Certain decisions can come back to haunt you when you sell your small business.
It's the rare small business owner who takes the helm of a company with an exit strategy as first priority.
No, instead, for most businesses, it's full speed ahead with launch, building and growth. The hope that all your hard work – the late nights, the early mornings, making the tough calls and taking chances – will pay off financially is there, but it seems so distant that it’s easy to ignore for years.
Eventually, the day comes to leave the helm. Your company's value and sales price come down to EBITDA (earnings before interest, taxes, depreciation and amortization). Whether you'll sell to an unrelated party or transition to the next generation of family ownership, the ghosts of these decisions past, marketing and otherwise, can come back to haunt you.
Naming your business
It's your business, and it is a source of pride for it to carry your name. However, if your long-term game is to sell it, consider a less-personal and more widely appealing name.
Philip Jones will be less inclined to buy John William's Engineering than he would Windward Engineering. Tying a business to a person's name is difficult to unwind after a business sale.
Putting a face to the name
Similar to tying your name with the business, putting yourself front and center of your brand and advertising can make it difficult for a new owner to step in and take control. Being present in your company helps create and sustain a culture that attracts customers, employees, investors and buyers, which adds value. However, being the face of it, especially if you're active in the community, can prove to be too big of shoes for future owners to fill who will most likely prefer to put their stamp on it versus being in your shadow, literally.
If your name and/or face is already associated with your business, expect a buyer to submit a significantly discounted offer, unless the cost of rebranding already is accounted for in the sales price. How significant depends on the extent of the rebranding. For example, Steve Jobs was the face of Apple; however, his name and face were not used on any permanent advertising and marketing materials or equipment.
Going back to our example, John William's Engineering has John's name and/or face on company work trucks, heavy equipment, construction signage, building signage, marketing collateral, etc., which will require a significant outlay from the new owner to update.
Protecting intellectual property
Anything proprietary, be it a product, a service or a brand (name, logo and tagline) that is well established or is considered breakthrough, adds value to your company's sale price. There is no statute of limitations on trademarks, and protecting your intellectual property gives potential buyers confidence that their investment is protected.
Intellectual property extends to URLs and social media accounts. Keep track of your URL's expiration date and renew it well ahead of time to avoid someone else buying it during a lapse. Also, establish all social media under a company account, not an employee's name. Whoever creates the social media account is the "owner," which leaves you without control over it should that employee leave.
Owning customer and prospect lists
Have you set up your guidelines for managing customer and prospect lists? Do you have access to, control and ownership of them? Case in point, imagine a star salesperson who has been with your company for years and keeps their customer and prospect lists on a home computer or mobile phone. When he or she leaves, that valuable data leaves, too. A buyer will want to verify that these lists are protected and stay with the business.
Managing your reputation
Taj Mahal, one of the seven wonders of the world, has over 160,000 reviews and a 4.6-star rating. 4.6! The local coffee house down the street has a 5-star rating. As of 2016, the Pew Research Center found that 82% of Americans report reading online reviews before making a purchase.
Online reviews have been under fire for their authenticity, yet they still influence buying decisions. You can’t please everyone, but failing to manage your online reputation will affect your sales and reputation now and the price of your business later.
Gaining new customers is a rush. So much so that the budget allocated to chasing instead of retaining them can creep up quickly. In most every business scenario, it is less expensive to keep an existing customer than gain one. A savvy buyer will ask to see your customer acquisition cost to determine not only who's coming in the front door but also who is walking out the back door.
If you have a big customer who doubles or triples your revenue with one sale, you risk lowering your company's sale price. A buyer wants revenue stability, and a disproportionate amount of income flowing from one customer doesn't provide it given revenue dries up if that business is taken elsewhere.
Developing a marketing strategy
Having a marketing strategy shows the roadmap that leads your company to new clients, along with how you're retaining existing ones. A buyer will want to examine your company's marketing plan and gauge its effectiveness. Choosing not to actively market your business or marketing by the seat of your pants doesn't instill confidence in a buyer, even if it's worked for you for years.
Despite the fact that marketing affects a company's brand and its value, what you won't see in most buy-sell agreements is a line item for marketing. But like the early hope that you're building a company worth selling someday, the consequences of your business and marketing strategy are there and they show in the sales price, just as clearly as EBITDA.
A dynamic marketing plan, protected assets, diverse revenue, long-term customers and a well-thought out brand add value to your business.