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Business Sale Readiness Factor #4: Aligned business strategy

Business Sale Readiness Factor #4: Aligned business strategy

Thursday, 10 June 2021

Business Sale Readiness Factor #4: Aligned business strategy

“Start with the end in mind” is one of the 7 habits of highly effective people, according to the late great management thinker, Stephen Covey. The essence is deciding your destination and then working out how you’re going to get there. In other words, formulating a deliberate strategy and then, most importantly, following it! That’s easier said than done, but when selling a business, it can have a significant impact on success. I set out below three key observations of businesses that achieve this:

1. Being a market leader for your products and/or services

I mentioned this in my blog on Business Sale Readiness Factor #1: Key Attractions but it’s worth highlighting again. Businesses are more attractive and worth more if they are ‘a’ market leader (not necessarily ‘the’ market leader). I won’t repeat what I said before, but in summary, think about things like your business reputation, share of the market, record for innovation, employer brand and customer satisfaction levels. Where does your business rank and how can you improve in these areas?

2. Having a written business plan which is regularly reviewed and includes a strategy to sell

It’s surprising how many times I ask business owners for their business plan and they don’t have one. They’re often caught up working in their business, rather than working on it. That’s understandable. It’s not easy to extract yourself from operational details, which also provides a reassuring feeling of being ‘busy’. But if you want to sell your business, ignoring your strategy is likely to cost you a lot of money in the long-term.

You see, running a business for retention is quite different from running a business for sale. The former allows you more time to receive a return on your investments; the latter could significantly enhance or harm your chances of a sale and achieving a top price.

Decisions on things like building a new site, extending a lease, investing in new technologies, innovating new products or services, hiring new staff and acquiring new kit should be influenced by your intention to sell. You’ll want to understand the impact and timing of the benefits of these investments before proceeding.

All of this needs to be reflected in a written business plan which, in some form or another, is shared with your team. That doesn’t mean to say you need to specifically state that the business will be sold. We recommend that business plans are easily digestible and can be distilled into simple one-page summaries.

The trick with any of this is implementing the strategy. To quote another management guru, Peter Drucker, “Strategy is a commodity, execution is an art.” When we’re advising clients, we help drive execution of their strategies through a series of one-page plans with clear actions, responsibilities and time frames. Accountability and measurability are everything.

3. Having very little, or no, borrowings in the business

Any long-term debt in your business is likely to be deducted from the sale price. This point is often lost on business owners and the impact can be significant.

So, in the lead-up to a sale, it’s vitally important to avoid taking on lots of unnecessary new debt. For instance, if you’re a haulier, it might not be a great time to replace your fleet if you don’t need to. Yes, you’ll have a lot of shiny new trucks and the value of your fixed assets will go up, but your business is likely to be valued on a multiple of its profits plus any surplus assets (like spare cash), less any debt. I’ve seen deals delayed for years whilst the sellers pay down their debt in order to receive a decent sale price.

Further assistance

The above key factor is taken from our free and insightful ‘Sale Readiness’ diagnostic tool which aims to give business owners a score on the nine key factors determining:

  1. How attractive your business is for sale;
  2. Whether you will maximise the final business sale value; and
  3. The efficiency and smoothness of your business sale process.

The online tool takes only five minutes to complete and your results will highlight the top three factors which are working well and the top three factors which require the most attention before you consider a business sale process. You will also be able to see how you compare to the global benchmark (average scores of all completed diagnostics) on each of the nine factors.

Of course, if it would be helpful, my team and I would be pleased to discuss your results and guide you on your next steps. In addition, each month I will be releasing a blog, just like this one, on each of the nine business sale readiness factors to help bring them to life.

So, if you’re interested in selling your business, why not complete the ‘Sale Readiness’ diagnostic tool, or get in touch with me directly, and start bringing your dreams to reality.

Next month’s blog: Business Sale Readiness Factor #5: Availability of financial information

James Lay

 

 

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