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Lorraine McGregor, co-author of the book "Fast-Track Secrets for Making Your Business Saleable," says some business owners are putting their retirement dreams in jeopardy because they put their companies on the market before they're ready to be sold.
What are business owners missing when they plan for successors?
As management consultants, owners often ask us how they should select their successors. But selecting a successor is only part of the equation. The real issue is, "Would someone buy my company?" And mostly, we have to deliver bad news that many companies today are not in condition to be sold. Worse, owners are unaware it takes two to four years to become saleable. If the exit is five years away, that means they have to start now. Where to start? Select the date, target price, and then make the company worth that amount by that exit date.
Many business owners think that if the company is a success for them, it will be successful for the next owner. But business buyers are like homebuyers. They want the right fit in the right location for the right price. Think of becoming saleable as similar to making the right upgrades to your home so that it is highly desirable and then sells quickly. As a business owner, you almost never get the insider information on what buyers are looking for until it is too late to make needed changes. Most buyers look at hundreds of businesses before selecting two or three viable possibilities.
How can a business owner get started?
Select your exit date. Know the amount you want for your business, and get realistic about what it is worth today. Also, commit to closing the gap between the value today and for how much you want to sell it. Learn how to make your company saleable, and then have a Plan B. Hire the right managers. Mentor them, let them lead the company and begin planning on making the business one that a buyer can say, "This is worth investing in because I can see clearly how it makes money and that it will continue to do so into the foreseeable future."
What makes a business saleable?
Here are some of the things that tell a buyer or lender your company is worth a premium offer:
• A proven management team that knows how to plan, implement, measure results and achieve profitable growth without the owners being involved.
• A smooth-running operation that can find and resolve profitability leaks. Got leaks? Shorten the time between billing and when you get your money. Track gross margin by product or service. Lay out expectations. Follow up.
• A loyal, diverse and growing customer base, where no one customer provides more than 20 percent of revenue. Also, know how your company makes and loses money.
• The go-to factor or being known for something that competitors can't easily copy. How? Uncover the hassle points of doing business with you. Fix them.
• Paper trails, including three years of audited statements. Ensure agreements don't restrain trade and are assignable.
Twitter@DawnHouseTrib Lorraine McGregor, author