Would A Buyer Agree That Your Business Is Truly Great to Own?

Many CEOs and business owners will agree that the benefits of business ownership far outweigh the related struggles and daily challenges – in brief, they think their businesses are great to own.  And here’s a critical point for you business owners who would one day like to sell your business for a high premium:  many buyers will agree that business that are truly “Great to Own” are also worth paying top dollar to own.  Unfortunately for many business owners, however, only a small percentage of companies are truly ”Great to Own.”

So what can you do now to make your business truly “Great to Own”?  Start by asking yourself the five key questions every buyer needs to ask before they even think about starting the sale process:

1.  Would my company be valuable to someone else?

Creating value in a company remains one of the primary ways to create wealth, stimulate job growth and realize the American dream. Many businesses, however, are not “sellable” for a value that would motivate the owner to sell, and other businesses are not sellable at any price.  Unless the answer is a solid “yes” to each of the following questions, your company will probably not be valuable to someone else:

• Are you creating a company that can maximize its earnings without your participation?
• Is your hard work focused on areas and products that the marketplace will value most and reward you with a premium valuation?
• Do you have a clear strategy to not only create but also to maximize company value?

2.  Does my company provide unique financial benefits for founders and owners? 

You have sacrificed a great deal to build your company, but are you getting the reciprocal benefits of strong personal financial growth and security from your company?   Beyond an expense account and perhaps a nice company car, are you taking advantage of available planning opportunities to:

• Create a tax-efficient, liquid asset base?
• Protect your assets and those of your family and partners?

3.  Has my company created tax savings and tax efficiency?

Business ownership can create tax planning opportunities that aren’t available to everyone, but many of those opportunities are neither intuitive, obvious, or even known by many business owners.

• Beyond obvious expense reimbursements and compensation deductions, are you structured properly to maximize tax efficiency at the time of an eventual exit from your business?
• Has your company taken the steps to ensure that annual distributions are being made in a tax efficient manner and to provide downside market protection on investment assets?
• Have you taken steps to be sure your exit planning, succession planning, and estate planning all work together well to put you in the best possible financial position under a variety of possible scenarios?

If your business isn’t both providing unique financial benefits for its owners and creating tax savings and efficiencies, then your business is not truly “Great to Own.”

4.  Have we minimized our vulnerability to downturns?

A company that is truly “Great to Own” not only provides the “up-sides” mentioned above, but also puts its owners in the best possible position to weather tough times.  Owners and executives will be protected from frivolous lawsuits.  The company and its owners will have liquid assets available to acquire company shares from deceased or disabled partners.  And planning will have been done to shield personal and business assets from overzealous creditors and plaintiffs.

In sum, a business that is truly “Great to Own” will have been built to endure the tough times.  If you want to build a durable business, you should work with your business and legal advisors to take the necessary steps before trouble hits.  Once trouble hits, it’s often too late to take many of the protective steps you could have taken beforehand, so act now and do not wait.

5.  Have we created a great culture that will motivate people to grow our company? 

You and your key employees probably spend more time working to grow your business than doing anything else.  The more your people believe in your company’s mission, share in its values, trust in its leadership, and benefit from its success, the more those people will work to grow the company. As such, creating a great culture may be the most important ingredient of a company that is truly “Great to Own.”

Entrepreneurs talk a lot about culture, yet it is rare to find companies with a really great culture.  While good compensation and benefits can be used to attract and retain talent, it is often a collection of valuable little things, including creative policies and empowering opportunities for personal and professional growth, that go the furthest towards creating an optimal culture.

In sum, having a company that is truly “Great to Own” will not only make your professional life more rewarding, but it will put you in the best position to realize the maximum possible value when it comes time to sell your business.

So what have you done in the past week to make your business truly “Great to Own”?  And what could you do in the next few days to change a “no” to a “yes” in response to the questions above?  The benefits of taking action now are high, as are the costs of doing nothing.  So get started now making your business truly “Great to Own”!

This blog post was jointly written by Todd Taskey and Aaron Ghais (owner of this blog site).  Todd Taskey is a principal with Potomac Business Capital, Inc, a strategic, planning  and M&A advisor to small and mid-market companies in the Mid-Atlantic Region.  Todd can be contacted at (240) 482-3590; and you can learn more about his business and the services he offers at:  PotomacBusinessCapital.com and AdvancedExitPlanning.com.