Succession Planning: What is Your Business Worth?

So you’d like to sell your business for $5 million in about five years. That’s great! At least you have a target to shoot for. The best way to determine if you are dreaming or not, is to ask yourself this question, “What would I expect in a business if I were willing to pay $5 million for it?”

This will trigger some introspection on your part and another series of questions to help you prepare for the big day when someone writes you a nice fat cheque for a valuable asset that you created. That list will include, but not necessarily be limited to the following:

How is My Branding? How well have you built your brand to make ownership of your company name an asset, and not just its components? This can make a big difference in the Goodwill portion of any transaction.

What Shape is My Client List In? Average annual sales per client, annual growth, turnover and retention statistics, age of clients, etc. can all be factors in weighing the value of potential future business from your clients.

What Contracts Do I Have in Place? Written agreements with suppliers, landlords, leasing companies, clients, contractors, employees and others might add value to a potential buyer, or possibly be a deterrent for them. Do an analysis and if necessary, start re-negotiating now. If it would be good for a potential buyer, it will almost certainly also be better for you now.

How Unique are My Products and Services? What intellectual property have you developed that is patented or registered so that ownership can be transferred or licensed going forward? This includes product names whose brands are well-known and respected and worth keeping by any new owner. What service packages are profitable, unique to your business and highly valued in the marketplace?

How Well are My Systems and Procedures Documented? How is the business operated profitably and efficiently? When your systems and procedures are properly documented you are able to more easily train employees, build a consistent culture, qualify for awards and certifications, and add value to the enterprise for any potential buyer.

How Dependent is the Business on My Presence? Aside from the pride of running your own business, realistically, how well have you developed a management team to run the business whether or not you are there? A new owner will want to be able to pay management wages plus have a profit, whether the manager is the owner or a separate individual. Learning how to delegate at higher and higher decision-making levels is a critical skill for any owner wishing to increase the value of his or her business.

BOTTOM LINE

There are two bottom lines here: The one that shows up in black, rather than red on your Profit and Loss Statements, and the one that determines where you might need to invest more of your time and energy.

To build a business worth good money to a buyer, you need to spend more time working ON your business and less time working IN it.

Now is the time to seek help. Create an advisory board. Hire a Coach. Sign up for an entrepreneurial training program of peers with similar goals and similar sized businesses. Find a mentor whose vested interest is in seeing you succeed and whose experience and wisdom exceed your own current level.

And all the best to you in this next big phase in the life of your business.