Friday, November 28, 2014

Home Magazine This way to the egress

This way to the egress

Features - Strategies

Why you should operate today like you’re selling tomorrow.

Tom Fochtman | August 13, 2012

When I think about someone starting a business, my mind always goes to the exit. Sometimes I have the thought, “They are really going to hit a home run when they sell that business,” and other times I think “Who in the heck is going to buy that business?”

I always assume, regardless of what possessed someone to start a business and what the business is, they are going to sell it one day. There is the occasional family businesses that is family owned and operated, and becomes multi-generational, but those are quite rare. Most businesses are started and built to be sold, right? You work hard for 20, 30 maybe even 40 years in the business, and hopefully you sell it for a ton of money.

Here’s the problem: Very few business owners truly have a solid exit strategy for departing their business. They know they want to sell one day, but are not really sure how that will occur. And since everybody is so busy working “in” the business and not “on” the business, even if a buyer knocks on their door, the business is usually not in selling shape.

Many years ago Bruce Wilson told a group of us, “You need to be managing and operating your business as if it were ready to be sold tomorrow.” That’s a totally rational, logical and common sense declaration of how an owner should operate his business.


How to live in the future. Here is something I’d like you all to consider around this thought of managing your business as if it were being sold tomorrow.

It’s remote, but you may luck out and have a solid buyer approach you to sell. If your business is operating at peak efficiency, you have a solid management team, you own your market or whatever niche you are in, you very well might sell your company for a handsome profit.

But if you are not best of class, your direct labor is a few points high, your maintenance renewal rate is below 85 percent and your management team is average, after a little bit of due diligence there is a high likelihood that buyer is going to look elsewhere.

Or if they make an offer, it will be significantly less than what you could, and should have received. There is a real benefit to having your business ready to sell tomorrow. If it’s truly ready to sell, you are making a lot of money.

You have to be because you will have done all the right things operationally, in your marketing and sales efforts, in your retention of people and clients, etc., that have resulted in you being a best of class operation. If you have that type of company, you should be making a lot of money. And there will be more than one buyer.


Looking ahead.
Here are the types of things you are going to be reading about in my upcoming contributing articles to Lawn & Landscape and in my presentation at PLANET’s GIC in Louisville, Ky., in October:

  • How to get your companies cleaned up, rid yourself of all the unnecessary “fat”’ and get lean. This economy has forced everyone to do that already but I bet you can do more. And everything you do will fall to the bottom line as profit.
  • How to become the kind of company buyers want. Today’s buyers do not want to buy a distressed or average performer. Generally speaking, they want to cherry pick the best company they can. They are not going to pay you a lot of money and then have to fix your operation.
  • How to build your maintenance, service and reoccurring revenue centers. Reoccurring revenue and cash flow is what buyers want. Grow your businesses in that direction.
  • How to grow recurring revenue. You can do quite well in both residential and commercial installation, but you will always fall prey to the cycles of our economy. You have to have a solid maintenance operation.


As painful as it may be, focus on maintenance, lawn care and other reoccurring revenue lines and divest yourself of as much installation as possible.

  • How to invest in your management team and get the best talent that you can. You have to show a buyer that your company is sustainable without you. They are buying a brand, revenue and talent – focus on your team.

 

 

Tom Fochtman is founder of Ceibass Venture Partners, an M&A consulting groups. He can be reached at tjfochtman@giemedia.com

x