Thank you to Jacqueline for her guest entry.
Most articles I have read tell the business owner considering the sale of his or her business to focus on tax, accounting, income, and legal aspects of preparing for a sale. The value of the company, customer data, and assets and real estate are all equally important. Key to success is involving a business broker, CPA and lawyer.
But when determining the value of the business, very few look at the employees or the structure and culture of the organization. These can make a big impact on the value of the company! If you are selling more than the company assets, these aspects are extremely important. The involvement of an organization development consultant is equally important.
What things will a savvy buyer be looking for?
Aside from all employee paperwork being in compliance which is very important, do they have job descriptions and are they followed? If the buyer has to start from scratch, this can really devalue the business.
Are there policies and programs in place for recruiting, orienting and training new employees and managers? Do they have an employee manual to guide employee and organizational actions?
What is your turnover rate over the past five years? Turnover is a big indicator of how well the organization functions, how good the managers are, and tells about expenses that will impact the bottom line. Replacing staff is extremely expensive and affects productivity and performance.
What major employee issues do managers deal with? The answers will reveal management problems, lack of clarity in direction and expectations, employee morale, and the culture that is reinforced by management.
Very few people realize that 80% of their assets reside in their employees’ heads. Has their knowledge been captured, or what can you do to ensure that top talent will stay with the business when ownership changes? If you aren’t up front about the sale and you don’t work out contracts with your top talent, many of these assets will walk out the door when the sale is finalized. And buyers need to know that there are staff in place who can keep the business functioning the way it was before they bought your company.
A business that is following guides and plans is more valuable than one that just operates without any guiding principles. Do you have a mission and vision for your business? What about a strategic plan? I am sure you have heard the adage, “If you don’t know where you are going, any place will do?” (Alice in Wonderland) You may be quite successful but without a plan, but how does the buyer continue your success with something to guide the business?
What about a succession plan and a transition plan? So often, the business is dependent on the owner and when the owner leaves, things fall apart. This really affects the value of your business. Who has been prepared to guide the buyer in running the business when you leave? When it comes to transition, not only do you have to prepare for handing over the business and getting the new owner started but it is important to prepare your employees for the change. Be up front with them and keep them informed because people will support you if they know what is happening. If they don’t, people will be in fear for their jobs affecting performance and stimulating some to start job hunting.
Another factor that will support the new owner in running the business is if your staff has been cross trained which make the business less dependent on specific individuals. Developing your management team and empowering them to make decisions also stands the new buyer in good stead with managers who can function with little direction.
Jacqueline Gould, M.Ed, M.A.
Jacqueline is an organization development consultant for Paceline Consulting Group who specializes in succession planning, executive on-boarding, and leadership development.