To take more with you, leave more behind.
When they broadcast emergency procedures as you taxi down the runway, the idea is to show you how to exit in the safest manner. It’s meant to be the most orderly solution. In any given circumstances, the fewest people will get hurt and the optimum number will survive.
The stress is on “all parties”. In the case of the aircraft, not just the pilot or the passenger in the last row of economy. In the case of a business: the employees, the new owners and you.
Why does that matter? The answer lies in another question.
Who wants to buy a business that won’t survive?
It’s all very well to exit at the top, but just like stock market timing, that’s just luck. Few people get that lucky. People who get stocks right don’t take lucky punts; they have an investment strategy they apply over a time.
For a business investment, the same applies: what’s your exit strategy and what’s the time frame?
Whether you are planning to sell, merge or leave it to your children, your exit will be optimized if you put your house in the right order.
What makes a sale-ready business?
Here are three things that should form part of your strategy.
- Sustainability: few people will pay up for a business that doesn’t have identifiable recurrent income. What’s the point of investing in a business with great momentum if it’s likely to slow the moment ownership changes? You may have a variety of income streams, but which ones have a strong future?
For a successful exit, strengthen your strongest recurrent income. - Brand: if you are an owner, the simplest way to insure against its dependence on you is to develop a template for the management of every aspect of the business – from product design, through accounting and operations and on to customer service. If all those things are done consistently, you have a brand. People know what they will get when they deal with the business. It doesn’t change when you leave. Turn that template into a manual. That’s what investors will be buying. It’s the same principle as franchising.
- Succession: draw up an org chart – first by function, then by name. List all the essential functions that make the business work. Then look at who is going to do what when you are missing. What needs to be in place to ensure the business remains sustainable and true to brand, with or without you?
These principles apply to any firm, whether for sale or not. They create value. They are also the key ingredients behind a sale-ready structure. If you want to take more value with you when you leave, leave a functional business behind.