We understand the frustration and reward of running your own business. As gratifying as it may be, the day will come when you are ready to retire or move on to your next project. When planning an exit strategy, you’ll naturally want to maximise your business’ value. One of the best things you can do to achieve this is to make yourself dispensable.
Creating your own redundancy is counter-intuitive in an employed environment, but when you’re looking to sell your business it must be able to function profitably without you. Ultimately, if you are the business, you’re unlikely to have a saleable asset.
Work on your business, not in it
As well as making your business more attractive to potential buyers, this will provide valuable time to align your business plan with your personal financial goals. After all, once sold, you could receive the single largest lump sum in your lifetime.
Five steps to follow
There may be a level of emotional attachment, but a prospective buyer will find your business much more attractive if you can demonstrate it is capable of functioning without you.
The best way to show potential buyers that your business can thrive without you is to prove it! This is good practice anyway; if you were suddenly taken ill for an extended period of time, knowing your business can function and remain profitable will take a great weight off your shoulders.
This can be achieved by properly training your employees and imparting the years of knowledge and experience you have gained. By identifying passable skills and delegating key tasks, depending on the nature of your business, you should, in theory, be able to walk away.
2. Build a team
You may have employees, but ideally, you want a team; an integrated unit, sharing the ethos of your business and working towards common goals. When planning your exit, a tight, well-trained and educated team, built through delegation, can add serious value.
Managing your team’s expectations regarding your leaving is imperative. Being honest and upfront about your intention and motivation, depending on the certainty of your exit, is respectful and may minimise the likelihood of a mass exodus. Retaining the key employees you have delegated to is imperative to retain value and ensure your business is an attractive ongoing proposition, especially if you operate in a particularly niche market.
3. Reward success
Acknowledging, rewarding and embracing the success of your team is key to motivating and retaining them. This is often much more than financial reward, often it can be the smallest of things that make big differences; a simple ‘thank you’ or benefits such as Perkbox.
A well-motivated team are also much more likely to respect the business and maintain its integrity whilst you are not there.
4. Utilise technology
If your business isn’t a traditional brick and mortar operation, does your team need to operate from a central location? There has been a huge number of developments that make remote working even easier. High-speed internet is now widely available and software tools and packages are constantly improving.
You could use project management packages such as Asana, and chat and video conferencing facilities like Slack and Zoom. This could enable you to use international freelancers or recruit the best employees without being restricted by their location.
Remote working will give your business great flexibility and scalability, making it especially attractive to buyers. It will also enable you to react quickly to changes in your market.
5. Document everything
The goal is to document a complete guide to running your business. There is likely to be several processes that have naturally evolved over time but are not formalised. Whilst your team may know them inside out, they may not be easily understood by outside observers.
It may seem time-consuming for you but recording processes and ensuring they are efficient and scalable is another big leap to creating your own redundancy!
Your buyer will have a lot of due diligence to perform, presenting a pack of key paperwork will help them gain insight and maximise value. Documents could include, but are certainly not limited to;
- Client agreements
- Supplier contracts
- Internal policies and procedures
- Employment contracts
- Insurance policies
- Licences and consents
- Intellectual property
- Property lease
- Ongoing utilities
There is, of course, much more you can do to maximise the value of your business and make it an attractive proposition to potential buyers. Making yourself dispensable is an excellent starting place. You will need to identify and profile your potential buyer and ensure profitability and scalability, to name a few. We’ll be looking at this in more detail in the future, so stay tuned.
It goes without saying that once you have achieved a successful exit, the value of obtaining expert financial advice will never be greater. The sale itself isn’t your retirement package, but the beginning of the journey to securing your financial future.
If you are planning your exit strategy or have recently sold your business and would like to discuss your investment, retirement and tax planning opportunities, do not hesitate to get in touch with one of our financial planners.