now, it is not exit ready, and you need to start the transition planning process sooner rather than later.
Prometis Partners would be happy to talk to you about how we can help you and your company achieve exit readiness by creating solutions to system and management weaknesses and building transferable value. Together we can work to strengthen and better position your business for an eventual sale.