In last week’s blog, we spoke about exit strategy options for trades and construction business owners. In this article, we’re going to tackle exactly what you can prepare in the years leading up to a sale to ensure your exit is as profitable as possible.
Building a successful, desirable business doesn’t happen overnight, so you need to work towards a sale long before you’re thinking about following through. As a business owner, you need to at least think about what you’d like to do with your business in the future, so you can have these steps in the back of your mind as you scale.
The good thing is that all this work overlaps completely with giving you the most profitable business possible. So whether you sell or not, everything you’ve done or will do benefits you every step of the way.
10-15 Years Away From Sale
If you’re at this stage in the timeline, it’s all about building the business foundations. Whether you’re planning for sale or not, these are things that every business owner should be striving to get right if they want to scale quickly and sustainably. It’s like building a house – you need strong foundations, otherwise it’s going to fall down.
Strong foundations are crucial in the valuation of your business. A potential buyer will thoroughly evaluate your business to find its strengths and weaknesses. They want to know where they’ll have to spend money after acquisition. It’s like a survey on a building acquisition. If they discover a floor could collapse any day, they would need to do some serious structural work. It’s not as easy as a new lick of paint, and your valuation will reflect that. Here are the things you should focus on:
Building a Strong Management Team
The first step to building a strong management team is to identify and develop key leaders. These are the people you will depend on to lead key areas of the business that need constant attention, while you’re focusing on growing the business. It’s worth investing in leadership and development programs to nurture and enhance the skills of these people, as they play a vital role in scaling the business. As part of that, as the leader, you must encourage a culture of continuous learning and growth.
Once you’ve identified these capable leaders, you can gradually delegate key responsibilities. The key to success with delegation is empowering the chosen team members to take ownership of those specific tasks and aspects of the business. When this happens, these employees are motivated because they feel like they’re making a difference. Your job is to then monitor performance and provide constructive feedback to facilitate growth.
Financial Optimisation
Money is the lifeblood of all businesses. In particular, profit. From the get go, you need to maximise profit margins, as this fuels all potential growth. Analyse and optimise your pricing strategies to maximise profitability and streamline operational processes to reduce expenditure.
Always be on the lookout for opportunities for cost-effective procurement without compromising quality.
Another way to optimise your financials is to diversify your revenue streams. Not only will this benefit you during your reign over the business – ensuring you can weather all economic landscapes and market challenges – multiple, diverse revenue streams (as long as they’re profitable) will increase the valuation of your business. At this stage in your journey, look for quick wins by exploring complementary services and building strategic partnerships to access new client bases. Over time, you could look to launch new innovative products or services that align with market demands.
Thirdly, implement cost control measures. Don’t make the mistake of putting 100% of your financial focus on bringing in more money, when you should also look at how much money you’re throwing away due to inefficiencies. Conduct regular cost audits to identify areas for savings, negotiate favourable terms with suppliers and vendors, and implement cost-effective technology solutions to streamline operations.
Systemising Operations
Putting systems in place sooner rather than later might seem like a big task, but in the future you will be grateful you did it. Starting by developing comprehensive standard operating procedures (SOPs) for all key processes. Ensure those SOPs are regularly updated, accessible to all team members, and conduct training sessions where necessary.
One system that all trades and construction businesses should have locked in and working like a well-oiled machine is their project management system(s). If you haven’t already, adopt project management tools to enhance efficiency and collaboration, and standardise project workflows to minimise errors and delays. Ensure to monitor and analyse project performance to identify areas for improvement.
Once you’ve gone as far as you go with the first two steps, it’s time to invest in technology for automation. This will allow you to reallocate resources to take on more work in a cost efficient way, such as by identifying opportunities for automation in repetitive tasks. Invest in technology solutions that improve operational efficiency, and leverage data analytics to make informed decisions and optimise processes.
5-9 Years Away From Sale
As you approach the mid-point of your exit planning timeline, focusing on business valuation, legal compliance, and stakeholder relationships becomes crucial. This stage sets the groundwork for a successful sale by ensuring that your business is not only financially sound, but also legally and ethically aligned for a smooth transition. But make sure these are additional focuses, don’t forget to continue to build on the strong foundations you’ve set.
Business Valuation Prep
Engage professional valuation experts to conduct a comprehensive business valuation and assess the true worth of your business. This evaluation should include tangible and intangible assets, including intellectual property, customer relationships, future earnings potential and market trends.
What you want at this stage is to identify areas for improvement. Analyse the valuation report to identify areas that impact the value and prioritise improvements in those areas. At the same time, compare your business performance against industry benchmarks to identify areas where your business excels and areas that need work.
Use the report and benchmarking data to set realistic goals and performance expectations for your business. Then develop a strategic plan to work towards those goals over the coming years.
Legal and Compliance Audits
You don’t want any unforeseen problems to cause problems down the line, so get ahead of this while you can. Conduct a thorough review of local, state, and federal regulations applicable to your industry, and rectify any compliance issues to mitigate legal risks. Where necessary, engage legal experts to ensure ongoing compliance as regulations evolve.
If you have any, address any pending legal issues or liabilities promptly, and settle disputes or outstanding legal matters to present a clean legal slate to potential buyers. Also, establish clear processes to prevent future legal complications.
Lastly, you want to establish clean financial records. Work with reputable accountants to ensure that financial records are accurate and well-documented, as well as to address any inconsistencies or discrepancies in financial statements. Transparent and organised financial records will instill confidence in potential buyers.
Customer and Employee Retention Strategies
A strong customer base is essential for growth, otherwise revenue becomes unpredictable. Take a proactive approach to strengthening communication channels and fostering engagement with your customers. Implement effective feedback mechanisms to address concerns and continuously improve satisfaction levels. Consider the development of customer loyalty programs to enhance retention rates, ensuring that your business not only attracts potential buyers, but also showcases a strong and loyal customer base as a valuable asset in the sales process.
For your employees, consider implementing retention programs in the form of competitive compensation and benefits packages. Identify and nurture key talent within the organisation, so your team feels appreciated and acknowledged. Show them that you believe in them and that they’re important to you and the business by providing ongoing training and opportunities to enhance skills.
Enhancing your company culture is also key to employee retention. A positive and inclusive company culture supports a happy, thriving team. Continue to communicate the company’s values and mission to your teams, and always address workplace issues promptly to maintain a healthy work environment.
2-4 Years Away From Sale
As the sale timeline draws closer, focusing on marketing and branding, financial transparency, and negotiation skills is pivotal. These strategies not only enhance the appeal of your business to potential buyers, but also ensure that the negotiation process is conducted with finesse and results in a mutually beneficial agreement.
Marketing and Branding
Potential buyers want a business with a proven track record, and marketing and branding, which leads to sales, is the only way to prove that a concept works. Invest in a comprehensive brand audit to identify areas for improvement and implement a strategic marketing plan to enhance brand visibility within the industry.
By now, you’ve been in business for a long time, so you should have a never-ending supply of client stories and testimonials. Create a portfolio showcasing the success and quality of completed projects, with case studies that demonstrate your business’s capabilities and achievements.
If you haven’t already, leverage digital marketing for lead generation. There’s no place for businesses that don’t have some form of presence online, and that’s only going to become more true as time goes on. Develop a strong online presence through an updated website and social media platforms, and implement targeted digital marketing campaigns to generate leads.
Financial Transparency
It’s time to step up your financial reporting. Ensure all reports are clear, comprehensive, and easily understandable. Implement transparent accounting practices to instill confidence in potential buyers, and provide historical financial data and projections to demonstrate the business’s financial health.
Financial transparency is also important in your conversations with potential buyers, as it builds trust. By engaging in open and honest communication, you’ll establish a reputation for integrity and reliability in financial matters.
Remember, being open and transparent doesn’t mean you shouldn’t be prepared. Anticipate potential financial concerns that buyers may raise during negotiations, and develop proactive strategies to address and mitigate them. Where necessary, work closely with financial advisors to navigate any complex financial discussions.
Negotiation Skills Development
The skill of negotiation is essential when selling your business, and it’s a skill you need to equip yourself and your key personnel with, to ensure you get the best deal possible. This will likely involve providing specialised training to leaders involved in the sale to enhance their skills and confidence. Additionally, engaging with industry experts and consultants in mergers and acquisitions is essential. By seeking their guidance, business owners can refine negotiation strategies and tactics, gaining a comprehensive understanding of market norms and trends.
The Year of Sale
As the sale date approaches, meticulous attention to legal, financial, and transitional details is imperative. By addressing these aspects comprehensively, business owners can ensure a seamless transition, mitigate risks, and set the stage for a successful new chapter in the life of the business.
Finalising Legal and Financial Details
Secure the services of experienced legal and financial advisors specialising in business sales. Collaborate closely with advisors to navigate complex legal and financial considerations and review all documents, contracts, and agreements. Address any discrepancies or concerns promptly to avoid delays. Peace of mind and certainty this late in the game is better than saving money on someone less experienced.
Transition Planning
When you’re this close to sale, it’s crucial to engage in a collaborative effort with key stakeholders to develop a comprehensive transition plan that meticulously outlines the timeline for the entire process. This ensures that roles and responsibilities for both existing and acquiring teams are clearly defined to ensure a smooth transition for you and your employees.
Focus on facilitating a structured handover of responsibilities between the current and acquiring teams. This involves not only defining the transfer process, but also providing comprehensive training and ongoing support to the new leadership. Monitor the transition process closely, so you can promptly address any unforeseen challenges and ensure a seamless transfer of responsibilities.
Transparent and empathetic communication is paramount when planning this transition and conveying the sale of your business to employees. Addressing their concerns and providing the necessary support will help them ease the transition. Simultaneously, notifying clients about the upcoming sale and changes that will occur, and reassuring them of the commitment to maintaining the same high-quality service standards, is essential for maintaining positive client relationships during this period of change.
Post-Sale Considerations
An often overlooked but crucial step in preparing your business for sale is developing a comprehensive wealth management plan that optimises the utilisation of funds derived from the sale. Many business owners plan how they want to spend their profit, but can forget to use this opportunity to further grow their personal wealth. Engage with financial advisors to thoroughly explore potential investment opportunities and consider implementing diversification strategies to safeguard and foster the growth of your wealth.
Beyond the sale, take the time to evaluate opportunities for sustained involvement in the industry or the business, should you desire to. This may involve considering advisory roles, exploring potential partnerships, or venturing into new entrepreneurial endeavours. Investigate ways to leverage your accumulated expertise and networks to lay the foundation for continued success in the future.
Finally, make sure you reflect on the success of your exit strategy and the realisation of your initial goals. Solicit feedback from key stakeholders, including employees, clients, and advisors, to gain valuable insights into the strengths and areas of improvement in your exit strategy. Identify lessons learned during the process and pinpoint areas for enhancement, setting the stage for more informed and successful endeavours in the future.
A Prepared Exit is a Profitable Exit
The path to a successful exit is not a sprint, but a carefully planned marathon. As a trades and construction business owner, the decision to sell is monumental, which requires foresight, dedication, and strategic planning. By starting the exit planning process well in advance, you empower yourself to make informed decisions, address challenges proactively, and maximise the value of your business.
Embarking on the journey of preparing your business for sale can be complex, and expert guidance can make a significant difference. Business Benchmark Group is here to provide personalised support and guidance tailored to your unique needs as a trades and construction business owner. Whether you are in the early stages of planning or nearing the final steps, our experienced coaches are ready to assist you in achieving a profitable and smooth exit.
Contact us today to take the first step towards securing the future you envision for your business. Your success is our priority, and we look forward to being a valuable partner in your journey. The time to begin is now—lay the groundwork for your future success..
Power to you!
Stefan Kazakis,
Founder & CEO, Business Benchmark Group
