As some of you may know, my company, Sand Dollar Cleaners, recently celebrated its 30th anniversary. I must admit we had a great time, and our clients seemed to appreciate the consistency and
"As some of you may know, my company, Sand Dollar Cleaners, recently celebrated its 30th anniversary."
longevity of our little enterprise. Now that the dust has settled from
our big celebration, it is time to move forward into our next chapter,
which is how do I position my company so it will be a prime acqui-
sition for someone in the next few years.
I must admit, this is a significant change of attitude for me. I havealways operated my firm, incorrectly of course, as if I would always be around to lead and manage my team into perpetuity. RecentlyI have come to realize perpetuity will most likely be three to fiveyears from now.
So, coming to this realization, I began to take a hard look at our
operations, our management structure, financial health, and our
position in the local market. And since this is something I have
never really looked at from this perspective, I decided to do some
homework and try to understand what are the important factors that
impact the marketability of one’s business and increases its value to
potential buyers.
In my mind I realized that even though our profits had improved
significantly over the past years, I felt we still needed to create more
revenue and in turn, our bottom-line profit needed to increase. What
I failed to realize was how important the nature or source of revenue
impacted investor attitudes.
I also found there were numerous other issues I need to address
in the forthcoming months.
To get things started, I felt I needed some guidance. A mentor
or team to help guide me through the appropriate steps to not only
improve the overall health of my dry-cleaning business but hold me
accountable to complete those steps that would help me achieve our
eventual goal of maximizing the value of my business when the time
to sell does come. I contacted the Small Business Development Center
in my area and was connected to a counselor who has the expertise
to lead me through this process.
During our initial meetings my SBDC mentor identified some ma-
jor points he said need to be in place to make any business attractive
to potential buyers:
First and foremost, remember, a buyer wants a business, not a
job. Because of this fact, it is imperative that your business must not
be dependent upon the owner. This alone is one of the major value
drivers impacting the value of any business.
To achieve this goal, he recommended our major processes, proce-
dures, standards, and policies be clearly and properly communicated
and documented. He also stated that many of the responsibilities I
currently perform need to be delegated to others, and I needed to
either develop or hire staff that can eventually assume most of the
managerial tasks I currently perform. He also suggested that my staff
begin to develop and cultivate many of the customer relationships I
currently manage to ensure continuity after a new owner takes over.
(I have some work to do.)
I was told to assume a potential buyer will more than likely ask
these questions::
•
Who opens and closes?
•
Who handles key customers?
•
Who manages employees?
•
Who maintains equipment?
The less the answer is "the owner," the more valuable the business
becomes.
Next, he asked if my financial records were in good order. Quite
frankly, this is the one area I feel pretty comfortable about. We post
our ledgers daily, review a number of key performance indicators at
least once a month, and we absolutely keep personal and business
expenses separate.
After reviewing our financials, the counselor seemed fairly
satisfied with the steadiness of our revenue stream but asked if we
had arrangements that led to recurring income, such as subscription
programs or any long-term service arrangements. He also wanted to make sure we were not overly dependent upon a limited number of clients that would adversely impact us if we no longer maintained
those relationships.
These conversations led to an overall evaluation of our internal
systems for generating sales, hiring and training staff, our customer
service strengths and weaknesses, and the effectiveness of our mar-
keting efforts. His evaluations revealed that although there were
several things we appeared to be doing well, our digital platforms
were a big weakness for us. As a result, he put us in touch with a
digital marketing specialist who is guiding us as we are making some
fundamental improvements to our website and revamping our process
for obtaining and responding to client reviews. We are working to
increase our social media presence while also enhancing our Google
profile. All of this work will be in addition to existing marketing
efforts via medium such as email, direct mail and text messages.
Next on the list, we were quizzed about any outstanding legal
issues that needed to be resolved. Because uncertainty leads to ques-
tions about the business, any unresolved issues cause potential buyers
to discount offers. Licenses and permits required need to be filed
and posted, any contracts should be kept current, any legal disputes
should be resolved, and if applicable, any trademarks, fictitious name
filings or patents, should be up to date.
And sometimes appearances can go a long way in impressing a
potential buyer. Keeping equipment in good, clean working order can
go a long way with influencing a suitor. Even if equipment is older,
maintaining it properly, keeping it clean, and free of leaks can help
to increase the value of one’s enterprise. A buyer who is investing
significant capital to acquire a business does not want to spend large
sums of cash to immediately replace or repair equipment.
We decided we should contact a business broker to assess the cur-
rent value of my business. This should give us a benchmark and use
the broker’s suggestions for increasing the value of our dry cleaning
business when the time comes to actually list it for sale.
My counselor was pleased that we are thinking ahead and not
waiting until the last minute to try to get our house in order before
selling our company. He said most small businesses should begin
working on their exit strategies from 3-5 years before they antici-
pate selling. We have set up the following timeline for getting our
business on the market.
Year 1: Make the business transferable
We will do this by finding and training a key staff member to
handle day-to-day operations. We will document routes, customer
service, and equipment procedures. We will make sure all financial
and tax records are up to date and complete and ensure all regulatory
records are completed.
Year 2: Strengthen revenues
Continue to expand and grow our pickup and delivery route cli-
ent base. Retain and grow our commercial account customer roster
and initiate written agreements where possible. Continue to focus
on client retention.
Year 3: Prepare for market
Approximately one year before we anticipate listing our company
for sale, we will obtain a formal valuation of the business. We will
assemble a formal seller’s package with financial statements, lease
details, client information, and commercial account summaries.
And finally, we will choose a broker who is experienced selling
dry cleaning businesses or a similar type of service business. And
then it is go time!
Before wrapping up this column, I really need to give huge
kudos to our local SBDC office. They have been so instrumental in
helping me put together a long-term exit strategy – and every bit of
this help has come at absolutely zero cost. I must recommend this
resource to all of you who operate a small company, regardless of
where you are in the development of your business.
So, with all of this work to do, I am still going to bask in the
celebration of surviving in this business for the last three decades.
But it is time to realize the clock ticks on. I know I have a lot of
work to do to make the exit I wish to accomplish when that time
finally does arrive. And with our plans firmly in place, we look Forward to the future.
Key Takeaways
- Why This Shift Is Happening matters for readers making practical decisions.
- What Comes Next matters for readers making practical decisions.
- As some of you may know, my company, Sand Dollar Clean-
- ers, recently celebrated its 30th anniversary.
