Updated: Nov 1
In executive coaching, we regularly work with business founders preparing to exit their businesses in the next 5 to 10 years. This phenomenon has become particularly prevalent as we see an aging population. What all business owners need to realize, however, is that getting ready to sell a business can easily take 3 or more years to complete.
The basis for the valuation of a business comes from a few different sources. Generally, buyers will look at factors such as:
● Net income
● EBITDA (Earnings before interest, taxes, depreciation, and amortization)
● Revenue multiples
Unfortunately, business founders often find themselves trapped working in the business itself and not on the business. They do not see the path forward for driving valuation and preparing to sell.
Taking the time now to address this issue and prepare for the future sale of the company can help business owners drive higher valuation and navigate this preparation process effectively.
Obstacles for Business Owners
For business owners, the biggest obstacle before a sale is determining how to drive a valuation over and above the current industry comparables. You want to secure the best possible price when you sell a business. However, buyers serious about purchasing a company will want to know that the organization doesn’t wholly rely on the founder. They want to know that the business will continue to drive profit even after the sale.
Many founders have been looking to solve this challenge by turning to scale-up consulting services and executive coaching. These strategies help them implement the right systems into their existing business to prepare it for the best possible price for when they leave.
To achieve your goal, you must make the founder redundant. To determine how redundant the founder currently is, ask yourself these questions:
● Is the founder very involved in the day-to-day operations?
● Are the founders removed from the sales process?
● Are employees generating sales?
● Is the business generating scalable business outside of referrals?
These questions can help you identify where you need to dedicate the most effort toward phasing out dependence upon the founder. Let’s explore some strategies that you can use to maximize your success.
Strategies for Making the Founder Redundant
We will walk you through 4 areas that you can focus on to lessen your reliance on the founder so that the business receives a higher valuation and better price at the time of the sale.
Develop functional accountability
Begin with functional accountability. Following this process creates accountability within the business’s management team and frees the founder to work on the company.
1. Define all the functions in your business with clear owners
2. Determine what part of the balance sheet or income is impacted
3. Determine key metrics for each function
4. Make sure everyone involved understands their role and the metrics that govern them
Develop process accountability
You can further nurture accountability within the management team and free up the founder with process accountability. Follow these steps toward that end.
1. Define the critical processes in your business with clear owners
2. Know the value of each process in business success
3. Determine essential metrics for each process
4. Provide training and background for those involved
Implement job scorecards
Many fast-growing companies do not provide employees with role clarity, creating confusion and a lack of alignment. You can improve this by following these steps for job scorecards.
1. Define key positions that require scorecards
2. List all the results you expect a high performer to deliver
3. List and weigh the core values
4. List key competencies
5. List critical criteria, requirements, and technical skills needed for the jobs
Leadership training for the next level of management
Company founders should invest in the next level of leadership. The business’s sales process will entail selling the management team, so founders need a solid team around them to guide the company and prepare to take the reins after the sale.
To make sure your management team has the preparation they need for this leadership level, you need a long-term curriculum that will help you nurture and grow the leaders in your company. Executive coaching can help you outline this vision and what you want your leaders to achieve before moving forward.
Drive Your Company Valuation with Executive Coaching
The valuation of your company will take the founder’s involvement into account. It will also look at the management team’s capabilities surrounding the founder. A diligent plan using Scaling Up tools and implemented with the support of a certified Scaling Up coach can help your business maximize its potential and fully prepare for the valuation process.
ALTA Consulting provides white-glove executive coaching services to help your business drive valuation and prepare for sale. Contact us to learn more about how we can help you navigate the process and secure the best possible results for your business.