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Your Business Shouldn't Be A Fixer Upper

by Dave Driscoll

Most of us have gotten pulled into (at least) one of the home improvement/DIY-type reality shows in which a house is transformed from an outdated eyesore into a stunning, welcoming home that meets the family’s needs. As soon as you begin watching the episode, you become invested and can’t walk away until you see the finished product. It doesn’t hurt that some dramatic problem is usually discovered that must be solved creatively. Maybe these shows are popular because deep down, we like to believe that old things can be renewed, rejuvenated and given new life. Many of us also like the challenge of solving a problem effectively and efficiently.

Based on these shows and the widespread trend of flipping houses, a business owner might start to believe that it’s no big deal if weeds and little trees are sprouting from the parking lot pavement or the building shows signs of wear and neglect.

BUT do not fall into the trap of thinking a prospective buyer will see your business as a fixer upper with “great bones.”

Buyers are looking for profit, not a project.

If walking into your office is like going back to 1960, with metal desks, old filing cabinets and a tile floor with junk everywhere, a prospective buyer will want to run screaming, “Back to the future!”

Buyers are savvy enough to know that physical appearance is related to the overall health of the business. Dimly lit spaces, outdated equipment (whether still being used or broken down), or disorganized inventory and work in process are red flags of deeper problems. In these conditions, updated financial controls and records are highly unlikely. Things are probably done “the way we’ve always done them” instead of embracing technology and efficiency. And employees have likely learned to be apathetic and just put in their time with minimal effort.

Quite simply, if you don’t demonstrate care for your facility, employees and customers on a daily basis, your business value suffers.

A potential buyer’s first impression is hard to change. Would a stranger walking into your business think “this place has big problems”? Maybe a buyer would consider a couple of affordable updates, but health and safety issues, high employee turnover, sub-standard productivity, and increased costs for insurance, overtime and materials are damaging to profitability and will not be overlooked.
Like your house, your business immediately projects an image to potential buyers. The “curb appeal” can attract a buyer to your business—or cause them to walk (or run) away without further investigation.

Take some time to work on your business, rather than just working in your business.

The following three steps will improve your curb appeal and business value.

1. Fix your “leaky faucets.”

Buyers expect a productive environment that focuses on employee safety and morale. Owners who are focused on working “in” their business may not see how the building, equipment and policies have disintegrated over the years. Think like a buyer and address both the physical and intangible aspects that lower confidence in the business’s ability to thrive.

- Clean up the exterior of the facility.
- Clean up and clean out old or unused equipment and inventory.
- Improve lighting; open up floor space; provide space for collaboration.
- Look for telltale signs of bigger problems—for example, if doors won’t close, is there a problem with the foundation?
- Maximize product, labor and information flow.
- Maintain clear, accurate financial records, including seller’s discretionary income.
- Educate your employees regarding expectations and the importance of maintaining a clean, safe environment.
- Hold everyone accountable for maintaining the system.

2. Assemble a company manual.

- Assemble written HR Policies and an Employee Handbook.
- Document step-by-step procedures, from taking an order or first encounter to final delivery of the product or service.

When you buy a house, you feel more confident if the owner provides instruction manuals and servicing reports for appliances and systems. Similarly, a potential buyer considering your company wants to know that your business information is in order.

Documentation promotes consistency, repeatability and accountability, reassuring the buyer that they can maintain customer satisfaction as well as profitability. Clearly communicated rules and expectations enhance employee relations.

This type of corporate hygiene can lead to a higher price for your company, while also lowering the chance of the deal falling apart during due diligence.

3. Document your intangibles.

If you were buying a house, you would consider intangibles such as being in a good school district or proximity to your office. Likewise, be sure that a potential buyer is aware of the intangible assets that make your business desirable, such as:

- The reason for your success—the company’s unique value proposition
- Proprietary operating systems
- Intellectual property
- Patents, secret recipes
- Client agreements, contracts

Pay attention to the details!

Although some improvements may seem merely cosmetic, perception is reality for prospective buyers. Don’t give buyers a reason to question if larger structural problems—physical or systemic—are lurking due to years of neglect. Your business should always be “move-in ready” because transitioning a business to a new owner is a significant project. Expecting a buyer to be willing to DIY for up-to-date business functionality is not realistic.

Don’t wait until you’re ready to sell your business to improve your business’s curb appeal. Not only will you avoid a huge to-do list later, but also you may be surprised at the increased morale and productivity that result in the meantime.

Dave Driscoll is president of Metro Business Advisors, a business brokerage, valuation and exit planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or 314-303-5600. For more information, visit www.MetroBusinessAdvisors.com.

 

Submitted 1 years 84 days ago
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