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Hallidays MD Paul Whitney explains the best way for business owners to plan for their exit and the biggest pitfalls that come with this.
Every business owner reading this will one day exit their business. The key question is ‘How’? Well, put simply, you’ve got 4 choices:
- Exit 1. Pass it on to family members
- Exit 2. Wind it up
- Exit 3. Leave unplanned due to sudden illness or death
- Exit 4. Sell it, which is the only option that gives you a financial reward for all your hard work in building it up.
Of course, if your preferred option is ‘4’, then there are a few things you need to consider.
The first is how well the business runs without you. If you can’t simply hand over the keys and head straight to the golf course, you’ve got work to do, because any new owner will need to tie you into a contract until they can get a grip of client, staff and supplier relationships and all the knowledge in your head. At best, this will cost time and money. At worst, it’ll make your business unsaleable.
What’s more, it’s a waste of what could be a much more enjoyable life. As Michael Gerber says in The E-Myth:
“If your business depends on you, you don’t own a business—you have a job. And it’s the worst job in the world because you’re working for a lunatic!”
In a survey of thousands of acquisitive SMEs, it was shown that they would pay an average of 86.77% more for a well-systemised business. Other surveys report significantly higher figures than this. That’s a lot of money you’d be losing if your systems are poor.
So why are systems so important to business owners and buyers?
Well here are 4 fundamental reasons. Sound business systems will help you:
- Manage your time better
- Minimise mistakes
- Maintain standards
- Increase value
But of course, if your business only works with you in it, then it’s not worth anything to a potential buyer without you. Or, arguably, to your family and friends.
So how do you guarantee yourself Exit 4?
Well, first, you need to extricate yourself from that job. The whole point of starting your own business is to get free of being in a job and to create jobs for other people. Your job is now to prepare your business for growth.
And it doesn’t matter what your business is – the process is fundamentally the same. You need to work as if your business is the prototype for 5,000 more just like it. You need to give your staff the structure they need to do things in the most efficient and effective way, with written manuals saying to ‘This is how we do it here’.
But let’s be absolutely clear – how you do whatever-it-is is not nearly as important as doing it the same way, all the time and every time.
So, a good system will start with an organisational chart, listing the overarching functions that make your business tick.
You could draft this based on job titles and who does them – but it would be so much better to you design it around the functions themselves, rather than roles. Next, put names against the people who can do the functions in your chart. How many boxes are you in? At this point, you may be beginning to see the problem!
So, the challenge is to work out how you remove yourself from the boxes, starting at the bottom – because that’s definitely the stuff you shouldn’t be doing!
Now, in the past, you may have tried to employ people to do the tasks in the boxes, trusted them and left them to it until something went wrong and then stepped back into the box.
But the smart way of doing this is to set up the system that ensures it doesn’t go wrong, because ‘This is how we do it here’.
So, when you take yourself out of each box, don’t put another person in it – put a system in it. Then work your way through the boxes doing the same thing – systematically. This is immensely satisfying; you can feel the breeze of freedom lightening the air around you!