How to prepare for a business transition
The best time to prepare a business for a sale or a transition to the next generation, is the very day you buy or form your new business.
Few people think about the sale or transition until forced to do so by a health issue, age or financial trouble. However, if you start the process today, your business will be far more attractive when the time comes to make the transition a success. Take some time now and get away from the daily activities of fighting fires, chasing new orders and responding to the pressures of the day and invest some time developing strategies that can really drive the value of the business at the point in time your transition is ready to start.
It's time for you to focus on preparing your business to succeed without you at the helm every day. Any business that is dependent on one person for most of its success is not ready for transition.
Assemble a good team to give you unbiased input such as your banker, lawyer and CPA. And as the time draws closer find a solid acquisition professional. All these people will provide an independent view of the unique qualities, and the shortcomings, of your business and management team. The transition of your business will require a greater level of planning than anything you have ever done so it's critical to obtain an independent view from a very experienced team of advisors.
Take the shortcomings list and develop strategies to overcome these negatives and act right away. Don't make the mistake of assuming you can explain away the problems that exist. Be realistic and get started making the changes.
Review the financial trends of your business and compare your results to your competitors and industry leaders. Do your homework and make sure you fully understand how you measure up.
Get published and build the image of your business and your team in the trade publications and associations within your industry.
Build your residual revenue stream. A business with a steady stream of orders and recurring income will transition smoothly and has more value. Customer quality is also important, so go after customers that are well known with a good payment history.
Clean the house, the offices, the warehouse, shop floor and the landscaping. Dust on the shelves and the inventory is a good sign of a business that is not well cared for. Analyze the inventory and clean out the problems as soon as possible.
Upgrade your website and marketing materials. Today, the first encounter your business has with anyone is through your website. It's a simple and direct way to set a terrific first impression.
Look for expenditures that are not contributing to the value of the business and eliminate waste. Buyers and lenders seem to put tremendous emphasis on current trends and results. Assess the management team and weed out the marginal performers now. Make sure there is a solid training program in place to facilitate the transition, especially when family members are involved.
See what your customers and suppliers are saying about your business and act where needed.
Make sure your financials are prepared using Generally Accepted Accounting Principles (GAAP) and agree to the tax returns. The quality of your financials is critical to the financial support required to transition the business.
And possibly one the most important steps; start developing a life outside the business. All work and no play may build a great business but can keep the team around you from developing the skills needed to transition the business to even greater levels of success. Solid planning and preparation, with an experienced advisor, will lead to financial security and a healthy life.
• Eric Lundstrom is founder of Focus Capital Advisors Inc. in Downers Grove.