Our businesses take years to build, with many sacrifices along the way. But we can only sell them for what we deserve if we make the business robust enough to last long after we're gone.
Building a business is incredibly difficult and takes years of our lives. Regardless of how old or how experienced we are when we start our first business, it requires us to make huge sacrifices; sacrifices of the time we spend with friends and family, sacrifices of money and our possessions, and sometimes even sacrifices of our mental state.
So reaching the stage where we can sell our businesses is an incredible success. For those of us who are fortunate enough to get to that point, we expect to be compensated more than the sum of everything we’ve put into the business. If we’re going to sell our businesses, we deserve to be compensated fairly and significantly.
The thing is, the state our businesses are in, and how we communicate that, will be the defining factors in the discussion of the value of the business, and thus how much money we’ll walk away with. If our businesses aren’t what the buyers want and expect, they’ll turn us down, or give us an offer far lower than we deserve. And even more worryingly, if our businesses are in a great state, but it’s not clear to the buyers, we’ll meet the same fate. So what are buyers of businesses looking for?
The buyer will expect many things of you and your company, but primarily, they want to know your business is a great investment; one that's going to bring them a significant return. If they invest 500k, they expect its value to at least increase 10×, because of how many businesses they invest in that ultimately won’t succeed.
Beyond simply growing its revenue multiple times over, there are other signals the buyer is looking for that indicate its value and success. The business must be profitable of course, or profit-ready if it stopped growing, its activities must be legal, it must have a bright future, and most importantly, its future success must be secure. By secure, we mean that it shouldn’t come crashing down due to some unforeseen weakness.
Most businesses will also want the assistance of the buyer, leveraging their time and expertise to grow more quickly and reach new markets. But each buyer will tolerate a different level of involvement that the business will require of them, as they inevitably have many other commitments and people relying on them. Essentially, the more self-sufficient the business, the better.
Chances are, you probably want to leave the business to start something new after the acquisition. Maybe you’re tired of the industry and want to try your hand at something new. Perhaps you’re tired of running a business, and want a corporate position and all the perks that go with it. Or maybe it’s just your time to retire.
It’s even possible that the buyer will want to replace you with someone they feel will be better suited to running the business from here on. If that is the case, don’t take it personally; starting a business is very different to running it as a CEO, and maybe you’re just better suited to starting businesses.
And even if you don't leave the business, it's likely that a few of your most experienced team members will want to. They might see the acquisition as a change of the culture they’ve grown accustomed with, or perhaps they’ve got a stake in the business, making them wealthy from the acquisition too, and they’d like to use that wealth in some new way far from their current position.
Assuming you and some of your best employees leave after the acquisition, will the business remain on track and successful? Will the board or new owners be able to replace you? If not, the acquisition will fail, because businesses without leaders don’t last more than a few days or weeks at best.
And don't expect to be able to pull the wool over the eyes of your buyer; they will see straight through it. While you might see yourself as replaceable, the buyer likely won’t. Finding the right person to replace you and training them to be as effective as you will take months or years. This is called succession planning. Business buyers know this, so they will likely contractually force you to remain with the business for a few additional years if you haven’t planned for this.
Ideally, you should have someone ready to replace each person who decides to leave (yourself included). These replacements will need to be competent and motivated, which you can ensure with the right selection or hiring process. Training them to be as effective as those they’re replacing will take much longer though.
Now that we’re clear on the impact that employees leaving will have on the sale of your business, let’s discuss how to mitigate it. By making the business more robust, you make its future success more certain, increasing its value to the buyer.
There are many ways to make a business more robust, and many of these you may have already put in place. Something that you probably haven’t put in place are the systems that keep the business performing optimally, regardless of team members coming and going.
Your team will be very familiar with the feeling of starting in a new job or position, and not knowing how they should be doing their work. A new employee may be trained as an accountant, for example, but have no idea how the accounting processes work within your business. The onboarding and orientation given to most employees won’t have covered this. They may be provided with a buddy or mentor, but that person won’t have the time to answer every one of their questions. And that’s not even possible for more senior or executive positions.
What your team needs is a way to transfer the knowledge of how things work from one person to the next, so that the replacement of employees takes days instead of weeks, months, or years of lost productivity. What your business needs is a single place where all systems knowledge is kept. What you need is what we call a team knowledge site.
Beyond helping to train new employees faster, and maintaining a high standard of work for experienced employees, a team knowledge site will have another significant benefit that’s far more subtle; it will allow your business to be repeatable. For any position in your business that’s documented, you can easily hire another person to do it as well at the same standard. Whether the buyer imagines doubling the size of your team across multiple offices, factories, cities, or even new countries, having the employees’ systems documented means growth is straightforward and simply a question of time and resources. It means the growth that the buyer expects is far easier to imagine and implement.
Not interested in making SOPs or a team knowledge site yourself? Want to hire someone to do it? Well SOPs and team knowledge sites are our speciality at Touchdreams. Contact us to get started.
Documenting how your employees do their jobs won’t guarantee you a sale of your business, nor will it allow you to retire next week. But it will make it much easier to do these, and give you more free time and a larger payday when you do.
While your team won’t be able to document how they do their own job, you can bring in an agency like Touchdreams to work with them to do this quickly and effectively. In just a few weeks, you could have your entire business’ processes documented and repeatable, making your business robust in the process, and allowing you to sell your business for at least as much as it’s worth, and far higher than would be possible without it.
Are you interested in securing your team's knowledge? Book a demo or contact us using the forms below.