IT and Business Insights for SMB Solution Providers

8 Best Practices to Build Equity in Your Business Before You Sell

Run your company like it will last forever but create a succession plan now to boost your value. By James Kernan

What is your succession plan for your business? Do you want to keep it forever or sell it when the time is right? While you should always run a company as if it will last forever, succession plans are frequently the missing chapter in most business plans. But when is the right time to sell—and more importantly, how can you get ready now?

Building a framework of valuable business is easy if you know what you are doing. NOW is the time to start, not after you have made the decision to sell. By then it’s probably too late.

Here are the simple steps:

1. Create your three-year business plan with goals. Get your team connected to where you are going—not where you are. Make sure to include projections based on realistic but optimistic trends.

2. Get agreements in place for everyone. It is important to have written contracts with your customers, employees, and strategic partners. The longer the better for customer agreements. Package your offerings as contractual recurring services and subscriptions, because long-term subscription agreements create the highest accelerators and multiples. 

3. Focus on one core service. What do you want to be known for? Think of that one core service that you want to lead with and work to become the best in your local marketplace. I’m not saying just do one thing, but do one thing really well! Then hire specialists in that area. The quality of your work will improve and you will stand out from your competitors.  Also, consider creating complementary offerings to support your core service.

4. Flaunt your unique assets. Is there anything different, unique, or special with your company? Buyers want to find something unique like exclusive contracts or cool technology to gain their interest.

5. Clean your books. Boring right? Having accurate, clean, and current financial reports is very important, however. Without them, your business will be valued less. Make sure your house is in order before you think of selling.

6. Create your business “bible.” You need to automate what you can but also document your processes. It’s a lot easier to teach and motivate employees how to do what you do when it’s detailed and documented. You can also teach employee how to sell like you do when you have a process. Buyers love having instructions to work from.

7. Diversify your customer base. As a rule of thumb, you don’t want any one customer representing more than 15% of your revenues.

8. Surround yourself with good people. People are not your most valuable asset, the right people are. We are in the service business, and having the right people in the right positions is very valuable to potential buyers. Skills, certifications, and real-world experience are all critical. At the same time, it’s important to have more than one salesperson. Once your business can run without you, you’ll have a true asset.

If you follow these steps to create structure in your business to prepare it for a successful acquisition, you will be able to achieve the best possible price. 

JAMES KERNAN serves as a principal consultant for Kernan Consulting and provides coaching, advising, and mentoring programs to business owners and leaders. The company offers one-on-one coaching, peer groups, and training as well.

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