“BUT I DON’T EVER INTEND TO SELL.” BUILD VALUE IN PREPARATION FOR A POTENTIAL SALE, IMMINENT OR HYPOTHETICAL WRITTEN BY BRIAN B. DEFOE
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n the course of advising entrepreneurs, hooch and otherwise, I regularly receive this objection when offering suggestions about how to maximize the value of a business. This conversation springs from my belief — odd as it may seem — that one guiding principle for decision-making in a for-profit venture should be the question of what course of action is most likely to increase the value of the enterprise in the eyes of a potential acquirer. And, naturally, the potential of such an acquirer can offend the proud owner of a business who expects to run it throughout her career and then pass it along as a legacy to her progeny. But of course it rarely actually works that way. The vast number of businesses that survive (i.e., businesses that do not simply fold) do not find their way into the hands of their founders’ heirs. They are more commonly sold to a third party. And even if they did end up in the hands of the entrepreneur’s kids, using the critical eye of an independent acquirer as a test for decisions offers the owner a lens through which to evaluate capital expenditures, expansion plans, personnel decisions and any number of other critical items. So, if we assume as true the notion that an acquirer’s perspective is useful for approaching the management of your business, then perhaps we can also agree that one of the better things you can do as you proceed down the path of entrepreneurship is to be continuously working to prepare your business for sale. With that in mind, how do you prepare for such a transaction? Building on prior discussions in Artisan Spirit Magazine’s Fall 2016 and Winter 2016 issues, below I explore a number of concrete ways to build value in preparation for a potential sale, whether that sale
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is actually on the horizon or simply being used as a hypothetical exercise to aid in decision-making to build enterprise value.
FIRST THINGS FIRST: WHAT IS YOUR BUSINESS?
Several years ago, my wife and I had occasion to put our family’s home on the market. We dutifully engaged a realtor, who earnestly told us that our small house would “show better” and be more attractive to potential buyers if it looked larger — and the best way to make it appear more spacious was to reduce the number of things inside. The realtor wanted to stage the house and said she needed to remove some of our belongings and rearrange the furniture. She was being kind when she described the needed steps in this way. In fact, what she intended to do was to remove substantially all of my belongings from the space — leaving my wife’s things — and rearrange accordingly. At first I was hurt by this. After all, removing my things was a reflection on me, wasn’t it? Was I, in some way, an embarrassment to the household? Well, perhaps. But perhaps not, as well. After all, maybe that chair in the living room (that fit my posterior so perfectly) was just a little bit bedraggled. What’s more, what if our target buyer wasn’t a business lawyer with a penchant for playing the banjo? What if by force of my personality, likes and dislikes, hobbies and foibles, I was a potential impediment to my own goal: the maximization of the value of our home in a sale? To be sure, selling your business is in many respects different WWW.ARTISANSPIRITMAG.COM