RESOLUTIONS FOR THE NEW YEAR: SIMPLE STEPS TO MAKE YOUR BUSINESS MORE MARKETABLE

“You don’t have to see the whole staircase, just take the first step.” – Martin Luther King

With 2024 upon us, let’s think about some practical and easy first steps to take that will make your business more efficient, more profitable, and more attractive to buyers when the time comes to sell.

Many times, a small business runs on inertia and “the way things have always been done” approach.

This may be fine in the short term but is severely lacking in the eyes of potential buyers.  It is critical for all business owners to embrace new resources and new technologies to improve systems within the firm.  These types of improvements can positively impact the business in many ways – daily operations, financial oversight, executive decision making, and ultimately profit margins.  Simple changes can certainly make a huge difference when it does come time to present your business to someone new – improved marketability equals higher valuation and maximum financial benefit at closing.

As Achim Neumann, President of A Neumann & Associates, LLC. and one of the foremost respected M&A advisors on the East Coast, says in his 2017 book entitled The Road Beyond – What Nobody Tells You About Selling a Midsized Business, “One important aspect business sellers always seem to forget is the importance of thinking like a buyer. There might be many different reasons why a business owner wants to sell, but ultimately, they will truly matter very little if the business owner can’t view the business from the buyer’s point of view. A business needs significant curb appeal to be chosen over other opportunities in the market.”

Some might say that the following recommendations are basic business practices, and we would agree – indeed, many of you might have already checked all these boxes.  But you would be surprised how many business owners have not yet done so and their importance is increasingly magnified as the years go on, especially if considering an exit within a few years.  Let’s see what we can do:

1. Improve Your Financial Oversight – Every business owner should be “on top’ of the company’s financial picture – not just delegating everything over to their accountant to prepare annual tax returns designed to minimize April 15^th payments. Working with an in-house trustworthy bookkeeper or an affordable external bookkeeping service provider is essential in providing the tools and data to monitor performance on a regular basis.  Do you use an internal financial software package daily? Do you receive monthly income statements and balance sheets?  Do you receive weekly receivables and collection reports? Do you have a payroll service to streamline that process?  Do you properly track inventory?  If the answer to any of these is “no” then your ability to track financial performance and make forward-looking decisions is greatly compromised.  Information is power – know your numbers and you will understand the financial heartbeat of your firm.
2. Refresh Your Brand –  If you don’t have a website for your firm, you should have one – something very simple with a few pages that conveys your story.  This online presence is essential to not only properly describe products and services but to declare unique selling propositions and competitive advantages.  What separates you from the pack and why should people buy from you?  These attributes need to be clearly defined and properly communicated on your website and throughout your marketing process.  In this age, a company without a website (even if only for informational brochure purposes) is a company without an identity.  This lack of digital branding reduces opportunity and most surely revenue.
3. Review Your Lease –  If you rent space for the operation of the business, it is vital that a formal lease be in place.  A ‘month-to-month handshake” agreement is a perilous position to be in and untenable if putting the business on the market.  It is optimal to negotiate terms that are affordable and sustainable in the long run and that will be attractive to a new owner one day.  Moreover, it is very important to have a good working relationship with your landlord as their cooperation will likely be needed to complete a transaction that meets SBA lending criteria.     
4. Track Your Performance Monthly – The beginning of the year is the perfect time to map out the anticipated performance for your firm over the next 12 months.  Based upon your history and industry expertise, you can fashion a month-by-month forecast for revenue, associated product/service costs (also known as cost of goods sold) and fixed overhead/administration costs.  This will show you the anticipated net income by month and for the full year.  Once this exercise is in place, you can compare the actual monthly performance against your initial projections – an extremely powerful tool that allows you to adjust on the fly if needed and make strong decisions that will guide the company accordingly. 

While it may seem unnecessary to have to underscore such basic principles, many very successful businesses operate without such core attributes.  This may be adequate for the day-to-day, but certainly not optimal in the long run. A business seller must have its “financial house in order” and be able to present the firm in its most attractive light to maximize the financial return of a sale and make the process as painless as possible.

As Mr. Neumann adds, “Many experienced business owners have learned to run their business by the seat of their pants.  This may come easily to them when the business performs well or even when problems occur.  Buyers, however, need regularly updated financial records,  strong well-defined competitive advantages, stable facilities, and historical performance budgets to have the necessary confidence to complete a purchase of the company.”

Thoughtful planning and a proactive approach with these basic components in place will certainly result in a healthy firm, an efficient sale of the business and a fulfilling experience for the business owner that fully realizes the goals identified going into the process.  Step by step, selling a privately held company is a unique experience and , if organized properly, can result in an extremely rewarding transaction that fully meets the goals of the owner and the firm.  Make 2024 the time to take those first basic steps.