Editor’s Note: This commentary is taken from an upcoming special publication, Business Transitions: Preparing to Buy/Sell a Business, which will be distributed at an expert forum on this topic. The forum will be held from 3 to 4:30 p.m. on Sept. 10 at Boise Centre West. Find more information here.
One of the greatest challenges you as a business owner may face at the end of your career is coming face to face with the real value of your business. After years of dedication, taking risk, endless hours and soul-testing work, many business owners feel they should be rewarded for their sacrifice. To you, your business is incredibly valuable. It represents your life’s work and the culmination of your sacrifice.
The challenge is, a business is only worth what a buyer is willing to pay, and a buyer doesn’t care about your years of sacrifice. What they care about is whether your business will provide an attractive return on the capital they will deploy to buy it.
It can either be a moment of exhilaration to be paid handsomely for your life’s work or it can be a devastating blow to learn the market does not agree with your perceived value.
The good news is, there are steps you can take to command an exhilarating reward.
Looking Through the Buyer’s Eyes
When you design a product or service for a customer, the most important question you ask is what does my customer want? The same principle applies when you are selling your business. Buyers have wants, and they are consistent.
If they buy your business, they want:
- A stronger, strategic advantage
- An increase to their earnings or margins and/or
- A compelling return on their investment.
If you look through their eyes, you can shape what you are offering them and take tactical steps now to shape your business as a strategic target to meet one or all of their objectives.
Just like solving a customer’s needs, you can solve a buyer’s needs, and the end reward can be a substantially higher payment to you and your family.
Three Priorities to Reach an Exhilarating Reward
Our experience has shown there are three overarching strategies a business can invest in to meet a buyer’s needs and set themselves apart from other businesses.
First, Define and Deepen Your Competitive Advantage
Having a clear, imposing competitive advantage can be one of your greatest assets. It is often assumed this means you have proprietary technology, a unique business model, a dominant brand or high barriers to entry in your market. If you have or can achieve any of those, double down on your investments to protect those. They can be priceless.
Those rare scenarios, however, are not the only competitive advantages you can create. You can create a competitive advantage in:
- customer segments
- distribution channels
- product strategies
- customer experience
- regional concentration or
- a low-cost structure.
How do you prioritize? Pursue the advantage a buyer will pay you a premium to own.
Here is the key — if you define and pursue an advantage, it must be real and recognized by the market. A great question to ask yourself is… “If I announced my competitive advantage to the world, would my competitors agree?” If the answer is yes, congratulations, you have been successful and can command a premium if you sell.
Second, Your Revenues and Margins Must be Growing with Momentum
It is really simple. Why would a buyer pay you a premium if you have flat, slowing or declining revenues? The same is even more true if you have flat, slowing or declining margins. Either of those scenarios are warning signs to a buyer something is wrong.
Driving higher revenues and margins is the daily battle every business owner faces, and it is the universal goal of any business. If you plan to sell your business, however, those two objectives become paramount and require a certain urgency to create those results.
To prove your revenue and margin momentum, you need to demonstrate a few things:
Clear, Accurate Financials. Your financial statements tell your operational story. They need to be accurate and depict your margin strengths, illustrate your revenue profile and provide clear visibility into your costs. Most importantly, they need to tie to your operational data and market intelligence so you are telling one congruent story.
Revenue Strategies Must Demonstrate Strength. The key question becomes, are my sales, marketing and product strategies driving new market demand? In other words, are you in control of your revenue growth or are you accepting what the market gives you? If you can demonstrate you are driving revenues and your operations are focused on relentless growth, you will command a premium.
Third, The Quality of Your Team is Everything
In a world where high-quality talent is hard to find and keep, the caliber of your team will have a significant impact on the value of your business. You may want to ask yourself a few hard questions to know if you have created a high-performance culture and team a buyer would be attracted to.
- Does my team operate independent of me or, as the owner, do I insist on making the decisions?
- Am I attracting the leading minds in my industry to be on my team?
- Am I developing a deep bench in all my employee teams?
- Am I holding all my people accountable and rewarding my star performers?
- Is someone in my executive team qualified and responsible for driving my people strategy?
- Are functioning metrics in place to guide me to know if my people and business are performing?
As you answer yes to these and other questions, you will be closer to commanding a premium because of the caliber of your team.
Commanding a high premium for your business is not a casual effect that simply grows out of your existence as a company. It takes work, fortitude, forethought and tactical focus to build an organization that will reward your years of sacrifice with a premium price.
To assess whether your business is ready to sell at a premium price, contact Rectify Partners for the complimentary Business Value Assessment survey. It may offer you some helpful ideas and insights to guide your next steps to a successful, premium sale of your business.
Jeff Sayer is the managing partner of Rectify Partners, a firm that provides on-demand, executive resources for mid-market companies in the Intermountain West. Jeff is best known for his service as Secretary of Commerce for the state of Idaho and for his role as the president and CFO of Mountain View Hospital in Idaho Falls.