As an entrepreneur, the fire that sparked your journey can dwindle. You may find yourself in a comfort zone in which you run the business only to the point where it generates enough money to satisfy your aspirations and standard of living. When in that space, it can be difficult to acknowledge your responsibility to maximize the enterprise value of your business.
This is understandable. The everyday challenges of running a business — managing staff, handling finances, adapting to new regulations, reconfiguring the day due to delays, adjusting to supply restraints and more — can be daunting and make you lose touch with your passion and vision.
But when the time comes to sell your business, this comfort mindset could end up damaging its enterprise value. This is why experts advise running your business like you’re ready to sell it. Doing so positions the business to operate in a specific manner such that it will not only sell for more, but will also make more money in the meantime.
Why it’s smart to always operate as if your business were on the market
When trying to build your business, even if you have no plans to sell it now or in coming years, looking at it through the eyes of a possible buyer alters your actions and decisions in a way that increases equity value in your business.
The logic is simple. Even if you never plan to sell the business, the same things — actions and decisions that make it an attractive acquisition for buyers — will amp up your distributions to shareholders, minimize risk and create a stable, repeatable business model.
Reasons to run the business like it’s on sale:
It helps you keep good books and strong records.
Acting as if you have potential buyers looking to evaluate your business helps you maintain super-clean books and other financial records. Buyers are often turned off by a company whose financial records are in disarray as they don’t want to purchase something that might be standing on shaky ground financially.
Besides, keeping good books doesn’t just appeal to buyers, it will also help you handle the day-to-day running of your business better as well as analyze the critical numbers well. You’ll be able to understand if the money your business is bringing in is equal to or more than the money that is going out. You’ll have a good idea of how your accounts receivable are faring. You’ll be able to forecast your business better.
It lets you tap into your strengths and close gaps.
Running your business as though you intend to sell it makes you responsible for benchmarking your company against your competitors as well as creating appropriate enterprise value. Thus, as an owner, you are confronted with making decisions impacting the asset value of the company which requires you to get a stronger understanding of your business’s strengths and areas to improve.
Besides, doing so will help you spot and fix small problems before they become major concerns and interfere with your company’s success.
It helps establish clear systems, policies, processes and procedures.
As you work to eliminate the concern of the buyers about effectively replacing and running the new business they acquire, you’ll have top-notch manuals, systems and procedures in place. Besides, identifying and adopting best practices that add value to your company will also prove beneficial when it comes to the day-to-day running of the business.
Having simplified processes, policies and procedures clearly outlined in the company manuals will help you deal with every possible scenario that comes up in the course of running your business. It will help keep the work flowing even if any of your team members leave or is unable to work for a while in addition to ushering a positive impact when the time comes to train new hires, expand the office, or open a new location.
Additionally, the clarity and simplicity inherent in the business keesp everyone in the company on the same page and ultimately helps you create a successful, repeatable business model.
It helps create a healthy business development plan.
The founder is the primary rainmaker in most businesses. The one with all the relationships and technical know-how. The one who brings in new projects, develops processes and builds new relationships. But that shouldn’t be the case.
Owner dependence is one of the biggest red flags for buyers looking to purchase a business. Holding on to the mindset that you’ll be looking to sell your business will help you make it less about you and have a backup ready. It will push you to identify the activities you should delegate in addition to finding people in the organization who can shoulder the responsibility well.
It instills discipline and commitment.
Building your business to make it look more attractive to potential buyers tomorrow instills commitment, discipline and motivation. This will serve you tremendously well now by keeping your business in good order and boosting the bottom line, and in the long term by bumping up your business valuation and helping you fetch a higher sale price.
It helps ensure the continuity of business.
If something happens to you, it is likely that your business will go down the tubes quickly without its leader at the helm. Running your business as if it is for sale from the very start will help you prepare for the worst and always look both ways before you cross the street.
