Operations – The Fourth Variable in your Selling Equation
By Brian Goodhart
The essence of the Operational component of your selling equation is the fundamental question of whether the owner’s departure upon sale would cause a material disruption in the performance of the business. In a perfect world, a business owner would be able to leave at their convenience or the buyer’s and the business would continue operating as usual. However, this is almost never the case. Most private businesses in the United States have an owner that is key to the business in a number of ways including but certainly not limited to:
- Key Relationships – business owners often spend a lifetime developing relationships and even towards the end of their career may be the key contact for major clients, suppliers, attorneys, bankers, etc.
- Strategic Visionary – many business owner set the vision and strategic direction for the business. They define where the business is going and perhaps even how it will get there.
- Capital Allocator – business owners often are the final or perhaps only decision-maker regarding how capital will be utilized. Whether this is to grow and expand the business or to return money to shareholders, capital allocation decisions often flow through one person.
- Marketing Chief – most business owners are their own best marketing person. They are visible in the community, they may be featured in local television, radio or print ads, they may simply be the “face” of the business.
- Head of Human Resources – business owners are often quite selective about hiring and payroll decisions. As such they take a deep interest in this area of the business and are often directly involved.
This is just a small list of the many possible tasks that business owners are doing day in and day out. And it doesn’t even touch the actual work with clients or customers that many business owners are still doing every day. But from this list you can see how transitioning owners would be problematic. There would be an immense gap in skills, relationships and knowledge upon their departure.
So what is a business owner to do? How can she or he exit successfully without causing a serious disruption that could jeopardize the success of the combined firms post-close? The simple, but not easy answer is – Intentionally.
What I mean by intentionally is to methodically sit down and spend time detailing your current roles and responsibilities. Acknowledge the areas where you’re important and those where your team is capable of carrying on without you. Create a “Current” list of the things you handle and a “Future” list based off of your Involvement answers. And then map your way from one to the other by finding individuals that can handle the task (with the proper training) or identify those gaps that you would anticipate a buyer fulfilling. Once you have this Operational map completed, you can see on a single piece of paper what task migration you should be handling as you enter the sales process.
Brian Goodhart is Capstone’s Director of M&A Advisory Services. If you would like to speak with him about the process of selling a business, please email bgoodhart@capstonestrategic.com
