By Glen Herman, Creative Business Services
This is a common question that I get asked as a business broker. The short answer is, as soon as practical. The more time you devote to planning your exit, the more value you will likely realize. A three-year or five-year timeline is a good bet to maximize value, because it allows you to identify unresolved opportunities (problems), further develop and document processes, evaluate internal talent, and structure for the transfer of ownership.
The first step in the process is choosing a successor. For some companies, there may be an internal successor. This may be a key employee or family member. For other companies, this may be an external successor. In either case, you will need a valuation of your business by a qualified and certified valuation specialist. While your CPA is a good start, they will likely not have the same experience and knowledge of the competitive market as it relates to the sale of your business. There is no substitute for a knowledgeable business brokerage firm with a certified business valuation specialist. They have the financial background, but also an understanding and ability to consider not only the financials but the goodwill associated with your business. The value of goodwill should not be underestimated. With the current labor shortages many companies are facing a strong, well-trained workforce adds a great deal of goodwill value to a sale.
Once a potential successor is identified, you need to go about the work of verifying their fitness for the role. This is obviously more important with an internal successor. If an external successor is part of the plan, the fitness is likely to be related more to cultural fit than anything. Every company has a culture. Some good, some not so good. There is always a culture. When a buyer is looking at purchasing a company, culture is a key consideration. More importantly, the behaviors that shape the culture will be looked at. Identifying the attributes of key employees and your workforce in general on your terms is the best way to set the stage for a smooth transition. If you have an internal successor, have a complete personality profile on them. You will be able to identify any potential concerns that can be corrected or bring to light the possibility that you chose your successor poorly. If you are on a three-year or five-year timeline, you will plenty of time to switch directions regarding successors if you have done comprehensive profiling.
You might be asking why a business broker recommends these things…right?
Well, quite simply, a business that has a structure and process for improvement is of higher value than one that does not use processes and systems. Buyers are looking for businesses that allow them to “work on” not “work in” the business. In terms of success, a systems-oriented business is more likely to be successful. Successful businesses sell for higher values.
If you have any questions regarding the sale of your business, please call or email me today!
Glen Herman | Business Intermediary
Creative Business Services / CBS-Global LLC
Business Brokerage | Mergers & Acquisitions | Consulting