Building a business that’s attractive to buyers is both a powerful way to pursue a successful future and a sign of its value. There’s generally one trait that makes businesses most attractive to buyers: self-sufficiency without its owner.
Let’s look at how a business’ dependence on its owner made it worthless to buyers despite its other strengths, using a fictional but representative story.
Unbuyable BillBeau’s
Bill Beauregard’s exceptional sales abilities had turned his local business, BillBeau’s Model Planes, into a tristate legend for model airplane hobbyists. Over 25 years, he had also expanded his commercial division, which supplied an international market of privately owned retail stores with parts, kits, and award-winning designs.
Bill always loved model planes, so working 90 hours a week never felt like work. But as he grew older, he wanted to focus less on running the business and more on the art of building planes again. So, he decided to start looking for a buyer.
Every model plane builder, from amateurs to competitive builders, knew BillBeau’s. The company had sponsored countless competitions and had been featured in numerous magazines. His local stores were always packed, and international buyers always bought in bulk.
Despite his success, no one wanted to buy BillBeau’s.
“I don’t understand,” Bill told his newest advisor, an exit planner named Tom. “I worked hard, built a successful business . . . and everyone I approach says they’re impressed with what I’ve done. But none of them will buy my business so I can retire.”
“That’s just it,” said Tom. “Everyone knows that you did all of this and you’re still doing all this. What do you think will happen when you leave? Who’s going to run the show?”
“Isn’t that the buyer’s responsibility?” Bill asked.
“To a point,” said Tom. “But you’ve bought several businesses yourself. If you were told that you had to put in 90 hours a week for 25 years to make those businesses run well, would you have bought them?”
“No, of course not,” said Bill.
“So why would it be any different from the other side?” Tom asked.
Battling unbuyability
A business that relies on the owner is usually unattractive to buyers unless the owner is willing to stay after the sale. For buyers and owners, this is rarely a good fit.
So, to make your business attractive to buyers—whether internal or external—it’s necessary to build a business that can run well without you. This can be tough for business owners. After all, you built the business, so who else can do what you do?
Here are a few ways to address this conundrum.
Spread your talent
Though there may not be one person who can do what you do, there’s likely a team that could. Your next-level management team is a huge component of making your business buyable.
Next-level managers do more than take your business to the next level. They are also the foundation that helps a buyer feel confident in the continued success of the business. Your next-level management team needs to know how to run the business after you’ve left; they are essential to selling the business for top dollar.
In short, the most valuable business to a buyer is one that doesn’t need its owner.
Focus on your passions
In addition to making your business more valuable to buyers, a next-level management team can give you more leeway to focus on your passions within the business.
In Bill’s case, his passions were building model planes and selling. Though he was quite capable with operations and finance, those weren’t his favorite things to do. In fact, his lack of interest in these areas impacted how long it took him to build his business empire. With next-level managers, the company may have gotten to its current level of success in fewer than 25 years.
The dual benefit of managers is that they allow you to concentrate your time on what you do best and encourage business growth and value.
Don’t taint the marketplace
If you put your business on the market but then take it off without selling, you’re tainting the marketplace. This can make it more difficult to sell your business when you’re truly ready because potential buyers will wonder why it didn’t sell the first time.
Bill was fortunate because he had only informally floated the idea of selling to potential buyers. But many business owners prepare for a formal sale, only to realize the business isn’t ready, thus tainting the marketplace and harming their ability to sell for a fair price.
Whether you plan to sell soon or much later in life, it’s crucial to be sure that your business is ready to be sold before putting it on the market.
We strive to help business owners identify and prioritize their objectives with respect to their businesses, their employees, and their families. If you have questions on this topic, we can help with more information or a referral to another experienced professional. Please feel free to contact us at your convenience.
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The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial professional. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial professional. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.
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Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.
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