Running a small business is a dream of many. Granted, it’s not entirely uncommon to wake up from that dream in a cold sweat from time to time. Perhaps the roller coaster of business is part of the charm. However, one thing is clear, when the ride is up, most small business owners do want some value for what they’ve built.
At our upcoming Money Series, we’ll have the pleasure of learning from Curtis Kuttnauer of business brokerage firm, Golden Circle Advisors, about the many considerations business owners face when contemplating such an exit.
According to Mr. Kuttnauer, the value of the average small business represents about 50% to 75% of the typical business owner’s net worth. That statistic alone highlights the importance of getting the exit right.
A critical first hurdle on how that value is ultimately realized centers on how easily your business can survive and thrive without you at the helm.
The choices of leadership succession runs the gamut. They range from grooming capable internal candidates, such as a key employee or an actively involved family member, to selling out to a competitor or even a private equity investor.
Regardless of your desired succession plan, if your business largely depends on your personal engagement, the value you’ll receive upon your exit will be severely limited. In fact, think of the relationship of owner dependency-to-value as a natural law of business; a type of equal and opposite reaction.
A second important step to getting the value to which you’re entitled is to maintain clean financial records. While it’s hard to fathom, many small business owners are so focused on meeting the needs of their clients and customers they simply fail to keep good financials.
In addition, they often commingle their personal finances and their business activities so tightly, it’s hard for potential buyers – or even much-needed investors along the way – to untangle it all. The result of messy books is a lesser price or even an outright failed deal.
Mr. Kuttnauer also points to a third element of focus for you to enhance the value you’ll get for your small business; developing well-documented business procedures, policies and protocols. In my book, this is just an extension of the natural law of business mentioned earlier.
By writing it all down – not just what you do and know, but what your valued employees do and know – you are essentially gift-wrapping two key things for the buyer.
One is obvious. With well documented practices in hand, they’ll know better how to maintain and replace every key part of your well-oiled business “machine.” The second is more subtle, but equally important. The prospective buyer will immediately recognize the level of care you – and your whole team – show in sustaining a viable and profitable business.
For much more on how to prepare your small business for sale, join Curtis Kuttnauer at the Money Series on Wed., March 14 at 6:30 pm in the McGuire Rm. at Traverse Area District Library. Go to FrontStreetFoundation.org or call (231) 714-6459.