Business Grooming Basics

You don’t start a business overnight, and you don’t leave one that way either. You may be ready to move on – but is your business? Many times, owners hold a lot of loose ends in their hands; if they step back, chaos can ensue. A well-groomed business has those ends tied up before potential buyers come into the picture. What does the process entail? How long does it take? And, if you are leaving your business, why bother with it at all?

What is business grooming?

The concept is simple: you might groom yourself to get ready to go out with someone new. The object is to make yourself more attractive, to show off your positive attributes. The object of grooming a business is to make it attractive to potential buyers. It involves cleaning up balance sheets, maximizing cash flow, shoring up relationships with customers and suppliers, and other steps that will result in a stronger, more saleable business.

Grooming, like a good haircut, is designed to make your business look its best. It’s not plastic surgery; you are not making who you are and what you do unrecognizable, you are putting your best foot forward.

How long does it take?

Grooming often involves substantive changes in your business, but here’s the catch. It cannot seem to involve substantive changes in your business. Sudden changes can cause panic or distrust in customers, employees and vendors.  Grooming is a gradual process. Changes, whether increasing sales, building up a diverse customer base, or implementing a more efficient accounting system, need to be implemented in a slow and well thought out manner so you can create continuity and stability within the company and its stakeholders.

You have to clean up business affairs, increase value, and, of course, find a buyer  to complete a sale. This may take a few years to do, so it is best to start planning an exit strategy as soon as possible.

Why bother?

Peter Christman, founder of the Exit Planning Institute, estimates that as many as 75 percent of business owners do not have an exit plan. They put themselves at risk, or at least, they prevent themselves from capitalizing on the sale. If you have properly groomed your business, you do not have to grab at offers that are less than favorable; you can ask a higher price because you have increased the business’s value and reduced risk for potential buyers; you are in a position to attract “higher-quality” buyers.

But there’s another reason: this business that you own will continue after you step away. When you have worked to groom it, you have done your best to ensure that it has the opportunity to grow and thrive under new ownership. Entrepreneurs who put their hearts and souls into their businesses may find that comforting. And if they don’t, they can comfort themselves with the higher asking price.

When valuing a business, there are many ways to calculate the worth of the business. One thing is for certain, you must take into account not only those tangible assets that can be boxed up and counted but also those intangible assets that you may overlook.

Typically, business owners value only tangible, identifiable items:

• Physical plant – buildings and property, etc.
• Physical supplies – the pens, pencils, nuts and bolts that can counted and valued
• Tangible assets – money in the bank, outstanding loans, stocks, etc.
• Fixed assets – machinery, computers, furniture and vehicles

Qualitative instead of quantitative assets can hold far more value for the business owner. This includes:

• Employees
• Customers
• Reputation
• A business model with potential industry, market and environment for the future, instead of the only the proven track record of the business
• Quality and price point of the product or service
• Proven systems and processes

If you don’t have good people working for you who are qualified and highly motivated, then you lower the chances of having recurring customers. If you don’t have recurring customers, you may not a have a business that is attractive to potential buyers. The quality of the people working for you is an essential business driver which directly affects the saleability of your business.

Determining if you have the best people sounds simple enough but most small businesses make the mistake of simply looking at resumes and holding interviews to find the most qualified people. Qualifications, however, are only one part of the selection process. You need to find people who are aligned with your particular business culture. For example, if you have a salesman who has been hugely successful in previous employment you might find that their selling style does not match the way you want to do business with your customers. In this case, your customers may not respond well to his style because they came into your business expecting something different. This type of employee could be a detriment to your business and not an asset necessary to drive value.

Identifying those in your organization who are the “best” and those who “aren’t” is both an art and a science. The science part involves using various methods to determine personality types. These employee evaluation assessments have been used for a long time and there are as many types as there are companies. These assessments not only determine the culture of your organization but also create a baseline for determining if potential employees fit that culture. The art of it, is not just identifying “less than perfect” employees but determining if they can function in your business through your training programs. It may seem simpler to get rid of a trouble employee but the cost in replacing them can be very high. How so? There is the search (your money), the interviews (your time), the training from scratch (your time and money) and the possibility you may have to do it again (and again).

You need a process in place to not only identify employees who may be dragging down your business  but also one that includes determining if you are selecting the best candidates as employees from the beginning.  Not only will this save you time, money and create loyal employees, it will increase the intangible value of your business. Anyone interested in buying your business will likely not have to re-invent the wheel on this issue.

Selecting and developing the best people you have into viable assets is a strong positive and can only make your business better; for you, your customers and someday, for potential buyers.

No one wants to think about their own mortality. But a proper business model must also include such possibilities. Insurance policies – life, medical, property – and most importantly, a succession plan are all predicated on this simple truth.

Planning for your business to carry on without you is not just an idea in case of the death of a business owner or partner, but can be important in preparing it for sale or a merger. In today’s ever changing world, never forget that information is just as important, if not more important than, the tangible assets a business needs to operate. Website, social media pages, passwords to various equipment and processes, are all vital assets that increase – or decrease, if lost – the value of the business.

Don’t run your business in your head. A business should always document the information necessary for the business to operate without you. This is important not only from business continuity but also for employee training.

Events that can adversely affect a business come in all forms, including:

• Death of the owner, or one or more business partners
• Disability
• Divorce
• Bankruptcy
• Natural disasters including fire and floods

You can lose value in the business, whether you sell the business or not, if you don’t properly document your processes and procedures for it to operate without you.   These documents should cover the entire business process from product development/innovation to employee training and retention to customer acquisition and servicing. With proper planning, the business can continue to operate and thrive, even without the current owner around to see to it. Whether through death or sale, a well-run business will be positioned to move forward or be sold for a price necessary to meet the needs of the business owner.

“I am not interested in selling my business.”  These are words I hear with surprising regularity from business owners. I advise against this frame of thinking and encourage clients to “run it like they’re selling it”.

Selling the business is always happening. You sell it every day to your customers – through product quality, variety and customer service. This is how you make money which is the most important factor in determining the value of a business. Understanding the different business drivers and how they affect the profitability of your company is important, not only if you want to sell your company but also if you want the business to work for you as an investor.

97% of small businesses don’t do this, and they end up losing customers and don’t know why. They lose reputation and wonder what happened. They end up walking away with pittance instead of reasonable return on their investment, not only in dollars but in time invested in building their business. If your business is not saleable, customers will not come back and no prospective buyer will want to entertain the idea of acquiring your business.

Many businesses that do go up for sale are not prepared. A surprising number of businesses sell due to unforeseen circumstances. It wasn’t part of their plan, and the moment is thrust upon them. Getting on top of your business with the idea that you are always selling gets you in the mindset that will help you grow and prosper, and it will put you in a strong negotiating position should you ever become faced with selling. Getting there ahead of time will ensure you get the most of what you deserve for all the time and money invested.

Putting together the right image and system that lets the business sell itself takes time and commitment. This business practice will help you identify and improve the business drivers necessary to allow you to get the most out of your business – whether you sell it or not.