Positioning Your Company for Purchase – Part 2
In the previous article we talked about the first two steps you can take to maximize the value of your business before you get ready to sell.
The first step was to strengthen your management team and put policies and procedures in place so your business can run without you.
The second step was to strengthen your sales force and develop ongoing programs for recruiting and retention.
In this article, we talk about the remaining three steps:
- Rationalize compensation
- Build in long-term maintainable income
- Put yourself in front of buyers
Rationalize Compensation
The next step is to take a look at your compensation structure. Are you overpaying or underpaying? Although overpaying helps ensure retention in the short term, it reduces your profit margins.
Underpaying makes your business look more profitable than it is, and if the reason people work for less (your thoughtful and considerate management style?) is removed, you could see wholesale defections. In fact, it can make your business un-buyable.
To ensure that you are paying fairly for your market, do a competitive analysis. Collect information on your competitors. What do their pay structures look like? What services do they offer? Do they do extensive marketing and lead generation? Provide a great deal of sales support? Are their facilities expensive and sparkling clean or are they getting run down? What is their image in the market? (This is information prospective buyers will find useful too.)
Then rationalize your pay structures so you are paying fairly and competitively.
As long as you are restructuring your compensation plans, you may want to bring them in line with what potential buyers would implement. For example, if you have a real estate company and you are bought by a franchise, they will need to add an off-the-top fee. You can put that in now, and devote that revenue to providing the services a franchise would offer: more professional marketing materials, and perhaps a TV or radio advertising campaign.
Giving some thought to who might buy your company and making the changes they will need enhances your value and expands the universe of potential buyers.
Build in Long-term Maintainable Income
One of the most important things buyers look for is a long-term, maintainable stream of profit. If operating profit is predictable and sustainable, even in difficult economic times, your business will be more appealing.
One strategy is to build profit into your business through your compensation plan design. When you design commission plans to cover corporate expenses and ensure a pre-defined level of profitability, your business can typically withstand a 30% downturn in the market without going into the red.
Put Yourself in Front of Buyers
Now that you've strengthened your business and positioned your company for sale, it's time to put yourself in front of suitors – in a subtle way. Launch a public relations effort to project your reputation as a well-run, fast-growing enterprise. This places you on the radar of people who are looking for acquisition candidates.
Do these five steps sound like a lot of work? They are. But just as you fix up a house before it goes on the market, if you go through the pain of doing this work yourself, you'll be able to benefit from a significantly higher sale price. With all the sweat and hard work you've put into growing your business, you deserve to reap the rewards.
