As we discussed in our last post, planning for your ownership transfer should be an exercise in planning for strategic growth. If you want your company to continue to prosper after you leave and you're interested in increasing the value of your company, then these five tips can help you build a stronger company today.
1. Build a Strong Management Team: Your business will only outlive you if you have the right team of people in place to run the company. Oftentimes, the skills that it took to grow the company from a start-up to the present are not the same skills as those needed to manage an increasingly complex operation in the future. Take time to assess your management team and whether the skills currently present are the best skills for the future.
2. Define Your Sales Process: Could everyone on your sales team easily describe how you prospect for clients and convert prospects to paying clients? How long would it take a new hire to learn this process? Make sure your formula for success is teachable and repeatable. When your marketing and salespeople know their role and can consistently produce results your financial performance will improve.
3. Coordinate Operations and Finances: These functions should be solidly integrated so that management is aware of which parts of their operations are driving their financial results. The result is more transparent decision making, better incentive systems for clients and employees and more accountability for the organization.
4. Independent Audit of Your Financials: No matter what size company you run, having an independent third party (e.g., not your accountant) look at your books every 3-5 years is never a bad idea. You want someone to ask you the tough questions now, not when a buyer is deciding how much they should offer you for your business.
5. Know How Your Margins Compare to Your Competitors: Reach out to your industry trade group or association to see if they publish statistics for your industry. If not, go to industry conferences and talk to your peers. You want to know where your margins stand in comparison to your competitors. At the end of the day, your business is worth the productivity of its assets and the net income it produces. If your margins are below your competitors’ margins, it's time to plot a new strategy to expand your margins.
Succession planning can sound so final and can raise numerous other questions, both personally and professionally, so we understand why business owners often avoid this topic. Our suggestion is to view succession planning as growth planning. This allows you to improve the core operational practices of your business, which in turn can increase your revenue and net income and ultimately can increase the value you realize when you do transfer ownership.