Whether you plan to exit your business tomorrow or in twenty years, implementing business systems is vital to any exit planning.
Adi Klevit discusses this in a recent interview with Todd Taskey, the M&A Advisor at Potomac Business Capital. During their discussion, Todd shares examples of previous mergers and acquisitions he has been part of and what business owners did to increase EBITDA (earnings before interest, taxes, depreciation, and amortization) and make potential buyers more comfortable with the sale.
One thing that made a substantial difference in a business owner’s ability to sell was whether or not the business was organized and had documented systems supporting an easy ownership transition. Though they discussed this in terms of acquisitions and EBITDA, these systems are also vital to put in place before a company is passed down to another family member or a new partner is brought on.
This article will share how business systems can increase your company value and support a smooth exit.
How Well-Documented Business Systems Can Increase Your Value When It’s Time to Sell
Here are three ways that well-documented business systems can improve your company’s work in the short term – as you grow, and in the long term – when it’s time for an exit.
1. Building confidence through transparency
Early in the interview, Todd shares that businesses must be organized, have their accounting readily accessible, keep up on corporate documentation, and be transparent with potential buyers. Having all accounting systems in place early on makes this transition simple, as it is then well-documented how the accounting is occurring, what information is recorded, and where all relevant records can be found.
This transparency reassures potential buyers by offering a clear understanding of the company’s financial health, operational efficiency, and potential growth avenues.
Buyers are more inclined to invest in businesses with clearly defined processes and systems, as these reduce the uncertainty and risks associated with post-acquisition integration.
2. Systems create operational efficiency and scalability
Efficient business systems make day-to-day operations smoother and position the company for future scalability. Buyers are drawn to businesses that exhibit a capacity for growth and adaptation to changing market dynamics. Well-documented systems allow for streamlined operations; minimizing bottlenecks and enhancing productivity.
Scalability is particularly crucial for buyers looking to expand or integrate the acquired business into their operations seamlessly. The ability to scale efficiently is a tangible asset that significantly increases the business’s perceived value.
3. Supporting risk mitigation and compliance
Another aspect that significantly impacts buyer confidence is the ability of a business to mitigate risks and comply with industry regulations. Documenting and implementing business processes and procedures helps one manage and monitor risks, ensuring the business is resilient to potential challenges.
For instance, a well-implemented data management system can enhance cybersecurity measures, protecting sensitive information and reducing the risk of data breaches. Additionally, compliance features embedded in business systems help ensure that the company adheres to industry regulations and standards.
This translates into a lower risk profile for buyers, making the acquisition more attractive and less prone to unforeseen complications. For existing business owners, systems that support risk mitigation and compliance translate to fewer losses and sticky compliance issues and may even improve the company’s public profile among customers.
It may be that you have not looked at your business from the standpoint of exiting. However, even if you hope to run your company for the rest of your life, increasing the value of your business can only benefit you. Look at your company from the above three perspectives and determine whether it could benefit from implementing well-documented business systems. If so, book your free initial consultation here.