|
Secrets to Success
Deborah Cole Micek
and John-Paul Micek
|
How to build a saleable business
IT was 6 a.m. here in Hawaii when I began my phone appointment with a new business-coaching client from Pennsylvania. Joe sounded frustrated as he related his story.
"I'm 57 and I've been running my own company for 30 years. Now it's time to sell my business, and I realize it's not worth what I thought."
Like so many other small-business owners, Joe was utterly dismayed as to why something he had worked so hard at for so many years had so little value. The good news is that it's a story that you can totally avoid telling yourself.
After selling two businesses and helping many other owners prepare their small businesses for sale, I've found that there are three basic keys to building a high-value company. Here's a quick overview.
» Cash flow.
When it comes to valuing a business, cash flow begins with net taxable income. Then you add back things like depreciation, taxes paid, owner's salary/benefits and other ownership perks. A multiple is then applied against your cash flow, based on your industry and geographic area.
Those add backs will always be a factor in any small business, but when you're preparing to sell, the cleaner you can make your cash flow the better. Start backing off your perks two to three years out from when you intend to sell your business.
» Retained earnings.
This is the profit that your company keeps each year. A track record of steadily increasing retained earnings not only increases the value of your business, it also lowers the risk potential for buyers.
Here's how it works for most small businesses. Owners often begin in the red when they start up. By the third year, most businesses will reach a break-even point. Then, a year or so after, the business begins to show retained earnings. From then on, your books should show a steady climb in your retained earnings.
» Operational systems.
Formalized systems for hiring, managing, marketing, and operations are critical in creating a high-value business. Having policy and procedure manuals, written operational systems, and customized software systems will not only improve the profitability of your company, they will turn your business into an asset that someone will want to buy.
Without formalized systems, all you have is a "job." No one wants to buy a job!
If you want to build a salable small business, you need to start taking action now. Put together an advisory team with your business coach, CPA, and a business broker. Develop a plan, then work it.
The sooner you put your team together, and take action with the three key steps outlined above, the more value your company will have when it comes time to sell.
John-Paul Micek is the lead business coach at RPM Success Group Inc. Reach him at
JPM@RPMsuccess.com or toll-free at (888) 334-8151.
Deborah Cole Micek, chief executive officer of RPM Success Group, is a business success coach and life strategist. Reach her at
DCM@RPMsuccess.com or toll-free at (888) 334-8151.