The Butterfly: Transforming Your Business to Attract a Buyer

Aug 30, 2018

Regardless of how you plan to leave your business, the ultimate goal of your succession planning is to make your business move-in ready. This means taking steps to resolve issues that could potentially reduce the value of your business in the case of both an inside and outside transfer. Think of it this way: you’ve brought your business through the egg, caterpillar and cocoon phase and your buyer is looking for a full-grown butterfly. Taking the time to overhaul the seemingly minor details is absolutely worthwhile, as it not only benefits your Ownership Conversion, but resolving and reconsidering the following topics has the potential to start improving your cash-flow and company value today. Addressing all of the following helps you attract a more qualified buyer:

Leadership Quality. As a leader it’s your responsibility to foster autonomy and independence in your key employees, giving them room to fail, learn and succeed without you. It may be necessary to bring a change management consultant on board to aid in this process.

Rewarding & Retaining Key Personnel. Utilizing the right incentives is crucial to keeping key employees in a competitive market. Incentives can fall under two categories: equity-based and cash-based. For either to be successful, it’s important to establish clear metrics, obligations, and rewards. It’s also necessary to tie the incentives to performance standards that increase the value of the business, which is typically in the form of cash-flow.

Bonus Plans. One option to retain key employees is implementing a Stay Bonus plan, offering a bonus if the employee stays on staff through the transfer and under the new owner. To be successful, your plan needs to guarantee that the cash will be there to meet the obligation, not just projected to be there. Another option is a Restricted Executive Bonus Plan (REBA), which can be set up in a way that protects both the business and the key employee, as well as being totally customizable to individual employees within the group you’re considering.

Human Resources Management. Taking inventory of your Human Resources with a fine-tooth comb can mean the difference between a buyer making the deal or walking away. The HR checklist includes: assessing effectiveness and compliance, hiring, onboarding, training, severance policies and more. This assessment helps you identify HR’s impact on profitability, competitiveness and company culture.

Financial & Legal Management. Any buyer, insider or outsider, is going to want at least three years of financial information, so make sure you know your cash-flow history and are prepared to show them the projections for the future. Consider unique costs and provide separate statements that make it clear to your buyer that these exceptions will not reflect cash-flow in the future. Also, clearly disclose any significant corporate debt – you cannot hide this from your buyer.

Customer Loyalty. It’s just not enough to have one set of repeat buyers. Having a majority of your profits coming predominantly from a small number of committed, long-term customers or clients buying a single product or set of products can actually be viewed as a vulnerability, an indicator of a lack of sophisticated sales or marketing.

Product & Customer Diversification. Developing new marketing or new products are great ways to overcome selling exclusively on customer loyalty. Extending your product line to loyal customers, or sharing established products with new audiences are both great options to help you diversify.

Service Reputation. Social media can function as important proof of customer retention, as well as creating a space for direct customer interaction. There are risks, as there is potential for negative interactions, but the benefits far outweigh the risks.

Operating System & Technology. Think of everything that supports how your company functions as part of its operating system. Using this definition, you can evaluate things like the appearance of your business office, the quality of company cars, and even the way your desk is visibly organized and other similar office aesthetics. Aim for a sleek, modern, and stylish appearance for those factors that leave a big impression on your buyers.

Posted In: Business Succession

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