When it’s time to sell a house, the homeowner scurries to fix it up in pristine condition to maximize the sale, and then wonders why he didn’t do this years ago when he could have enjoyed it. Selling a business is similar, so why not put your company in salable condition and enjoy the greater profits and reduced hassles?
Sadly, most business owners never put their companies in salable condition when attempting to sell the enterprise. The owners learn the ugly truth that their life’s work is a fixer upper, of little value on the open market. Too late, an owner realizes that he does not own a company, but own a job; no one wants his lousy job.
Preparing a business for sale is not a simple process. It’s more involved than getting a house ready for the market. It takes more than new carpet, a little paint, and a few repairs.
Work Yourself Out of a Job
The goal is to eliminate yourself. If the business can function without you, it might be attractive to someone else. Can your business run without you? Could you take a month off and return to a fully functioning company?
Once the business can run on its own, you will find yourself in the enviable position where you can take time off. You can take a cruise. You can live on a boat… and you’re still making money from your business.
Create Operational Procedures
Every company has systems and procedures, but not many contractors document them. The processes exist in the mind of the owner. Compounding things, every company does things different from every other company. The result is no one from the outside can move in and take over.
Start documenting procedures, step-by-step. What are the exact steps for a tune-up? How does a technician approach a customer’s home? Where does he park? How does he appear? What does he carry with him? What does he say when the customer opens the door? If there’s a lead conversion opportunity, how does he turn over the lead? How is the lead handled once the technician turns it over?
Every facet of the company’s operations should be covered by a written procedure. This includes everything from issuing a purchase order to buying a radio spot. If it sounds exhausting, it is.
I know one contractor who spent the last 40 years creating procedures for his company and he’s still not finished. He never will. You never will. However, with a little effort every week, in a couple of years you can build a procedures book that covers most of your business, and that’s not bad.
As you grow, you will need managers. Hire people you can trust and empower them to do their jobs, even if they don’t do things exactly the way you do. Give authority commensurate with their responsibility. If you cannot delegate, you will never grow a company that can run without you.
Put Controls in Place
Fraud and insider theft are just two of the fears that restrain owners from delegating. There’s more than a little justification in their concern. According to the Association of Certified Fraud Examiners, one out of every three business bankruptcy is caused by employee theft.
Some controls are simple. Subscribe to a fraud hotline where employees or customers can report problems anonymously and post the number very visibly. Personally pick up the mail at a post office box. If anyone else has access to the post office box, arrange for bank statements and IRS documents delivered to your home. Do not allow the person who prepares checks to sign checks. Create a P.O. system. In short, create checks and balances that may not eliminate fraud and theft, but make it far less likely.
Run It Like a Corporation, Not a Piggy Bank
Many contractors treat their companies like their personal piggy banks. Stop it. Give yourself a raise and stop buying items for personal use through your company. Run your business like a public corporation.
Create annual business plans and update them through the year. The business plan does not need to be a complex MBA exercise. Look at how you did last year, what worked, and what didn’t work. Plan for your sales, spending, and capital purchases. Make sure you have enough customers to support your plan (or the means to acquire them). Put together a marketing calendar based on the number of calls and leads required to hit your other numbers.
Generate Transparent Financials
You need an income statement, balance sheet, and cash flow statement every month based on accrual accounting that addresses hidden gotchas, such as warranty liability, unearned income from pre-paid service agreements, and so on.
Manage to Metrics
When you get in your car, you can visually check a number of key indicators for fuel level, oil pressure, engine temperature, battery voltage or amperage. Some cars will also alert you to low tire pressure, vehicle emissions problems, fuel economy, and more. As long as the indicators are in the normal range, you feel comfortable driving the vehicle. When an indicator is out of range, you know something is wrong so you take it to the shop.
A handful of key metrics for your business can accomplish the same function as your car’s instrument panel. As long as the metrics are in the right ranges, your business is in good shape. When something is out of the normal range (e.g., service labor as a percent of sales), it’s time to do some troubleshooting and take corrective action.
Is there more to it than this? Of course. However, this is a great start. Put processes, a management team, controls, a professional approach, planning, financials, and metrics in place and you’ll go a long way towards eliminating your job, so you can make money from the beach.
Matt Michel is the CEO of Service Nation Inc., which operate the Service Roundtable, Retail Contractor Coalition, and Service Nation Alliance. Call 877.262.3341 to learn how the Service Nation Alliance can help you work your way out of a job.