What are You Selling – You or The Business?
Is it you or the business?
It is no good saying to a buyer: “I work five days a week in this business and eight hours a day.” They will not like this since it is unlikely there is a business there to be sold.
What would happen to your business if you took a three-month break? That is the decisive test.
Now you may not be able to achieve this now. It will take time.
One way to help is to have Standard Operating Procedures. I do not mean ISO 9000, as good as it is. They may need to be in place anyway. No, the procedures and operations need to reflect the unique culture of your business. They must be bespoke.
So, why bother? Here are some arguments I hope will convince you to at least consider Standard Operating Procedures (SOPs).
In the past I have opened a seminar presentation with the question: How many of you want to sell your business? A few hands go up, as it is a trick question.
I then ask a second question: How many of you would like to know you could sell your business if and when you are ready? A lot more hands go up.
Why? It is not about selling your business; it is about building a more valuable business that can thrive without you. It would be nice to think you could be out enjoying yourself away from the business with no concerns while the dividend cheques roll in.
SOPs are a secret to delighted customers. Most businesses have a pride in the way they treat their customers. However, the service is limited to the number of hours the customer service can be provided. If you, the owner, are doing this then there are limited hours.
Where it is possible to teach employees to do this the business can be built beyond one or two people. Take McDonald’s for instance, Ray Kroc created a 72-page manual on serving customers where the most important phrase was: “Would you like fries with that?” Whenever you visit a McDonald restaurant, the experience is consistent with the manual. Does this happen with your business?
In his seminal book: The Seven Habits of Highly Effective People, Stephen R. Covey talks about The Time Management Matrix. Here he describes the four areas in which activities should be allocated. These are in order of priority:
Important and urgent
- There are activities you must do
- Important not urgent
- The most successful owners go here next
- Not important urgent
The less successful owners go here next i.e., second priority when they should be delegated. There are ways and means to delegate where the art is to minimise the questions employees come back to you and by giving them the authority to make the decisions within constraints without reference to you.
Not important and not urgent
These activities should be eliminated.
Please refer to the book for more details.
How many read instructions manuals?
Most men dive in and construct furniture without reading the manual. Most employees will read instructions. Owners learn by doing, employees by instructions. Instructions help to train confident employees.
SOPs give an acquirer confidence that your business will continue to succeed after you have gone.
How a business makes money is in the SOPs. I wrote earlier about a three-month absence from your business. I accept this is a goal, yet it will increase the value of your business if you can achieve this without prejudicing the business operations.
A recent survey in the US showed only 29% of businesses would hardly suffer and would survive in these circumstances.
How to avoid the dreaded earn-out
SOP’s will help to minimise the proportion of your acquisition proceeds being at risk in an earnout arrangement. During negotiations, you can make an evidence-based case against this term of the contract.
If you are in an earnout arrangement, then this might lock you into the business after completion to achieve the earnout. Would you want this? I accept writing SOPs can be time consuming – it will though be a lot less than the time taken to achieve the full earn-out.
So, if SOPs are so important why do so few business owners struggle to create them?
Well, how many skilful players have there been in football, cricket and rugby who turned out to be poor coaches? There are a few I will not name. It is called unconsciously competent. Owners know their businesses, but they do not know what they do to run it. They are so engrained in what they do, it comes naturally to them, but they find it difficult to teach someone else to do it.
So, you may need help in writing your SOPs in each area of the business. Using someone from outside will avoid loopholes and vagueness as the SOP will be written starting on a blank page with no prior knowledge of the business. Shorter is more effective than longer and ought to be enough to turn unconscious competence into conscious competence.
Here are some practices which may help:
- Use a video rather than writing down.
- It is easier to watch than read! Think of the number of people who fire up u-tube to watch a video – it is easier to consume since it addresses the four learning styles.
- Keep them short.
- 90% of the workforce will be millennials by 2030 – that is in eight years’ time.
- One touch.
- The process should be linear like a conveyor belt in a factory, so when a person does their bit, it moves onto the next person and never comes back to the previous person.
- No double entry.
- Details are entered into the system once.
- Clear rules and responsibilities.
- Each step or series of steps has ownership.
- Easily accessible by employees.
- A tablet is far better than a series of word documents in drop-box.
I trust my arguments for SOP will resonant with you and the practices to create them will help you to build more value into your business.
Using Standard Operation Procedures is just one of the ways you can add value to your business. There are other ways to do this and to find out more go to “How do I maximise the value of a business” here on the website.
If you need help once you’ve established is it you or the business that you are selling, give me a call, I’d be only too pleased to talk you through the next steps and help you successfully sell your business.
More reading, help and advice from Assynt Corporate Finance
Below you'll find links to other articles that offer help and advice about selling your business, what to look for, considerations and recommendations.
If you would like further help, contact us, we'd be only to happy to discuss your sale and can help if we can.