Cleaning Up Your Back-office for Sale

Every business should be bigger than just one person. Unfortunately, too many business owners “do it all” in their small business. This doesn’t work when it’s time to exit, and makes it harder to sell at a fair price.

Business owners know how to put on a dog-and-pony show. You’ve done it for bankers, investors, and auditors before. Clean up the facility some, move junk out of the aisles, replace those lights that have been burned out for six months, put out coffee and donuts, and maybe even do some painting.  For a potential buyer, you figure, this process will be about the same.

However, a sophisticated buyer is more interested in the “cleanliness” of your books and your processes. Fundamentally, the potential buyer only has two questions:

- How profitable are you right now?

- Will that profitability continue without you, the owner, showing up every day?

Profitability

There are lots of things you can do in sales and operations to improve your top line.  Internally, though, take a long hard look at your expenses:

- Excess Labor: Do you need the staff that you have now?  Will a future buyer?  If you have an office manager who has been with you from the beginning and is close to retirement, have that conversation now.  You’ll treat this person more fairly than the next owner, and you’ll be able to show lower labor costs to buyers.

- Expertise: Are you or your team doing anything in-house that could be outsourced?  In operations, this could mean painting, powder coating, or even staffing a call center.  Administratively, is the person you have handling employee benefits, human resources, new hires, policies, and payroll an expert on these things?  Or, could they be done more cheaply elsewhere?

- Benefit and Insurance Costs: Your broker “shops your policy around” every few years.  Have a new broker look at it as well.  Or, take a look at completely different options like a self-insured plan or a PEO.  This, again, will reduce the expenses that you need to show buyers.

Continuity

- Contracts: Even if you know who all of your customers are, and you’ve never needed a contract before, create some.  Signed “Ongoing Service Agreements” will look much better to a buyer than simply a list of clients, even if the agreements have opt-out terms.

- Processes:  Can your employees get paid if you’re not present?  Can AP send out checks without you around?  Look at your cash management processes, and make sure that you have backups – this helps reassure the buyer that things won’t break in the first week.

- Employment Agreements: If you have a GM or Sales Manager, consider non-competes and written deferred compensation plans.  This may never have been necessary in the past, since you two hand “an understanding”, but formalizing it helps retain that talent after sale.

To find out more about what you need to prepare in your back-office, please join us at the XPX Breakfast meeting on Wednesday, February 26th. For more info: www.ExitPlanningExchange.com.

Steve Gifford, MBA, SPHR, is a management consultant for OEM America, a management professor at Southern New Hampshire University, and human resources blogger.  His company focuses on solving employment problems for small businesses throughout New England, and bringing economies of scale to their employee costs.  Steve’s first management role was as a tank platoon leader in the US Army during the 2003 invasion of Iraq.  Since that time, he has held a number of operations and HR leadership positions at public and private companies.  Steve and his family live in New Haven, Connecticut.

Originally posted by XPX Global on January 29, 2014 at 10:27am