Profit Boosting: before and after the sale of your business
This is a guest post by Dave Simon of Double Your Profits Consultancy
Selling A Business Is Different!
While owner-managers may be very familiar with selling their products and services, selling the business as a whole is often a first experience.
This sale may result in the largest personal profit they have ever received.
But it is surrounded by the largest risks too. People find there is a lot to learn about stuff you don't know you don't know. So good professional advice is essential to guide you through the process.
Advice about the preparation stage is probably most important in reducing risks and improving results. Outcomes you will usually want help with are:
- ensuring your deal completes successfully;
- maximising the value you receive and
- facilitating medium-term success
This last one is important because your agreement may tie the release of your payments to post-sale business results. Also, your staff's livelihoods will be dependent on the continuing success of the business. This last concern stands out among the personal stories of owners' successful exits.
How Profits Help This Process
Profit is clearly important to a potential buyer.
Most buyers only approach profitable businesses. Many buyers also want to be sure they can increase profits in the future.
But a survey of UK SME's across a range of industries, from manufacturing through to professional services, found that 88% agreed they are losing profits unnecessarily.
So active steps to boost profits before you go to market will help.
And having Profit-Boosting-Projects ready to initiate soon after the takeover will also help.
Most buyers only approach profitable businesses
But it seems that many SME business owners find it difficult to put aside their business management priorities and make preparations for the sale of their business. It may be that they under-estimate the work involved in preparing for sale. Or they may be obsessed with familiar demands running the business.
Whether you want to maximise the value gained, or to speed/smooth the process, or both, actively managing your approach to it is vital. This is a variant on the familiar saying of “working on the business rather than in it”.
Being able to show evidence of successful Profit-Boosting-Projects will reassure the buyer that there are few surprises waiting. And you can show your employees are profit-focussed. This is likely to increase his goodwill towards your offer to sell.
Your business might benefit from a period of profit nurturing before sale. The best professional advice may suggest that you put back your plans to sell for long enough to start a Profit-Boosting-Project. Such a Project may have several strategies targeting different areas of gain.
Admittedly, some owners will not accept this advice, having their own reasons for urgency such as health, domestic circumstances changes or an unexpected offer.
Many buyers also want to increase future profits
The process of taking over a business can be a busy learning curve for the new owners, even if the previous managers stay on. There is a great deal to sort out and sometimes the least tangible issues of values and culture can have great impact on profitability.
Clearly, medium-term profitability is critical to long-term survival.
So if a second Profit-Boosting-Project is planned (but not initiated), this will interest the potential buyer. And if you can show your first Project has been successful, the second one will be all the more credible. It has a chance of becoming accepted as part of the value of your proposition.
It may also reduce the stress for managers staying on, as they can be more confident that the Project has been designed with intimate knowledge of the business. And remember, that manager might be you.
Of course, new owners may also want to undertake their own survey of opportunities, and express different priorities. But the more clearly you identify opportunities before the transfer, the easier it is for new owners to act on them. Having such a Project ready-and-waiting will be difficult to ignore!
You will need your professional advisers to guide you in how and when to present this during discussions with potential buyers.
How To Boost Your Profits
There are three basic boosts: Reduce Costs, Raise Prices, Increase Sales Volume.
These have to be developed in context, and the most dynamic (changeable) context is the people connected with the business. Therefore better targets are named with this ingredient in plain sight:
- Cut Costs Without Upsetting Staff Or Suppliers:
saving money is probably your easiest way to boost your profits. - Raise Prices Without Losing Customers:
pricing is probably the quickest area of change you can make use of. - Increase Sales Volumes Without Too Much Marketing Cost:
selling is probably your largest area of opportunity to boost your business.
A methodical Profit-Boosting-Project uses small changes in selected focus areas. The best strategies are low-cost, low-risk and easy-to-use. Often these are based on particular psychology secrets that encourage desired behaviours in customers, staff, suppliers, neighbours and more.
And after the business is transferred, many of these people may be more jittery than usual. So working carefully in that context becomes even more important.
The arts of business have been developing over several millennia. There is no need to reinvent the wheel: I suggest the best approach is to choose known strategies.
By starting a number of focussed strategies, you can more easily engage employees and benefit from team-work power. Running several teams like this can generate synergies from the combinations and so accelerate results by encouraging confirming positive feedback.
Start a Profit-Boosting-Project
I suggest a five steps method. Deciding to prepare for sale is the first one: this sets your Main Goal.
The second step is to Select Your Priorities amongst the three basic levers mentioned above: Costs, Prices and Sales Volume. There are no rules about how many of these is best to prioritise: it depends on your situation. However, combinations can help as long as you can be organised.
Step 3 is to Find Focus Areas for each Priority. I provide 18 of these more detailed areas as a mapping method (displayed on my 3 Booster Strategies webpages). Most often your own intuitive knowledge of the business will help you choose.
Then you have to find enough Practical Strategies in Step 4. My proposition is that several strategies aiming to make a 1% difference in Costs, Prices or Sales can combine to result in large profit improvements (because profits are only a small percentage of the equation).
There are three main ways owners can find these new strategies to improve their business operation. Each has different pros and cons. Either DIY burning the midnight oil, go to training classes or use a professional – but be very clear about the differences. (I list many of them in a comparison chart under How To Make It Happen in my article How To Boost Your Business Cheaply, Quickly and Easily.)
And Step 5 is Implement, Monitor and Adjust. Good ideas are not good enough: action is necessary! Guide your Profit-Boosting-Project until you are satisfied it has achieved what you want.
Give yourself time
But you may be short of time during these preparation months. You may still be hands-on running the business (better if you're not). And you may still be preparing documentation to answer likely due diligence requests. Add in managing Profit-Boosting-Projects, and you may feel the pressure.
Beware though, you may suddenly feel torn about selling as profits rise and people enjoy the triumph!
A simple (obvious) answer is to give yourself a long lead time. This may feel artificial, but it's likely to prove a good investment.
Clarify your answer to why? questions. Identify as long a list of benefits as possible and use the most helpful where they will help.
Delegate as much as possible. Set up Project Teams and encourage pride in profits: achievements!
And bank the new profits to make them visible to potential buyers. They are too important as a signal of success to leave hidden in report totals and summaries!
Remembering that this is likely your first experience of exit, and you may only get one try. I suggest it's usually more important to do it well than do it fast.
Learn how to extract value from your business:
- How to ensure you get top price and meet all your exit goals.
- How to ensure you're in the top 20% of businesses - the ones that sell - not the 80% that fail.
- How to get to a quick AND safe completion.