Every exit requires three things: owner readiness, business readiness, and market readiness. In this series, we explore each.
Can Your Business Thrive Without You?
In Pt. 1 of this series, we talked about owner readiness, meaning your personal reason, vision and readiness for selling your business. Now, we need to talk about business readiness. The question transitions from, “What do you want?” to, “How will your business perform under new ownership?”
In other words, is your business sustainable beyond you? Can a buyer come in and expect the business to perform at the same level or better? I’m asking the same question in many ways, and the answer lies in many variables, including:
Customer Concentration
If you have one customer representing 50 percent of your business, your customer concentration is high. In turn, so is the risk for a buyer. Typically, and particularly in companies with high customer concentration, the owner is the one who builds the relationships with customers. They may even become close friends. If we remove you from the equation, does that customer continue to choose your business? Buyers will be wary. And if you’re not actively tracking and documenting the touchpoints (most owners don’t), the buyer has no record to work off of.
Management Structure
We also need to look at your org chart—hopefully, you have one—to show who will do the work when you leave. If you’re working 50-60 hours a week, how will a buyer walk in and keep pace? They’ll need to hire people. Management is one of the top five qualifiers for selling your business. To pull a line from that article:
“A healthy business includes a senior leadership team besides the owner(s). Do you have tenured staff in training to become leaders? That’ll do. As long as the business doesn’t completely rely on and revolve around you, we’re good.”
Financials and Operations
Business owners tend to struggle with financial reporting, and/or manipulate their books to pay less in taxes. Projections, budgeting and all of the things you may not enjoy doing become more important than ever when you’re selling your business.
Business readiness usually means having at least $500k in net profit to give the buyer a cushion to not only run the business, but grow it. Your operations—such as your machinery if you’re in manufacturing, or human capital if you’re a service-based company—will also play a role in the financial readiness of your business.
Marketing & Branding
If your business is “word of mouth,” more power to you. That said, you could potentially fetch a higher sales price for it by building brand awareness. A buyer may see a lack of marketing as an opportunity to come in and make a big impact, however, you would be better served to build out your website, social media presence and ongoing marketing channels if you truly want your business to be ready for a sale.
Risk
At the end of the day, a buyer is valuing risk. They need to understand what risks they are taking on and how those risks might play out after your exit.
Is your business ready? Let’s find out and chart your path forward with an ECG exit assessment.
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