Exiting or Growing Your Business – Here’s what to focus on…!
I’ve recently talked to several business owners who are at a point where they are actively starting to think about exiting their business. I’ve also recently met with several business owners who are looking to aggressively grow their business. That’s not surprising considering what we do at Aspire, but what might be surprising to you is that the recommendations in both situations are almost the same…!
It turns out that the best exit strategy for a business owner also corresponds to enabling healthy growth within the business. Here are some of the key ideas business owners should be thinking about (for either situation).
Building to Sell (and Grow)
The best businesses to buy (or sell depending on your perspective) are the ones that are easy to run, make money for the owner and are relatively easy to scale. That leads to some very specific ideas that business owners can focus on in order to build their business to sell (or grow).
It’s not about the owner
The first idea is that a healthy business is independent of the owner as much as possible. From a potential buyer’s perspective, this is pretty obvious – the previous owner isn’t part of the purchase (beyond some kind of earn out – which could be as little as 6 months or up to maybe 3 years). That means that the business needs to be able to perform, and grow, without that owner actively making that happen.
This is also really important when it comes to the potential for growth. If the business centers around the owner, the it’s inherently capped by how much time and effort that owner has – and since there are only so many hours in a day, that cap will be hit at some point.
Excellent Side Effect – if you can successfully transition your business so that it doesn’t depend on you, then you can start working a lot less if that’s what you want. I have a client who just spent the last 2 1/2 weeks in Mexico because she could (and because it’s super cold here). She’s worked hard over the last year or two to make sure the business doesn’t depend on her for day to day operations.
Dependable (and healthy) profits
The inherent valuation of almost any business is driven by the profits it generates and the likelihood it will be able to generate that same level of profitability (or higher) in the future. If you’re looking to sell, it’s critical that you are making a healthy profit (depends on your industry – but typically at least 10%) and that it’s easy to project what next year’s profit is likely to be.
A great way to do that is to have a big chunk of your revenue be recurring (think of the membership fees for Amazon or Costco). Any time you can get customers to sign up for future payments, it’s going to add a lot to your value.
From a growth perspective, those healthy profits give you a lot of opportunities for investment (marketing, sales, new products, etc.). It takes money to make money…
Excellent Side Effect – Being able to comfortably project next year’s revenues / profits makes it a lot easier to run your business because your cashflow is much more predictable. That makes the bank happy and makes it easy for you to plan for hiring and spending.
Easy to Run Consistently
The final big piece to consider is to continuously work on making your business easy to run and consistently delivering valuable outcomes. From a buyer’s point of view, a business that’s easy to run is going to sell for a premium – because that buyer won’t have to do much after the sale. It’s kind of like the difference between buying a house that’s a ‘fixer-upper’ and one that’s recently been renovated…
From a growth perspective, having a business that’s easy to run frees up a lot of time and effort for maintenance and support that can instead be used for growth. One of the biggest drags on a business is dealing with things that don’t go the way they’re supposed to go – which leads to a lot of fires to put out. Frequent fires aren’t conducive to growth.
The best way to make a business easy to run is to focus on simplifying it. Think about a restaurant like Five Guys or In-N-Out Burgers. In both cases, the menu is incredible simple – a few variations on burgers, fries, shakes and maybe one or two other things. That simplicity makes it easy to train new staff and deliver a great product (within the boundaries of that simple offering). How could you streamline your business to make it simpler?
Excellent Side Effect – Easy to run businesses are also much easier to hire into. You don’t need a lot of expertise or people who can handle complex situations, you need people who can do repeatable things consistently.
If you’re a business owner, whether you’re looking to sell in a few years or just getting started and thinking about growth, you should be looking at the 3 ideas above as your starting point. They’re all fairly simple ideas – but that doesn’t mean that they are easy to implement. But they are definitely worth the effort.
What do you think? Do these ideas resonate with you? Did I miss a big idea? I’d love to hear your thoughts – leave a comment below.
Shawn Kinkade Kansas City Business Coach