Last week we looked at terminating customers and the week before terminating employees.
This week we complete the firing trilogy by examining firing yourself.
Your ability to be absent from your business adds to your company’s value. When you want to sell your business, a buyer will want to walk into a business that is not dependent on the owner. Capable management, a company handbook and written instructions will add value.
So, when should you step down from your own business? When you get in your own way … when your business has outgrown your ability to manage it effectively … when you hate what you are doing?
Even if you have no intention to sell your business anytime soon, you should operate your company as though you were going to sell it immediately. The most important task you should undertake is to work on firing yourself. Make your contribution less critical to the success of your business. Your goal should be to get to a point where the business runs itself like a fine-tuned machine in your absence.
Take the vacation test. Go on vacation for a week or two and see what happens in your absence. Your “top person” (you do have a top person, don’t you?) is in charge and will not contact you unless there is an emergency. See what issues, if any, may have popped-up in your absence, then fix these shortfalls immediately.
Building your company’s value
• Management team – Develop a management team that can operate the business without you being there.
• Growth – Understand the relationship between size and risk. Larger businesses are more forgiving. Being less reliant on you the owner is a plus. Growing your business revenues – and especially your bottom line – is the obvious goal. A business with less than $500,000 in revenue is probably going to fetch a small multiple of one to two times earnings. Essentially, the buyer is buying a job with this size business. A business doing over half a million to $2 million may see a multiple of three. Businesses in the range of $2 million up to $10 million may garner a multiple of five times earnings. Larger businesses exceeding $10 million may attract offers where multiples are 10 or greater. Public companies go north from there. (The multiples expressed are approximations.)
• Diversify – A company that is not overly reliant on one customer, one employee or one supplier is more valuable than one that isn’t. If your business is heavily weighted towards one or a few large customers, now is the time to grow your customer base. If you only have one supplier, it would be wise to have backup vendors. Never be in a position where one employee can hold you hostage.
• Cash flow – Cash flow is one of the most important determinants of business value. The more cash the business generates, the more desirable that company will be to a prospective buyer.
• Recurring revenue – There are many ways to achieve recurring revenue. Selling more goods and services to the same customer is more cost effective than having to acquire new customers.
• Customer satisfaction – Customers who are likely to repurchase or recommend your products/services add value to your business. Using the popular Net Promoter Score is a way to track and improve customer satisfaction.
Complete the firing trilogy by weeding out bad employees, shedding your business of no-win customers, and working on firing (replacing) yourself.
Dennis Zink is an Exit Strategist, business analyst and consultant, a Certified Value Builder and SCORE mentor, and past chapter chair of SCORE Manasota. Dennis created and hosts “Been There, Done That! with Dennis Zink,” a nationally syndicated business podcast series and “SCORE Business TV” available at Time4Exit.com. He facilitates CEO roundtables for the Manatee and Venice chambers of commerce. Dennis led a SCORE team to create the Exit Strategy Canvas and Exit Strategy Roadmap program that provides a real world methodology for business equity realization. Email him at [email protected]