Act Like You’re Selling Your Business (Even if you’re not) May 31, 2018 We’ve had the pleasure of working with dozens of business owners in construction and real estate. A topic that always comes up in our planning and strategy sessions is their goal for the future of the business. Some of those owners have had a specific exit plan in place, with ideas on who they’re going to sell to their business to, how much they’re going to be able to get, and when they want it to happen. Some plan to pass their business on to a family member; some plan to sell it to their employees; and others know that they’ll eventually sell to a public or private buyer that wants to acquire them for strategic business reasons. But most owners will tell us that they feel it’s too early, that they’re still in the ‘building’ phase of their business. Whether they’ve been in the game for 3 years, or 30, they still feel like there is much to be done. Creating a plan for exiting the business seems premature, something they’ll start to think about once they solve the 30 challenges currently on their plate. If they can just hit this revenue goal, or employee count, they say – then they’ll be ready to talk about positioning the company for life without the owner. We get it – you know the problems in your business better than any, and feel like it’s not valuable enough. But we’re also here to tell you – if you wait until you’re ‘ready’ – it’s never going to happen. It’s a moving target that changes each year. As soon as you hit one goal, another challenge pops up. As soon as you hire the right team – another growth opportunity steals your focus. So here’s our advice: Treat your business like you’re going to sell it in 12 months. The reason is simple: even if you never sell the business, the same things that make it an attractive acquisition and will increase your distributions to shareholders, minimize risk, and create a stable, repeatable business model. Here are the areas that we would encourage you to focus on to start: Reduce Reliance on the You (the Owner) When a potential acquirer is doing their due diligence, one of the primary questions they’ll ask is this: how much of the value of the business is tied up in the owner, and their personality/skill set? If they retired/died/moved to Alaska, how much would the business be worth? Focus on Cash Flow, then Profitability One of the reasons that a business goes completely under is that it runs out of cash. Profitability, growth, market share, technology – these are all key areas that are vital, but if you don’t have cash to pay your employees, cover your expenses – you can’t deliver to customers. • Establish close relationships with bankers you can trust • Build up cash reserves • Review your compensation models for employees • Lower your tax liability/look for overpayments • Review billing/credit terms with vendors • Review your overhead • Prepare accurate forecasting and projections There are many more things to include here, but having a clear financial picture will help you sleep better at night and help you maintain focus when bumps in the road do happen. If the business can’t function without you (or any other key player), that’s a problem. In 2018, build out a draft org chart by listing each role in the company- not the people, but the role. Write a job description for that role. Then write the name of the person responsible for doing that job. If the owners of the company are in multiple boxes, start by identifying 2-3 roles where you’ll replace yourself this year by either hiring, or putting that responsibility squarely on the shoulders of an existing team members. Establish Clear Systems and Processes This is one area where owners typically struggle if they’re trying to go it alone. Most owners are honest, hard-working, smart, energetic people that can lead an organization and build great customer relationships. However – this also means that they many times figure it out as they go, generally with good outcomes, but without a repeatable process that they follow. For a business to be successful, there has to be a documented, repeatable process that almost anyone could follow if need be. Assume that the 4 most important people to the organization suddenly take ill, and the next level of management has to step in. Is there a playbook for how you do business? How you serve customers? How you create new contracts? How you close the books each month? This may sound boring and mundane, but without having defined a specific way your company does things – each time someone leaves, they’ll have to figure it out from scratch, or wing it – never a good option either way. Create a Healthy Business Development Plan In many construction companies, the owner is the primary rainmaker. The one with all the relationships. The one who brings in new projects, develops new relationships. We’re in no way suggesting you abandon that completely. However – you need a backup. Make 2018 the year that you identify the activities you do that have generated business and new opportunities, clearly defined who is the target prospect for your business, and identified someone else in the organization that has some responsibility for business development. *One note – don’t confuse selling new business to existing customers as checking the box. While you’ll always sell more to existing customers based on doing good work, and establishing trust, there has to be a focus on net-new business. Even if you don’t hire a Business Development Manager right away, look to your existing team and establishing some goals, activities and procedures for connecting with new prospects. Find and Keep Smart People on Your Team This ties back in with our first point, Reducing Reliance on the Owner. However, it’s a bit more complex. To lead a stable, growing, profitable company, you need to establish a strong team, and you need to keep good, smart people from leaving. Turnover can impact client delivery, culture, and ultimately strangle revenue growth for the organization. Start with the leadership team. Do you have an established team that meets regularly? Do the employees know who is on that team? Does the team have clear goals and responsibilities? With that leadership team in place, you have to then focus on your remaining team. Employee engagement is a serious problem, costing US employers billions in lost revenue each year due to low productivity, theft, and other issues. With unemployment at 4.2%, and a predicted shortage of available workers in the trades and other areas, the companies that can attract the right talent, and keep it, will be the ones that win. *Side note – KatzAbosch has had numerous clients over the past year tell us that they missed their revenue goals not because of their pipeline, but because they didn’t have enough of the right people to put on the job, and complete it in the time that they had projected. In our opinion, this is the single biggest challenge facing construction companies in the next 3 years. Whether you’re a general contractor, architect, engineer, electrician, HVAC contractor, plumber – make 2018 the year you focus on building real value in your business, and reap the rewards in increased distributions, reduced anxiety, or by having a business that you could sell for a higher multiple whenever you are ready. If you would like to discuss how these changes affect your particular situation, and any planning moves you should consider in light of them, please contact your KatzAbosch representative; or contact us by clicking here. About KatzAbosch: Founded in 1969, KatzAbosch is one of the largest CPA and business consulting services in the Mid-Atlantic region. As an accounting firm, our mission is to provide the highest quality accounting, tax, financial and management consulting services to our regional clients. We understand the needs and challenges of our clients and we have made it our obligation to create, grow and protect asset value. KatzAbosch is consistently named a Best Accounting Firm to Work For in Accounting Today and has been named a Top 200 Accounting Firms in the Nation by Inside Public Accounting. Our firm is also ranked among the Top 15 Largest Accounting Firms in the Baltimore Area by the Baltimore Business Journal and a Top Workplace four times by The Baltimore Sun.