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Building a Sellable Business: 10 Things Often Overlooked

Eventually, every entrepreneur realizes they cannot work in their business forever. For most entrepreneurs, this is the time they begin thinking of exit. Here are ten things you should think about before that faithful day.

Standardization

The first thing I will like to mention is standardizing services or products. In the onset of a business, an entrepreneur figures things out as he/she develops. As time elapses, the entrepreneur figures out what works and settles into a way of doing business. This usually happens at the $100,000 mark. The problem with this is the knowledge is embedded in the head of the owner. The owner often fails to communicate this knowledge to new hires. There is kind of an “unspoken standard” or “way of doing things”. People learn “the unspoken way” haphazardly. By not standardizing, the owner’s loses 50% of the value of the business when it is time to sell. Nobody wants to buy a business when all the knowledge is in the owners’ head and if they do there are usually lots of contingencies tied to the deal.

Delegation

Most entrepreneurs have this false belief that they are the best: No one can do anything as well as they do and without them the business will fail. This false belief enslaves them into believing they have to work harder than anyone to achieve success. They have a hard time even getting away from their work for one hour. The biggest problem with this, is you limit your business growth. They are people smarter than you and people who can do the job better than you if you just let them. If you have standardized your systems, delegation becomes easier: All the new person has to do is follow the systems you have created.

Knowledge Management

Knowledge management is not an issue that can be ignored in the information age. How we share information with staff, customers and vendors should be very well defined and preserved for consistency. Whether you use an intranet for communication with your staff and external stake holders or simply a cloud database, is irrelevant. What is relevant is that the method you use is efficient in capturing and transferring relevant information.

Innovation

Innovation is the development of a new idea or developing a more effective design or process. Innovation could be in the form of redesigning your workforce, upgrading your technology, restructuring your offerings to match customers taste, etc.

Every product has a life circle. A product goes from growth, to mature phase and finally hits a decline. Innovation is required to stay competitive, if not your product life cycle becomes your business life cycle. Keeping tap of the external environment lets the entrepreneur see what processes, products or services need to be developed. As an entrepreneur, you should be a member of a trade association in your industry, read their magazines, and keep track of new developments. Keeping track of industry trends is important to your future existence. The external environment is consistently changing and the only way to build a sustainable business is to innovate.

Financial Systems

The financial plan of most business owners goes as far as purchasing QuickBooks and once a year completing their tax return. If they are more prudent they might look at the financial reports developed in QuickBooks monthly. While this is better than nothing, business owners can do a lot more in improving their financial position by investing in better financial systems. For instance what controls do you have in place to ensure the information in QuickBooks is accurate? Just like anything else, if you put garbage in, you get garbage out. Moreover what about the structure of your financial accounts, are they capturing the information you need. When you look at your financial reports, do you have answers to the most critical factors affecting your business? All of these questions are addressed in the way your financial system is designed. Investing in having a professional design the system is worth the headache you will save down the road. Moreover, be careful not to commingle funds and keep your financial records as clean as possible. Good financial records are worth a lot when selling your business.

Planning and Budgeting

Planning and budgeting is the process of telling your business where you want it to go rather than it telling you where to go. Small business owner fall into the trap of thinking that they cannot control what direction their business will take so they do not plan. Planning and budgeting go hand in hand. A budget is simply the numbers behind the plan. Having a plan and delegating the responsibilities of certain aspects of the plan is crucial. With a plan and a budget you can plan and execute on your business goal. Also business buyers like to see a history of business planning and budgeting. This increases the amount they are willing to pay as they are less anxious about being handed down a sham.

Developing key metrics

Once you have a plan and budget in place, you need a way to determine if you are on track. Metrics are used to measure how things are going. Usually metrics are measured against a budget developed using a strategic plan. Monitoring metrics on a regular basis can point you to where your business is failing before it actually happens. Some metrics you may want to track are: productivity rate, net margins, customer retention rate, customer acquisition rate, etc.

Tax Planning

Taxes have a big impact on what percentage of your net profits you keep. Tax Planning should be done before you sell. By structuring transactions differently you might be able to save more money on taxes. Do not wait until after selling to decide what you will do for taxes: When you get your cash after sale, you will be rest assured you have taken the best possible steps to minimize your taxes.

Exit Planning

Most business owners do not plan for the day they will leave their business. They work until the day they determine they are burnt out. The problem with this is the business owner does not leave the business with the best value possible. Working with a consultant should be done couple of years before you plan to sell. If you wait too long your business may become unsellable. The top two factors that affect business value are:

  • what is going on in the economy and,
  • how it particularly affects the industry you compete in.

If you hit a time of decline, no one will want to buy your business. Selling in a timely manner, will help you take your time to identify the best buyer who might be able to take your business to a level you were not capable of doing on your own.

Another mistake I see is because business sales rule of thumb are usually based on a multiple of industry revenue, entrepreneurs think they will hold on to the business till they reach a revenue mark and then sell. This is a false thought because you never know what bad fortune may befall your business before you sell. Moreover, if you try to manipulate sales to increase revenue, a smart buyer will discover this during the due diligence process which will kill the sale.

Lifestyle Planning

Business owners have the propensity to work without giving much attention to their personal lives. Lifestyle design should be integrated into the lives of business owners if not burn out is certain. This includes what kind of lifestyle you want after you exit your business. Do not neglect to take care of you or you will burn out and be no good to anyone. You should have a system of rewarding yourself at specific timelines in your business. For instance, I take frequent vacations and this helps me renew the love for what I do.

Do not make the mistake of thinking you will retire from your business and spend the whole day on the beach or playing golf. If you have spent your life working hard to build a business, you will get bored with just sitting on the beach doing nothing. Moreover, people die faster after retirement if they choose to do nothing.

The Honest Truth About Your Business

29 Questions to Help You Determine if What You’re Doing is a Business or a Hobby

Are you a true business owner and entrepreneur? Or are you pursuing your business dreams more like a hobby but may not even be aware this is what’s happening?

In meshing business and personal life in the past…

I took a lot of time off when I felt like it… ,

I worked around the kid’s school schedule and family meals… ,

if I didn’t feel like making calls for a few weeks, I didn’t make them… ,

when the sun came out, the kids and I headed to the park and work was the last thing on my mind… ,

I would fit in a few hours here and there to work on my business… when time allowed around my other commitments…

What about you? Do you let family, friends and other factors take you away from working on your business? Or are you 100% committed and invested in your business success?

Here are some questions you can ask yourself to help – you might be surprised with some of the answers if you’re being honest with yourself!

  1. Are you clear on your business’s focus – have you defined the product or service you provide and have stuck to it or are you continually trying out other things?
  2. Have you registered your business name with your local government?
  3. Do you have a business licence with your local community?
  4. Do you have a dedicated business phone line? A toll free number?
  5. Do you have business insurance?
  6. Do you have legal contracts in place dealing with the various aspects of your business?
  7. Do you have a clearly defined mission statement?
  8. Do you have a business plan? One that gives you a solid blueprint on how to achieve your business goals and how much it’s going to cost?
  9. Do you know who your competitors are and what they are doing?
  10. Is your business scalable in a way that it doesn’t depend on you being hands-on 100% of the time?
  11. Do you have a marketing plan that provides you with specific steps on how you are going to attract your perfect client and how much it’s going to cost?
  12. Do you have a set budget for advertising and marketing to build your client base?
  13. Do you really know who your target market is?
  14. Do you have a professionally designed logo to establish your brand identity and appeal to your ideal target market?
  15. Do you have professionally designed business cards, letterhead, promotional materials and other items to market your business?
  16. Do you have a professionally designed and developed website that represents your business brand effectively, 24 hours a day – 7 days a week?
  17. Do you continually update and employ SEO tactics to your website to ensure optimal results?
  18. Are you outsourcing certain tasks to help you with the things that are not your core competency such as bookkeepers, web developers, marketers, virtual assistants and graphic designers?
  19. Do you have a separate office space where you can shut the door at the end of the day and leave it closed until business hours start again?
  20. Do you have set business hours where no emails and no phone calls occur after hours?
  21. Is your office space organized and systemized so that anyone could come in and take over where you left off?
  22. Do you keep proper books and track all of your business receipts? Or is everything stuffed in a shoe box or file folder until tax time?
  23. Are you aware of all the tax write-offs that you’re entitled to and use them to the fullest?
  24. Do you have a dedicated business bank account?
  25. Does ALL of your business income go into this business account and you pay yourself on a regular basis?
  26. Do you work all year round with vacation breaks or do you take whole summers off and tell yourself you’ll get busy working again in the Fall?
  27. Do you diligently work at your to-do list of items that will help achieve your goals or are you telling yourself you’ll kick things into gear after… (fill in the blank)?
  28. Are you truly happy and passionate about doing what you do?
  29. Is your business fulfilling your life’s purpose or are you just going through the motions of trying to make some money?

The questions above do not cover everything when considering what is involved in running a business, by no means, but I hope they got you thinking enough to help you determine whether you are running your business like a hobby or are you seriously running your business to earn a healthy living.

I encourage you to take an honest look at what you are doing and decide today on what your future holds for you – nothing will happen until you make that decision!

Did this article strike a chord with you? Are there areas in your business that you could be improving to get you beyond the hobby mentality?

What to Consider When Scaling Your Business Model

What You Should Keep in Mind When Deciding to Grow Your Business

Regardless of your background in business or what you are offering consumers, beginning a new business is a very risky venture. Statistics show that almost 90 percent of all start-ups fail, and of those 90 percent, roughly three out of four companies failed because they decided to scale up too quickly or too soon. While this may seem like a bleak outlook, the good news is that premature business scaling is completely preventable. Here are some things to keep in mind when scaling your business model.

Consider the State of Your Industry Over the Next Few Years

The state of your industry has a lot more to do with your business’s success than you may believe. Before scaling your business model, consider what the state of the industry may be over the next three, five, or even ten years. Will the industry be able to support the growth of your business? Will you be able to see some profit before the product or service you are offering becomes obsolete? These, among others, are important questions you need to ask yourself before beginning your business growth.

Make Sure Every Aspect of Your Business is Scalable

Many small business owners believe that scaling their business is as simple as acquiring more customers and more sales while still using their same business operations. It is important to keep in mind that true scaling usually involves several overhauls of both your business’s internal and external operations. Do you have recruitment processes in place to hire more employees to support the demand? Will the technology your business currently uses support a higher workload of increased transactions, accounts, and customers? Scaling your business is more than just selling more of what you are offering.

Think About Your Businesses Culture

When you scale your business, you will often have to hire more employees in order to support the larger operation. Many small business owners are used to working in small groups, usually less than ten employees, and often do not understand how the business culture and dynamic will change with a larger group of employees working together toward a common goal. When your business begins to grow, focusing on your company’s culture will become very important.

Some questions you may want to consider include: “What is your company’s culture now?” “What kind of culture do you want your business to have?” “How will you focus on, manage, and grow the company culture you desire?” By documenting best practices and guidelines from others, it will be possible to grow and nurture a culture that will work for your business as well as helping to formalize your strategic ideals, company mission, and other aspects of your growing business.

Keep Short Term and Long Term Goals in Balance

An important part of beginning and sustaining growth is making sure your goals are in balance. Investing in new technology, and/or a new business infrastructure is a short term goal that can help to lead to longer term growth. But, working toward a long term goal will likely put the shorter term goals on hold. It is important to keep the long term impacts to your business and the short term achievements toward traction is vital for business growth and can often be more of an art than a science.