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CompensationMaster Newsletter Article, September 2002 Last month 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.
If you missed that article,
click
here to read it.
This month, we talk about the remaining three steps:
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Rationalize compensation |
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Build in long-term maintainable income |
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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.
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