Your business means everything to you — you’ve worked hard to grow and nurture relationships with vendors and clients alike. As you consider what your retirement plan entails, or what the future of your business looks like without you in the mix, you are now faced with the challenge of implementing a solid plan to set in place for when that day comes. What you’re uncertain about is how to ensure the decisions you make today will secure future worth for your business to demonstrate to prospective buyers. For some, this means reviewing your business plan and evaluating where you are today in relation to where your vision began. Leadership should keep in mind that business plans are fluid — while they’re created with a specific growth plan in mind, the established goals may change over time. As your goals change, it’s a good idea to update your plan and verify your succession strategy as well.
Growth Strategies Matter for Planning Purposes
Business growth must be done strategically, especially when you are preparing for the future sale of your business. Not all growth adds the same level of value when a business valuation is being performed. Remember, growing value and growing revenue are not the same thing. Some examples of growth that could hinder your ability to obtain your business’ greatest value when selling include:
- Over-specialization — if your business is focused only on one sector, there may be a small market for resale.
- Solution: Diversify your operations wherever possible to add value for a future sale.
- Business Transaction Models— if your business depends largely on the goodwill of your suppliers, or your typical process of doing business is without a contract, this could diminish the overall value of your business for potential buyers.
- Solution: Make sure you have written contracts — suppliers and customers who have contracts with you are more valuable than verbal agreements.
- Lack of a Diverse Management Team — this issue is often a challenge in family-owned businesses, particularly if no family member is willing to step up and take over. When you’re selling a family-owned business, your management team is likely made up of other family members. The more intertwined the family, the lower the value your business may be on the open market.
- Solution: Take steps today to add value to your management team by diversifying leadership. Broaden the role of your key players, and you’ll have taken the first steps to expand your business while increasing value in the eyes of buyers.
There may be other challenges that you’ll have to address, which is why engaging early on with an exit planner is so important. Working with someone who understands growth and succession planning, as well as how important both are to the longevity of a business, is crucial.
Benefits of Working with a Family Business Architect
Whether you will be actively participating in the operation of your business after you retire or not, you still must develop an exit strategy. You may have a vision of what will happen at the business without you, but the best way to ensure long-term success when you depart is to have an exit strategy to provide the best future for both you and your business.
For most, an exit strategy should begin being implemented up to five years before the time of your planned departure. That means you need to work with someone who understands your goals and is prepared to help you develop a plan to sell the business at the highest possible market value when you are ready to sell. Together, at Prometis Partners we can develop a strategy to build a growth plan that maximizes your business’ value while also preparing you for life after you depart from your business.