Many books, seminars and speeches have been written about business.  Many encourage business owners to jump through hoops but miss the two fundamental reasons for starting and running a business. The fundamental reasons are:

• Earn a profit as a result of all the actions your business takes.
• Be open to exit if the offer and timing is right.

All business owners should continually work to make a profit and prepare their companies for the ultimate success in an exit strategy.  According to statistics, only 3 percent of businesses exist for 3 generations.  Even size and reputation are no guarantee for business survival as many of the Fortune 500 vanish from the list each decade.  With that backdrop, preparation, focus and always being open to an exit are critically important to maximize your investment in time, energy and money.

I have been asked many times by business owners, CPAs, attorneys, and consultants if I can help them or their clients achieve higher valuations.  Obviously, if there is an engaged ownership / executive team and a market for the company’s products and services, the answer is Yes.  But where do you start?

While owners have many reasons for starting a business, they soon realize, it is not easy and takes a lot of effort, money, smarts and consistent action.  They learn, hopefully sooner than later, the only reason that a business exists is to earn money that results in a profit.  Everything else may be important but is secondary.   Only delusional souls think the businesses primary reason to exist is to keep families together, preserve a legacy, develop people, serve a community, etc.  These are all good reasons but are secondary.  If your business makes a profit first, you can “make the happy business cake”, and benefit those you serve it to.  But without profit, you have no prosperity, just broken dreams, wasted energy and disheartened souls.

Typically, if there is some time before the actual exit events and sales closing, there are a number of things that can be done to evaluate, consider and take actions that will increase profits and the company’s valuation.

The first recommendation is to conduct an overall assessment of the business.  It should include all areas of the business and technical operations. This assessment should help you discover the strengths and weaknesses to build an action plan for improving those areas found deficient and targeted for specific improvement.  This is an area where an outside objective observer may be required to help you eliminate your company’s blind spots.  They may also help you build your action plan and steps required for the improved value and results.

Here are some areas typically needing improvement:

• Leadership
  • Is your vision for the company’s future clear and have you communicated this vision to all your stakeholders? Most companies we meet need some work with the leadership team on refining the future vision, so they can clearly communicate what success will look like.  This may include, for example, working on the strategic plan, communication strategy, upgrading organizational talent and preparing high potential emerging leaders, etc.
• Marketing
  • Is the organization able to continually generate new qualified leads for its product and services? How your customer service and reputation management integrate with your sales and customer service processes should be an important concern and typically are areas where great gains in value can be made.
• Human Resources
  • Is your human resources function mitigating the risks for the business? Typically, there is an opportunity to improve your agreements and employee understanding of the work required.  If all functions are smoothly accomplished and properly executed, typically, it enhances the overall company’s profitability.  In addition, buyers or those involved in operating the company after the transition are typically looking for a turn-key operation with well documented organization processes and procedures.  They place a higher value during their due diligence process on a well-organized company human resources program.
• Financial
  • Three areas to look in the finance area when preparing to exit include the following:
    • A clean set of books that are understandable. This is especially important to place the proper value on the company prior to the sale, during buyer due diligence and at closing.
    • Prepare a financial dashboard to demonstrate the financial Key Performance Indicators (KPIs) to track your progress in improving company performance and overall value.
    • A budget and cash-flow plan to demonstrate how much cash the business can generate over time and how much cash the business will need.
  • Sales
    • Is your sales organization able to convert qualified leads to customers? Do you have a sales model that works?  Can your sales model be replicated and taught to others in order to repeat the results and company sales growth?
  • Technical
    • While many start businesses because of their founder’s expertise in some technical, product or service area they are knowledgeable and excel in, that alone doesn’t make the business sustainable and grow. Building a technical operating manual to include your policies, procedures and training programs will enhance the company’s value.  In addition, you will need to demonstrate the company’s expertise, along with many other business competencies to entice an interested buyer to complete the purchase of your company.
  • Expense Control
    • Do you have a purchasing system in place that helps you to increase your gross margin and control overhead?
    • Are there areas where you can eliminate or reduce without hurting your quality and performance?

In Summary, your ongoing and number one goal should be focusing on an achieving the highest profit and the highest valuation with your exit strategy in mind.  This is the best way to run a company that will deliver for your family, employees, customers and the community.