Thursday, April 3, 2014

Would you be embarrassed in due diligence?

Two owners I work with are looking into selling their businesses.   One of them noted the benefit of thinking about the due diligence in decisions on a regular, month to month basis.
 "Why", I asked.
"Because if I feel embarrassed about it, then I know to step back and ask what's wrong with it, and what would make me proud of it instead."
I immediately thought of the times I've been shopping for a new house and during a walk-through ask myself 'What was the owner thinking when they did that?'   Most likely, they were thinking of themselves, or their situation, not what a future buyer would value or think.

It's reminded me of why looking at your business through the eyes of a potential buyer is so important:  it keeps you focused on the things that matter for value.   Your profit and growth; your people and processes; and your sustainability or scalability.  

As a business owner,  you enjoy the freedom to make the decisions you see fit.   So why bother with taking time to consider a future buyer's perspective? 

If you're strong for a buyer, you're strong for yourself.  

Now is it worth organizing your records so the due diligence is always ready or doing business valuations?   That's not a given.   But it will have value to step back on a periodic basis and ask  "What would increase the value of my business in the eyes of a buyer?"   It gets me out of the weeds, and thinking with the end in mind.  Often, owners become experts at making payroll and breaking even.  Since a buyer doesn't value that as much, the question helps change the perspective. 

It also gives you some clear metrics to manage against.    You can rate 5 factors:
  1. Profit
  2. Growth
  3. People
  4. Process
  5. Sustainability/Scalability
Then track them year over year, helping ensure that you are increasing your net worth and get the returns you want.

Jim Henderson
The Exemplary Group

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