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When you work to build a business, you want to make sure you’re building something truly valuable i.e. valuable to someone running the business on your behalf or selling it to someone once you decide to retire or move on to a new business. In this episode of Better Business Podcast, Randy Tucker shares something you need to be aware of today, to make sure your business is valuable to someone interested in buying it from you.
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When you work to build a business, you want to make sure that you’re building something that’s truly valuable. And what we mean by valuable is that it’s something that somebody else could either operate on your behalf, or possibly something that somebody else would be interested in purchasing when you’re ready to move on from the business, either retiring or selling the business.
In today’s episode, we’re going to talk with Randy about some things you need to be aware of now, to make sure that you’re not building a business that is not valuable to somebody else.
Importance of Building A Sellable Business
Interviewer: So, Randy, before we get into some of the specifics, can you provide some context and share your experience with us about a business that had the opportunity to sell for a reasonable amount of money but was not able to do that because they didn’t address the things that we’re going to talk about today?
Randy: We’ve worked with many companies to get them in a position of resale or takeover by a professional organization, etc. One that comes to mind is a company who was a distributor, roughly between 10 and 20 million dollars a year in annual revenue. They were doing okay; but the problem was they had no systems in place.
We actually worked with them in a different capacity.
- We watched them go through three separate attempts at selling the business.
- All three times, the reasons came back that their processes were not defined – they weren’t reproducible.
- The product – they really had no product. They were a distribution company.
- Their benefit and power was their sales and that was really just about the relationships, and
- One of the most negative pieces for the potential buyers was it was really a single owner-run business.
So, there’s one example. They happen every day, though.
Key Elements That Make A Business Sellable
Interviewer: In the context of that, what would you say are some of the key elements that a listener can get their head around that make their business sellable? Can you break it down into maybe three specific things that are going to encompass everything we’re talking about today?
Randy: Sure. If you’ve ever seen the show, “The Profit,” Marcus Lemonis from Camping World — he runs Camping World wherein he purchases many companies – gets involved. He has a saying, and I totally agree with that;
- “People, process, and product.” If you’ve got two of those factors in play and they’re in nice, strong position, you can usually fix the third.
- When you have two of those factors faulty or failing, that’s a very difficult business to bring back the life.
Your product – Do you have a product advantage in your marketplace? That’s something you want to work on.
Your processes – Even more important, I believe, is the process. Do you have an identified process that you can communicate to others that they believe that if they keep that engine running i.e. that process, that they too can be successful with that product?
The people part – It really does take a great team of people who care about the product, who care about the process, and care about their own stability at the company they work for.
The three areas you want to focus on without getting way down into the weeds is people, product, and process. Make sure all three of those are strong.
Interviewer: Of those three, which would you say is the most common that you see broken in a business?
Randy: Jon, there is no common.
- Every business has a little different makeup. It can be a product that’s maybe old, needs sprucing up, maybe changing. That happens, I would say, 20 percent of the time.
- Another 20 to 25 – maybe even 40 percent of the time, it’s the people portion. Maybe you don’t have strong enough people, or there’s some problems in the people area where you don’t have the right people or enough people.
- But the most common that we see that really affects those other two is really the process. Is there a clearly defined process that even if you do have good people, that they know how to follow?
- If you have the process, traditionally, your product will come out of the manufacturing, shall we say, and it’ll be strong. It’ll be a good product, a nice, quality product.
If I had to pick one, I’d say the process is probably the most important.
Some Aspects Of A Business That Make It Unsellable
Interviewer: We’ll get into some specifics on how the listener can think through their process and develop processes effectively, but before we get into that, are there any other specific pieces of the business that can make it unsellable? For example, maybe some of the tools somebody’s using, or a legal situation, or things like that. What are some of the things in the story that you gave us at the beginning that stick out other than process that really made it difficult to sell the business?
Randy: It’s the tools that the company works with.
- If that’s a manufacturing company, it might be their machinery.
- If it’s old, it’s not up to date, doesn’t produce the way things are supposed to produce, machinery’s supposed to produce nowadays.
- That can be a factor, but that comes back to the process.
Another area that’s more common is their infrastructure in terms of software and computer networks, etc.
- The company that I have referred to in the beginning here actually had software, accounting software. They had sales and marketing software, etc., but those systems were so old that literally they could not be upgraded, they could not be fixed.
- The companies who would do support were going by the wayside. It was old product.
- They literally got their money’s worth out of that product, but they waited probably five to ten years too long to make a change, and it’s hurt them to this day.
Focus on Building Processes Around 2 Most Important Areas of Business
Interviewer: For the business owner that’s listening, that is understanding the value of what you’re saying but not really seeing specific examples in their business. Can you help them identify a specific issue in their business? What types of questions should they be asking themselves? What types of things should they be looking for as they’re going through their workday or watching their team work? What can they do to identify one or two very specific things in their business that needs to have a process built around it?
Randy: I would say reporting and that’s a factor that many business owners say; “Can you show me the report for how many widgets we sold in the first quarter?” That ends up in many cases where they’re not up to date on their software being a weeklong project for someone to go to. By the time they get it, the entire picture could have changed.
Reporting – That’s one area.
- If you are in a business where you can’t click a couple of buttons within a ten minute period and get your sales report for what happened last month, that’s a problem. That’s a problem right away, because you don’t how much your business is worth. You don’t know what you’re doing.
- You have a gut feel, you’re an experienced business leader, but you don’t know for real. And when a banker or a buyer comes in, they want to know for real what are the numbers, and one of the telltale signs in a purchase or a merger, acquisition, arrangement is they’ll send a team of people in to do a little bit of forensic accounting.
- You’d better have systems in place that can prove your numbers.
Sales and Marketing – The other area is over on the sales and marketing side.
- If you don’t know how many marketing calls went out, how many customer service calls happened this week or even today, that’s a weakness as well,
- Because if you don’t know that, you don’t know where your problem areas may lie, and you may not be able to predict what’s going to happen in the next quarter.
Interviewer: So, for the listener, it sounds like the main thing that’s important to focus on is having numbers that you can look at for different pieces of the business, which I know we’ll be talking about in other episodes. Also, they need to have a process for actually generating new business and being able to measure that. That’s definitely something that we’ll include in the summary so that the listener can really look at those particular parts of their business.
Chart Out A 30 Day Plan As A First Step In Building Overall Proesses
Interviewer: Let’s look at a little bit broader time frame. What should a listener do over the next 30 days to actually start building processes in their business? What’s the end goal that they should accomplish by the end of the 30 days, and what should they be doing daily to get there?
Randy: I would say, first and foremost, and I know this sounds like maybe a little bit of a sales comment but you should get some outside help.
Get some outside help – If you built your business internally, you know what your systems are but you don’t know if they’re valued externally, so get some outside help.
Develop and deploy a formal operations plan – The second most important thing is deploy a formal operations plan, or shall I say;
- Develop and then deploy a formal operations plan so that the entire team knows how you operate or how the business operates with no question.
- That also gives you some power in the future when you’re bringing new people on as well.
Measure and Adjust your processes – And finally, measure and adjust.
- Over your 30 days, measure some critical factors.
- How many products shipped out the door in the last 30 days? You should be able to know that with a mouse click.
- Know how many marketing calls happened within the last 30 days. Again, you should be able to know that within a mouse click and then,
- Determine if those are the right factors? Are those the right numbers? Are you going in the right direction?
Benefits of Starting With A Small Term – 30 Day Operations Plan
Interviewer: Now, you mentioned the operations plan and to me, that sounds like a really big endeavor to do over a 30-day period. Can you provide some context around what an operation plan can mean, either as a simple outline of how somebody does steps and manages their business, or something more elaborate that’s a giant report that goes into a lot of charts and graphs and details on everything? What do you mean by operations plans, and why should the listener not be scared by you saying you need to develop an operations plan within 30 days?
Randy: An operations plan, many people kind of relate it to business plans. Those can take months to develop and I’ve got to say, I think, usually, those types of things don’t get detailed enough about how are we going to do the job. It’s a prediction plan.
- An operations plan can be really simple.
- Take three pieces of information for the next 30 days and monitor them.
- Check them. Adjust them and decide how they fit to the strength of your business.
Here’s an example:
- Determine how many new lead generation calls will happen on a daily basis out of your sales team or your group?
- Secondly, measure how many quotations get generated and sent off to a prospective customer or an existing customer. That’s a second key point. and
- Fnally, measure how many shipments went out the door.
A lot of people want to go look at the invoice and say, “Well, what were the invoices?” Well, invoices, sometimes they’re before the shipment, sometimes they’re after the shipment, but the key is,
- Are we connecting with the right people frequently enough?
- Are we telling them what we can provide for them?
- Are we shipping product or services out to prospective customers at that point?
If you just take those three things and work on those, you’ve got the front end, the marketing, sales; you’ve got the middle, the process and the engagement and the closing, and you’ve got the shipping, the end of the process.
Now, if you’re a manufacturing organization, you may want to measure material or something of that nature, but take three key points of the business and monitor those, measure those, and work with those over the next month. That’s a mini-operation plan. As you get more advanced, you can certainly add to that. But, it’s important to do a doable plan, to create a doable plan that you can measure and monitor and adjust.
Summary and Next Actions
Interviewer: Great. So, I think the listeners are going to be happy to hear that they can take pieces of their business and really map those out and measure those and start optimizing those. So, I think that’s really helpful. To summarize, this is something that’s really important for you as a business owner to be able to start focusing on now.
- Randy shared a story about a company that tried to sell the company three separate times and wasn’t able to do it because they didn’t have the things that we’re talking about today in place, so you definitely want to start focusing on some of these things.
- Randy also summarized this as people, process, and product. You want to make sure that you group the different things that your business does and how you do business into those three pieces: people, process, and product; and make sure that each of those is operating in a healthy way.
- Randy talked about reporting and metrics, and how just measuring even simple metrics for different parts of the business can help you understand what the trend is, and whether the business is going in the right direction; and as a specific step out of today, make a mini-operations plan for a couple specific parts of your business.
For example, for the sales process, map out how you actually do the sales process? How you take somebody from not even being aware of your business to actually purchasing a product or service from you? Map out that process, figure out what the metrics are and start trying to improve those particular metrics and improve that particular process.
You can visit BetterBusinessPodcast.com. Randy’s offered to do a complimentary 30-minute consultation where he will sit down with you and help you identify one or two specific parts of your business that are not well-optimized right now, and give you some tips on how you can improve those over a 30-day period.
Once again the website is BetterBusinessPodcast.com. Thank you so much for your time today, Randy.
Randy: Thank you, Jon.[Image: http://www.freeimages.com/photo/616726]