Take a lesson from Leno and go out on top. Here's what you can do to ensure a successful handoff.
Jay Leno is retiring from The Tonight Show (again), handing the reins to a much younger Jimmy Fallon. During a recent 60 Minutes interview, Leno spoke frankly about stepping down while his ratings were still strong and mentioned the need to bring in a host that had greater appeal for a younger generation of viewers--affirming the age-old (pun intended) adage that it's best to go out at the top of your game.
That's a piece of advice business sellers need to hear. Unfortunately, too many owners fail to think ahead and adequately prepare for their exits and are then forced into quick, less-than-optimal sales because of an unforeseen life change (such as health issues) or sudden decision to sell. In the case of a generational succession, an unplanned exit can significantly handicap either the seller’s ability to hand over the reins or the successor's ability to take them successfully.
So whether you’re planning on exiting your business in six months or six years, there are several things you need to do to ensure that you, like Leno, go out on top.
Strengthen financials. Financial performance is the primary factor driving business value. Sooner rather than later, implement strategies to boost profitability through a combination of enhanced revenue and cost management strategies. That will help you put more money in your pocket now in terms of earnings and when you sell in terms of selling price. In addition to showing a positive financial trend, create a solid forecast and actionable plan showing how the new owner can continue to expand the business after the company changes hands.
Build your succession team. Exiting at the top is only possible if you've engineered the business to make yourself unnecessary. Unless you desire a role in the company postsale, you’ll need a management team in place that is capable of operating the business for or under a new owner. To do this, you need to cultivate your best employees or attract new talent. Both of these take time. Additionally, you may want to offer these key employees some of the proceeds when you sell the business or help the new owner see the wisdom of offering them a bonus to stick around and help him or her succeed. Although any additional compensation for others is likely to--one way or another--come out of your pocket, it's worthwhile if it helps seal the right deal and allows you to truly exit at the top of your game to a high bidder.
Tighten operations. Prospective buyers look for seamless operations and predictable, productive workers. But over time, many owners have a tendency to become lax with processes, policies, and work routines, especially if the business enjoys low employee turnover. By reviewing employee policies, carefully evaluating work processes for potential inefficiencies, and tightening up people management, you can add value by demonstrating that your business operates like a well-oiled machine.
Reduce debt. An excessive debt load limits your ability to successfully exit the business for several reasons. High debt levels on the company’s books decrease the net value of your company, making it less appealing to buyers and reducing your proceeds from the sale. Likewise, if you’re carrying a heavy debt load on behalf of the company, you’ll need to pay this down using the proceeds from the sale. By paying off debt, you make it easier to leave the business on your own terms.
Talk to a business broker. If you want to go out on top, talk to people who know the salable value of your company and who understand what it takes to attract top-dollar prices from business buyers. An exceptional business broker can evaluate your business and make specific recommendations that will increase your value to strategic buyers. Even if you are years away from selling, start talking to business brokers now to get their perspective. Most qualified business brokers will offer valuable advice to help you position for success and won’t try to shoehorn you into selling prematurely--if they do, move on and find a better broker.
Unlike Leno, you will probably only get one shot at exiting your business. As a business owner, there is no worse feeling than a distressed sale. By taking action now, you can mitigate the risk of a bad sale scenario and create positive outcomes for both yourself and the new owner. More important, you can leave your business the right way and ensure that you go out when you’re at the top of your game.
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