Always Be Ready To Sell Your Business: Part 1 of 5
Place yourself in the shoes of a prospective investor. They would want to see a well oiled, automated, documented, efficient, and streamlined machine when they look under the hood. You should too.
Picture your company being thrust into a state of unexpected growth. Are you ready for it? Have you taken the steps that you need to in order to be scalable to a point that you might not be accustomed to?
Are you ready to sell your business?
Are your operations as streamlined and efficient as possible or do you incur costs and productivity loss from manual process and confusion on who should be doing what and trying to find where things are? These questions can be proactively addressed by asking yourself a singular question; ‘Am I ready to sell my company?’ Place yourself in the shoes of a prospective buyer of a business. They would want to see a well oiled, automated, documented, efficient, and streamlined machine when they look under the hood.
I like to draw a parallel to the ownership of a car or a home. In what order do you keep such assets for the duration of time that you ‘own’ them? Have you ever found yourself washing or making repairs to these things in preparation to sell them, only finding yourself stepping back to look at the results of your work and thinking, “This is the best this has ever looked; I wish I would have kept it in this condition when I was using it,”? Or maybe you have experienced the pressure of a realtor calling and requesting to show your home one day when it is a wreck? Or do you care for your things in such a way in which you would confidently respond, “Sure, go right in; the place looks great!”
You should always be ready to sell your assets, and in doing so, enjoy them in their best condition while you have them (or they have you).
Do Your Chores
Your business is an asset, so the same mantra applies, whether you have exit strategies or you plan to operate your business for a long period of time. As an entrepreneur, it is important for you to challenge yourself and your team to tend to your ‘home’ and ensuring it is always in uncluttered and efficient. Instead of your bed being made and dishes and laundry always being done, businesses have their own set of ‘chores’ that need to be tended to consistently and thoroughly.
Based on my experiences in repositioning and restructuring businesses, these chores are often ignored, resulting in clutter, confusion, and inefficient processes. Such circumstances create exposure to scalability issues during growth spurts and even worse, it creates a culture where you are telling your team to not sweat the small stuff. As an owner or a manager, you must challenge yourself to identify areas that can be improved. Human nature tells us to procrastinate, but it is your job to identify the things that no one else wants to do, and get them done. In an effort to help out, I have created a 5 Part Blog Series to address the most common areas that are often ignored and that need to be addressed, as well as some tips on how to go about doing it. I hope that you find them helpful!
Part#1 – Legalese
Proper documentation of your corporate formation, operating agreements, partner agreements, investor agreements, loans, vendor agreements, employee agreements, incentive agreements and all other documentation of obligations or relationships is crucial to have in place. Without them you are exposing yourself to unclear expectations, and nothing can be more dangerous than that, especially when your company experiences growth and success. Such ‘sins of the past’ can have costly and detrimental effects in the future, so address them now. Here are some tips:
Tip #1: When in the early stages of forming a relationship with strategic partners, keep it simple and save some money by drafting one page Memorandum of Understanding (MOU) that simply bullet point out the points of understanding between the parties involved. You can always move to a more comprehensive agreement as the relationship matures.
Tip #2: When it comes to drafting legal documents like privacy policies, contractor agreements, terms of service, and so on… break the old school habit of stiff agreements that contain pointless terms like ‘hereto forth’ and ‘notwithstanding the aforementioned’. Here is a great blog article series that gives some excellent guidance on how to transform your agreements into easy to read and easy to understand legal documents.
Having a lawyers blessing on them never hurts, but make a stand and share this article with them to help illustrate what you are trying to accomplish. If they tell you that they can’t or won’t write like a real person… go get another lawyer.
Tip #3: Make a list of all contractors, vendors, and employees and make sure that your relationships are documented properly. For employees, you need to have employment agreements. For vendors and contractors, you need some sort of documentation, whether it is an email, a MOU, or a comprehensive agreement.
Tip #4:Maintain consistency in all of your agreements. If you call a service one thing in one document and another thing in another document, then you are only setting yourself up for confusion. Best case scenario is you lose customers due to them being confused about your fine print (which is bad) and worst case scenario is you find yourself in a legal battle without firm ground to stand on (which is really bad). Take the time to make sure that all of your marketing materials are equally as consistent.
It is hard to carve out the time to address such house cleaning matters, but being well documented in a consistent and understandable way can only help you have a more solid foundation for your company to stand on.
Stay tuned next week for Part #2: Organizing Your Files!