3 Habits To Break Before Selling Your Business
As an advisor for companies in the $5 to $20 million range, I work with business owners at various stages of exit strategy planning. Given their companies’ revenue, these leaders generally anticipate financially rewarding exits within desired timelines. This is the plan, but it doesn’t always work out according to plan.
When a buyer can’t be found, or when the offer price is well below expected valuation, you need to find out the reason. One common reason we’ve observed: the business’s owner is also the business’s original founder, and is far too enmeshed in day-to-day business.
While building and growing a business, a deeply involved business owner is a good thing. However, after a sale, a founder who is no longer with the company holds no value. Balancing your involvement with your business’s longevity is admittedly a delicate dance. But to be in the best possible position to sell, there are a few habits you need to break.
Bad Habit #1: You’re wearing too many hats.
Overextending yourself in your business’s early stages is almost a rite of passage. In pre-revenue months and years, and even as business began taking flight, you probably pulled double (or triple…or quadruple…) duty as CEO, COO, CTO, facilities manager, admin, …
As a business begins to grow and scale, however, founders need to consciously “pick a lane”: Be a CEO, COO, or CTO – but not all three.
Put yourself in the position of the buyer: you aren’t just looking at a business’s current value; you’re looking at its viability and potential value down the road. None of those things include the founder. If you have too firm a grip on your company’s day-to-day, a buyer is tasked with hiring new leadership in your absence – which introduces variables and disruption that equate to risk.
If you’re currently occupying more than one leadership role, it’s essential that you identify your top strengths, choose one title accordingly, and fill the vacated roles with professionals more experienced and more skilled than you.
Bad Habit #2: Your business lacks strong leadership.
A business’s true value stems not only from products and services sold but from its leaders. Buyers look for committed and experienced executives with a solid track record of growth and a high likelihood of staying on post-transaction.
The onus is on you to establish effective leadership before courting buyers. Here’s one rule of thumb for knowing when leadership has “arrived”: they’ve built a mature operations model, marked by clear accountability and an ability to scale, that can endure long after you’re gone.
Bad Habit #3: Your personal relationships are driving new business.
Your tenacity and know-how built your business. But your tenacity and know-how aren’t assets that you can sell for value. If you are personally the linchpin to landing new business – if your company is dependent on you to close deals – it will prove detrimental to a sale and to the business’s longevity. If you’re the focal point of sustenance and growth, you do not have a valuable company.
The solution: for the remainder of your time as owner, claim one or two sales-related functions. Have leadership build an otherwise self-sustaining sales and business model that rounds out the rest.
Practically speaking, make sure you’re bringing your #2 to lunch meetings and invitational golf outings. See that that person is driving activity through those interactions. This ensures sales are in motion before you sell, making your leadership team more likely to pick up speed and ensure your business’s future once you’re gone.
Selling for substantial profit is the goal of most entrepreneurs. Still, letting go of the reins can be tough. Wherever you are in your exit strategy, ensure you’re applying the same diplomacy to your own involvement as you have to other aspects of your business. It could be the difference between a so-so sales price and process, and the one you’ve always dreamed of.