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If at some point down the road you are considering selling your company, there is an important aspect of valuation that every business owner must come to terms with… themselves.

Consider the unfortunate possibility that you were hit by a bus, or the incredible situation where you won the lottery and, in both cases, you were no longer showing up to the office every day… what would happen to you company? If you are one of those entrepreneurs who built the business up from scratch or took over a company and revitalized it with your own sweat, effort and investment then there is a good chance that your company is far too reliant on you to survive.

Let's face facts: it is hard enough in this economy to get someone to consider buying another company for any real value - imagine how difficult a sale it is to a potential buyer when they realize that the business starts producing each day when you walk in the door and shuts down each day when you leave. Would they feel incented to give you a payout big enough for your retirement? Of course not… and, if you even get an offer, you get something laden with ongoing management obligations, payouts over time based on performance and nothing really that much better than if you decided to shut the company down on your own in a few years, take home the cash in the bank and collect the final book of A/R for yourself.

Fortunately, there are ways you start working on today to help ensure you get great value for your business down the road.

First, have a goal of being Second-Best at everything: that means hiring functional experts in the areas critical to the success of your business who can effectively run their division. This may a solid CFO, VP of Operations and/or VP of Sales (among the many other potential roles to be filled). Once you have the functional expertise in place who can effectively run their part of the business and are excellent at interacting with other divisions, then you could consider promoting one of them to take over as CEO / President or make the final strategic hire that makes you officially expendable. When it comes to realizing good value on the sale of your business, you NEED to be expendable to make a buyer feel comfortable enough to pay you enough for retirement.

Second, make sure that your clients and employees are effectively weaned off of the corner office. There are many stories about how owners thought they were taking the right steps by hiring qualified management to take over parts of the business but they still failed. The biggest reason for these failures is that the owner never realized how important it was to delegate the decision making process and relinquish being the main point of contact within their organization and to their clients, suppliers and other stakeholders. There is nothing that says you cannot keep control of the company without undermining the people that the new ownership group will look to as the 'leaders' of the company when you are gone. Become a de-facto Chairman by discussing day to day issues behind closed doors with your trusted management group (as a whole or separately, as the situation dictates)… whatever you do, if you are trying to shift responsibility and authority, never let an employee see you undermine the authority of your management group. It kills their perceived authority in the company and prevents people from look anywhere but the corner office for answers you will have a hard time selling your company for the value you deserve. In short, your exit strategy will be greatly devalued if your employees think that the key leaders you are counting on as part of your exit strategy can always be trumped by your final word and if they believe you are willing to undermine their authority.

Third, the process of selling your company will require that you divert your day-to-day attention to things like dealing with advisors, accountants and lawyer who are responsible for getting you the best value possible for your business. The costs will become higher and your attention to detail will be greatly impeded with respect to the transaction if you are spending the bulk of your time managing the various aspects of your business that should be controlled by your key managers. Thus, it is critical that you are able the see the business run effectively without your daily involvement BEFORE you start bringing in potential buyers. Also, it is an insurance policy for the future of your dedicated employees if you know that they are going to be properly guided and managed without you in the mix. When a buyer sees that you are not the glue that holds the company together, then they are much more likely to give you a deal that facilitates your expedient exit from the business and more value, less of which is contingent on your continued participation and corporate performance after you sign on the dotted line of the purchase agreement.

The above are a few important aspects that owner/operators need to consider when thinking about selling their business. While different industries present different dynamics in a purchase and sale negotiation, if you are no longer the key factor in the success or failure of a business then the odds are greater that you will get a higher exit valuation and quicker transition plan than if the success or failure of the business rests solely on the shoulders of the person sitting in the corner office.

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Keywords: exit strategies, selling companies, valuation

About the Author:

Ian Harvey is a finance professional in the small and medium-sized business market. He works with owners and managers to help them gain access to capital and structure their financial, operations and business development affairs to meet the needs to today and goals in the future.

If you have any questions about the content of this article or how your business can benefit from working with Ian and his network of SMB partners, please visit www.smbedge.com/contact.html

About SMB Edge!:

SMB Edge! was created based on the fact that there are many Small and Medium-sized businesses (SMBs) without the resources or access to the information owners and managers need to make well-informed decisions in the current economy.

Please visit www.smbedge.com to gain access to the information and resources your company needs to thrive!

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Minimize Your Value to Maximize Your Company's

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