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The Importance of Reducing Owner Dependence Before Selling A Business

April 20, 2023

John Doe has spent the better part of his working life building up his business to be the profitable mid-sized company it is today. Retirement is on the horizon; it’s almost time to put his boots up and enjoy the fruits of his hard labor. But John’s sleeves are still rolled up and he remains intricately involved in the day-to-day running of the business. If this sounds familiar, you should read on…

In Woodbridge International’s 30 years as mid-market mergers and acquisitions specialists, we’ve learned that the more a business relies on its founder/owner for success at the time of sale, the less likely the owner is to sell the business for what it’s really worth.

It’s a hard truth for any proud entrepreneur to swallow, but take a step back and you can see it makes absolute sense: your business needs to demonstrate to potential buyers that it can run like a well-oiled – and profitable machine – without you. Because why would any buyer want to spend millions of dollars on a business that relies on its now retired founder to succeed?

“We realized that for our employees and our clients, we really needed to go another level, and that was a level that we just couldn’t take the business to anymore.”
– Tim Shea, FRG Waste

This is why it is crucially important for any mid-sized business owner to forcibly buck against years of working habit and start making the business non-reliant on him/her before putting it on the market.

It’s a hard process that doesn’t happen overnight. So if you’re even thinking of selling your business in the next one to five years, here’s what you should start doing now:

Delegate Responsibilities To Trusted Employees

By now you should have built up a crack team that you know and trust. Use those hard-won human resources to your advantage by identifying tasks within your mandate that can be delegated to reliable employees.

“Make sure the team is committed to the sale, that they’re on board an available, and that getting sale items ticked off is their priority”
– Randy Conrads, RedWeek

Through this process you will be able to train and guide chosen employees to carry out these tasks like pros, while also freeing up your time to focus on higher-level strategic planning and preparing the business for successful sale.

Develop A Succession Plan For The Future

Beyond appointing individual employees to assume day-to-day tasks, what is your succession plan? Who amongst your employees is trained and ready to take over from you should you need to suddenly step down, or a new buyer acquires the business and wants an internal employee to run the business?

Potential buyers – especially private equity buyers – often like to see that there is a clear, solid succession plan in place that will ensure that it will be “business as usual” should they acquire the company but not want to get involved in the day-to-day-running of the business.

Document Your Company’s Processes and Procedures

Take the time to go through every process and procedure in your business with a fine-tooth comb. From handling customer complaints to processing payrolls, assessing performance bonuses to evaluating return on investment on all deals, you’ll probably find that many of these processes and procedures rely heavily on your personal know-how. You’ll probably also find these processes and procedures are not strategically documented.

“For anyone considering the M&A process, they should think about how much effort it took to grow and scale their business to its current form. They’re going to need to put that same amount of effort into the sale process.”
– Jess Baker, GRNE Solar Renewable Energy

Now is the time to document these processes and procedures to ensure these can easily be handled by employees without you and/or replicated by new owners. This is a laborious task, but it will go a long way in showing potential buyers that your business is well organized with solid structures in place.

Implement New Technology To Streamline Operations

While going through your processes and procedures with a fine-tooth comb you will probably come to realize that much of it is dependent on human intervention. You need to assess each process and procedure and research whether there is equipment and/or technology available that can improve efficiencies and streamline each. This can include using project management software to track tasks and deadlines, automating repetitive tasks with software or tools, and using customer relationship management (CRM) software to manage customer interactions.

“We really set the company up for a new buyer. We bought a lot of new equipment, we had zero debt, sales were strong, and profits were high. So, it was the perfect time to sell.”
– John Norgard, Converting Technology Inc.

By introducing new equipment and/or implementing new systems you can reduce the amount of time and effort required to manage your business, freeing up your time to focus on other important tasks and possibly also bring down operational costs. Additionally, potential buyers will see that your business is efficient and well run, making it even more attractive.

Cut Yourself Out To Preserve Your Legacy

We get it: working yourself out of a job is no easy task for any proud business owner. But instead of viewing it as becoming redundant in the very company you’ve dedicated your working life to, business owners should view this cutting of the proverbial umbilical cord as your final and – possibly – most important act to ensure your legacy stays strong long after you’ve sold.

An expert M&A advisor will guide you through this difficult transition period and all other stages of preparing your business for sale. Speak to one of our experts to start the process today; click here to begin.