What Buyers Actually Value: Business Operations & Exit Planning

Speaker A: Operational value is probably not the first thing you think of when someone asks, how much is my business worth? You probably think about revenue, profit, your client list, how long you've been in your business and building your business. And you maybe even think about similar businesses and what they have sold for. But here's the part I want you to think about today. What happens if you take yourself out of the business? Can someone step in? Do they understand things? Can your teams make decisions? Are processes documented? Can you actually see what's happening in the business through reporting through your KPIs? Because those things might not feel very exciting when running your business every day, but those are incredibly important when it comes to somebody wanting to consider buying your business. And that's what we're talking about today. What buyers actually value when they look behind the revenue, and, uh, how your business is actually operating.

Speaker B: Welcome to the Exit Ready Business, the podcast for Canadian founders who want to build a stronger, more valuable business today

Speaker A: so you have real options tomorrow.

Speaker B: I'm Amy Sussex, a uh, leading business

Speaker A: exit strategist, and each week we're talking

Speaker B: about what it really takes to build

Speaker A: a business that can operate, grow, and

Speaker B: eventually transfer or sell without everything depending on you. We'll dig into business exit strategy, exit planning, business systems, leadership succession, business valuation, and the operational changes that can increase business value long before you're ready to leave. Exit readiness doesn't begin when you decide

Speaker A: to sell or when you call a broker.

Speaker B: So whether an exit is close or it's just someday a thought in the back of your mind, let's build a business that gives you choices. Let's get into it.

Speaker A: Welcome back to the Exit Ready Business podcast. Thanks for tuning in. And today we're talking about what buyers actually value when it comes to business operations and exit planning. I want to approach this a little differently than the traditional conversation around what's my business worth? Because I think that's actually the wrong place for us to be starting. If you're a founder, especially if you've built an amazing, successful service based business, you probably already know that revenue matters, profitability matters, and your clients matter. But those numbers aren't telling the whole story. And giving the full picture, A, uh, business can be successful today, but still be incredibly difficult for someone else to own and operate tomorrow. And that's the real distinction I want to talk about today. If you're thinking about selling in five years from now, three years from now, or even if you're saying, I don't ever want to sell, this work still matters. It's still important because your goal isn't necessarily to be preparing for the transaction tomorrow. It's to build a business today that gives you options to decide what you'd like to do for the future and for that next tomorrow. One of the best ways to do that is to start looking at your operations through the eyes of someone who doesn't already know your business. So the first thing is founder dependency. This is probably one of the biggest things I see that a lot of founders underestimate, and I can certainly understand why you've built the business. So it's completely natural for you to be involved in everything. You know the clients, you know the history, you know why and when certain decisions were made. You know what to do when something goes wrong. Your team comes to you because you've always been that person, that, uh, answer person, the putting of the fires person. And that's probably what's really helped to build your business. But what helped you build your business isn't necessarily what will help someone else to own it. So ask yourself what decisions keep moving, what clients need to feel more comfortable. Would your team know what to do if you were gone? Would revenue still continue to come in or would there be a revenue disruption? Would everyone eventually be waiting for you to come back? The issue is the business has become so heavily dependent on you, a, uh, future buyer isn't inheriting that dependency and the risk that comes with it. I had a conversation with somebody who bought a business, and after they had bought the business, everything looked great on paper. But as soon as they stepped into the business as that owner, they didn't realize how founder dependent it was and that they've actually created a job for themselves, which isn't what that new buyer is wanting to do. You really want to make your business so it's more transferable. The second thing is documented systems and SOPs create transferability. Documentation is often treated as admin housekeeping. Yeah, we should probably do that. Yeah, we should probably document that. Here's the issue, though. Six months later, nobody's done that. So you're scratching your head trying to remember what it was you did, how you did it, how to get into that program, who takes ownership of it. And really, when you look at that through a values lens, documentation serves a much bigger purpose. It transfers the knowledge. If the only person who knows how to get something done is you, and that knowledge belongs to the founder. It's not a process, it's not documented. No one else can take that over. It can't be passed on to a team member. If the process is documented, the business starts to own that knowledge. So I want you to think of it as something as simple as like, onboarding a client. Is that something that a team member could start to be doing or is it something that's like, oh, well, we usually do it this way and then we send it this way and then depending on who the client is or depending on what we're doing, we kind of just figure out the rest. That's not really the process and that's not really helpful knowledge for a buyer because they're walking into a business without years of context. So the question isn't, do you have SOPs because somebody told you to have them? The question should be, can someone else understand how this business actually operates without you needing to explain every single thing in every little detail?

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Speaker A: Number three is delegation and leadership. Show the business can operate without you. There's a big difference between having employees and having a business that can actually operate without you. The founder. You can have 10 people on your team, but you can still be that bottleneck because every meaningful decision still gets filtered through you. So everyone could technically have a job, but if they are still coming to you for approval, direction, problem solving skills, client decisions and priorities, you still have a founder dependency problem and the business is still very dependent on you. So start to look at your team differently. How can they make decisions without you? Who can start leading meetings? Who can you start to recommend to? Start to take on a more leadership role. Within your business. And developing that kind of leadership is a, ah, great people strategy as well too because it demonstrates that the business can function under leadership other than the founder. And that matters when you're thinking about transferring the business and going uh, to a new buyer and a new owner. Again, buyers aren't just looking at whether you have a team, they're looking at whether the team can actually run and operate the business as well. And number four is meaningful reporting and data reducing uncertainty. Um, so this is another one that a lot of people feel like can be boring, similar to the sops and processes. But again it's really important for the day to day of the business because you want to understand what they're actually buying as that buyer. So I want you to imagine you're the one that's buying a business. You're going to want visibility on what's happening. You're going to want to know what's happening and why it happens. You're going to want, want to understand why the revenue comes in, what's at risk of not working, what trends are happening, what's happening in the world. Now like that's again such a great point because businesses can shift and markets can shift based on what's happening within the world. So you really want to know what needs your attention because those are things and documents that need to be noted, not only for you, but as for a future buyer as well. And if somebody comes in and says, hey, I want to see this report and you don't have a report for that, how can you understand what's happening and how can you make informed decisions if you aren't documenting any everything or anything in your business? You might have the years of experience in the context and you may have really good gut instinct around your business, but buyers don't have that same gut instinct because they're coming in not necessarily understanding the way the world uh, of your business is working. They need the information, they need to see their reports. They want to see visibility on the team, visibility on the business. And visibility helps to reduce uncertainty. And this is why as founders, it's really important to start having a reporting system and tracking your KPIs and your goals so you can continue to grow your business and have it more professional. So then that way when a buyer comes in, you, you've got all that laid out and you can make meaningful decisions because clarity around that creates value. And if you don't understand what's happening in your business, it's very difficult to make those strategic decisions. It's even harder for someone else to have the confidence to be able to take over that ownership. Number five is operational maturity is pre exit planning. So operational uh, maturity is part of the exit planning process. And really you shouldn't wait until you're ready to sell to start doing it. I really think that if you're having a potential sale, you're thinking about selling in five years from now, three years from now. Really this work should be starting to happen now because you have the time. You can start to reduce the founder dependency now, you can start to document your systems, you can start to develop leaders within your team, you can start to build more meaningful reporting KPIs and tracking within your business and you can start to fix those messes. So then that way when the business has the chance to turn things around and to evolve further and you have this amazing opportunity to do that, so it will increase the business valuation. Because your operations are solid and documented, you don't want to arrive at a point when you're ready to sell and suddenly realize you have two years or four years of operational cleanup to do because the business isn't actually ready for it. And again, we want to be proactive instead of reactive to things because sometimes people have to sell when they're not ready to. But there could be life circumstances that have been happening. So if you're already in a position and you've been doing the operational work behind the scenes in your business, if for some reason you ever do have to sell, you've got all that ready to go and it increases the value and you're not taking a cut in your business because it wasn't operationally ready. The value of a business isn't suddenly created when you decide to put it on the market. It's built through the decisions that you're making long before that. So as founders where a lot of times people are asking, how much is my business worth? But again, it's really asking how much is this business actually worth that exists outside of me? If your business is dependent on your knowledge, your relationships, your decisions, your ability to personally keep everything moving, again, you've built an amazing business, but you've also built one that's not transferable. So if you're finding that it's founder dependent, start working on that, starting to reduce you. If you found that you have processes but they're really messy, or you haven't updated your processes in two years, start to work through those. If everything's living in your head, start getting that knowledge out of your head. I had a client that just recently hired a new person and I was like, you need to get that all out of your head. Because if you leave or you go off or something happens, we need to know what's happening day to day in your business. So that way we can assign it to the proper people that need to take on those tasks. And it's again, not so founder dependent on her. If your team is waiting for a decision, start building trust and giving decisions making capabilities to your team. You're building your business for the future in mind. It might be a sale, it could be succession, it could be maybe you stepping down as a CEO, but really you're giving yourself options for the future. So the next time you ask yourself what is my business worth? I want you to look beyond that revenue number. Look at the business underneath all of that. The work that creates the value in the business isn't always the most exciting work. You've built the business now is the opportunity to build the infrastructure that allows the business to become something more than the person who just built it. Better operations just make a business easier to run. They create value and that's the work that can give you more freedom today and more options for tomorrow. At the end of the day, that's what we're building towards a business worth buying. Your business should work with you, not because of you. I'll see you next time.

Speaker B: Thanks for listening to the Exit Ready Business. If today's episode got you thinking about how dependent your business is on you, or what it might take to make it more transparent, transferable, head to the show notes and take my is your business worth buying? Quiz. If you found today's episode valuable, follow or subscribe to the Exit Ready Business and share it with another founder who needs to hear it. The goal is to build a business that gives you choices. Thanks for being here and I'll see you next time.

Speaker A: M this podcast is produced, mixed and edited by Cardinal Studio. For more information about how to start your own podcast, Please please visit www.cardinalstudio.co or email mike@mikeardnostudio.co. you can also find the details in the show notes.