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Q: How do you get the best value out of your business when you’re ready to exit?
Q: How do you get the best value out of your business while you’re still running it?
A: Good News! We can use the same work to meet both outcomes!
Businesses are bought and sold based on the perception of future value.
Business owners are often experts in fields outside of business.
We developed Business BeyonDIY to help you cross that chasm.
Show Topics:
Buying a Business
Selling Your Business
Preparing Your Business for Sale
Practical | Actionable | Sustainable
Business owners and entrepreneurs are go-getters. We start things other people don't (sometimes too many things am I right?) and we push through hard times. That means that entrepreneurship involves a lot of DIY.
Some of the most important transactions we make are buying a business; preparing a business for sale and selling a business. We'll almost always want/need help to make these successful but there is still a lot we'll need to do ourselves.
Business BeyonDIY is a Livestream/podcast where we own our DIY nature but find that sweet spot where doing it yourself doesn't mean going it alone.
In this introductory episode, I'll let you know the format of the show, what to expect, and when I'll be live.
I'm looking forward to getting to know you and your business and sharing practical tips that will make your DIY more like DI-Us!
Stephen Krausse
How do we get the most out of our business while we're trying to sell it? And how do we get the most out of our business while we're running it? The good news is that we can achieve both of those goals with the same actions. Hi, business owners and entrepreneurs. Welcome to Business beyond DIY, where you get from here to what comes next. I'm your host, Stephen Krausse. E, I'm in business by education, trade and passion. And I want to help you increase the value of your entrepreneurial journey. The business beyond DIY live stream is a podcast about one thing, the present and future value of a business, the purchase or sale of that business, your business. So let's get started. Okay, so the first thing so last week, I did the the first introducing the show video. And I'm only sharing this because as business owners, you know, we do a lot of DIY business beyond DIY, we're doing it ourselves. I'm a small business owner myself, I do these shows myself. And so last week, I rolled through the entire live stream, and then went back to the YouTube channel, and it wasn't there. So I'm having this huge panic attack. No, luckily, I, I always do the I always record the the, the video on my local computer. So the video I had, you know, I still had it. But the live stream wasn't on the channel. And I didn't know what I had, maybe I was talking to nothing or whatever. Well, it turned out I actually had the streaming software set to broadcast on my on another channel that I do a scuba podcast and live stream on it. So the entire business live stream went to that channel. I'm sharing it because stuff happens. Okay, in business, things happen, and we have to learn to roll with it. Okay, you know, nothing's perfect. I found a way to fix you know, obviously, I'm fixing it this week. But that's just the the the things we do in business are just iterations, right? We just do the next better thing. So I want just wanted to share that you might find it funny. Stuff happens. Just, you know, it doesn't matter how many times you do it. I've been live streaming and podcasting for a long time now. And you still have stuff that goes wrong. That's okay. So let's get right up right into the concept of what is run at ready to exit. And why do I I talk about this, this is one of the things I think is the most important that business owners need to really get their hands on as early as possible as entrepreneurs, but then also, as early as possible, every time they start a business for every business that they're running. We need to learn how to run it. Like we're ready to exit like we're going to go into negotiations that afternoon with a qualified buyer, somebody who legitimately could come into our business and say, hey, I want to give you some money. You can do whatever comes next, you know, whether that's retirement, whether that's moving on to another venture, it doesn't matter. But we need to learn to run our business, like that person is going to walk in the door tomorrow or this afternoon. And so what does that really look like? Well, as business owners, we get caught up in the doing a lot of times, you know, we're the ones doing work in the business. Small businesses tend to not have a lot of employees that we can spread around the day to day activities on and and automatically give ourselves that 30,000 foot view so that we're not digging deep into the business every day. Well, the doing. And I want to be very clear that doing is important. It's critical. It's what customers pay for. And it pays bills, it pays salaries, it pays for everything that the business does, it pays for the impact that you want to have in the community and in the world. But doing D focuses value creation. And that's something that business owners need to get square about right away. We need to understand that when we are doing in our business, we are not creating long term value. And so so what you're doing is a job.
Not being an entrepreneur, not being a business owner. So that's the difference that I think people need to really understand. is doing D focus us. D focuses us from operating efficiency from business transferability. And from business valuation. And it isn't all about making money and driving a fancy car and retiring to a faraway tropical island. As a business owner, most of us want to have an impact on the world in a positive way. And yes, we want a livelihood for our families, it would be nice to to have some of those those amenities and nice results that you get from hard work, or that you can get from hard work. But it isn't about that. So I don't want to sit, I don't want to present the idea that this is about sucking the soul out of your business for money. That's not what I'm talking about at all, I'm talking about creating real value that you can use to leverage your impact, and also provide for those things that you might want the benefits of business ownership, whatever those mean, to you. And so how do we answer those questions about how do we get the most value while we're operating the business? And how do we get the most value when we go to exit from a business? And that's where running it ready to exit comes in? What do I mean by that? Well, I like to keep business simple. So running and ready to exit means exactly what it sounds like. It means you run your business, like you're going to exit anytime. Anytime you run it like you're going to enter those negotiations with someone this afternoon, which means efficient operations, and transferability. And vision for what someone could expect the future to look like, how can you articulate that future to someone? And those are the things we're going to going to talk about in the rest of this episode. And I am trying to keep this to 30 minutes these days, we'll see how I do. But you know, these, these are the three things we're going to cover. So when I when I hear that, and I, you know, that phrase is what comes to my head. So you know, I'm not going to take credit for making it up. But the point is, I'm the one that's bringing it to your attention. And it sounds overwhelming to me. So how do we break that down and make it real? And keep it from being overwhelming? How do we get and I promised these three things in the first episode, and that is practical, actionable, sustainable? How do we create impact on our business? That that we can do? You know, I just got done telling you small business owners get stuck in doing and now I'm telling you to do stuff? Yeah, I get it. So how can we do these things that make our business more effective? First thing is efficient operations. efficient operations, the bottom line on that is profit. Right? I mean, and you can say, okay, working less hours paying less overtime? Well, if you're paying less overtime that just goes to profit, right? And maybe to happier employees, depending on on the employees that you have. But that's the core. And how do we get there? Well, the first thing we have to do is the first is we have to face our fear, and that is understanding our business financials. And and so, you know, is our business seasonal? What are our cost of goods? What is our pricing strategy is is it effective? What are the operating costs, all of those things filter through and there are plenty more, but understanding the financials that you that your accountant comes up with. And you should be looking at those in, you know, at regular intervals, and we'll talk about that a little more later. But understanding your business financials is is number one and creating a an efficient business because you can't make changes if you don't understand what needs to change. The second thing when it comes to efficient operations is documenting key processes. And what happens in small business very oftentimes, and even medium sized businesses, things get stuck in people's heads, how we, how many times have you heard, well, that's just how we do it. Okay, why and how do you articulate that
to a buyer in the future? How do you articulate that to a new employee? So how we do things that are critical to our business need to be documented. And we'll talk a little bit more about that when we talk about the Action section. But key processes being documented is very important. The next thing we need to do is, is review our system to find just two things. That's low hanging fruit to fix. And the highest game changes to make that are longer term. Some things aren't low hanging fruit, some things take a while to get implemented. And excuse me. So the, when we talk about high gain, changes to make, or the highest game changes to make, we're talking about, you know, let's just throw some ideas out there higher quantity buys of raw materials, automated equipment to do to process things faster, improved equipment, maintenance, equipment, downtime, is line downtime, right? Employee training, you know, how can you get employees to not necessarily work harder or faster? But how can they be more efficient? And cross training? You know, Can Can you have operators that are trained in more than one part of your business so that if somebody calls in sick COVID, you can still process, you know, you can still do the work? So, those are just brief examples of what changes can you make to that might take a little bit longer, they're not really low hanging fruit, but they're something that you can do to make a long term improvement in your business. Okay, so you can, then we can look at focusing our attention on transferability. That's the next big thing. So we talked about a couple of other things. But what we need to do now is look at what is a buyer going to see, when they look at the business? What are they going to be looking at? They're going to be looking at how easy is it going to be to transfer this business from the owner that currently has it? That's currently in the trenches every day? To my own ownership? And how am I going to pursue that in the future. So we go back to key processes need to be documented. So that whatever your core value is, you need to be able to document that, how you achieve that. So that a buyer can come in and say, Oh, I can see how I could do that too. Right? You know, a couple of other things clearly account for expenses. So your accounting needs to be sorted, and it needs to be clear, identify and account for costs. So whether that's equipment, our cost of goods, or the cost of your internet, whatever your costs, are, they need to be clear, so that when someone else is looking at your financials, it answers their questions, not prods more questions. I mean, and, you know, any business going through a due diligence process, when you're trying to sell or buy, there are going to be questions, but your financials should not be what prompts questions, they should be what answers them. And so the clarity, and the integrity of those financials needs to be very, very high equipment maintenance records, if you're if your business is equipment based, you know, how long has that equipment been in service? How has it been maintained? What are problems that you've had with it, the more transparency you can provide around that the more confident a buyer will be looking at your business as transferable. I can see myself taking over that. legal agreements, I cannot stress enough that you need to understand and have a process for documenting and, and following through your legal agreements, but also in being able to they need to be organized and explainable. So you need to be able to take those legal agreements and say, Hey, I have this contract with this business. I have this contract with this business. And here's where the contract is. And here's,
you know, here's what the impact is on the business, whatever, whatever that might look like. That is really important. legal responsibilities, so out side of legal agreements, having an understanding of where your business fits within the legal framework in that industry is really important. And again, these are just examples of some of these transferability items that are going to come up when someone starts looking at your business. And having a system in place that articulates how your business responds to those things, or how you're responsible to those things, is important for two reasons. One, your own compliance, you know, all of these things. If your accounting is transparent, and and easy to work with, it's easier for you to understand your business. And it's easier for a buyer to understand your business. If you understand your legal obligations, the end, your buyer understands your legal obligations, then you can see how keeping this stuff straight, and keeping it organized, has benefits while you're an owner, and also has benefits when you're going to transfer when you're looking to sell your business. And then finally, the last thing that I want to talk about in this section is non binding business arrangements that impact your profitability. So if you're a farm to table restaurant, and you're buying from local farmers, but you don't have legal agreements with them, and one of them happens to be someone that really likes you, maybe they're related to you, and they give you a really good price. That may be 100%, aboveboard, whatever. But when a new owner takes possession of that restaurant, are they going to get the same treatment from that vendor, that someone else might? And so are they? Are they going to get the same treatment that you do? And they may or may not? Right? So it's really important to understand how that's going to impact the the buyer. And as the as the seller, are you You know, maybe legally obligated to disclose every single non binding legal agreement? Maybe not. And that's, this is not I am not a lawyer, this is not legal advice, talk to your own lawyer. But the point is, as if I'm working with your buyer, I'm going to specifically be talking to them about, hey, we have some vendor arrangements here that are critical to this business being successful at the level that it currently is, we need to talk to that owner about what those look like, what are those arrangements with those businesses so that we can understand how we would move forward? Right? Okay. So you can't as a business owner, you can't just go it alone, you've got employees? What are your retention requirements for key positions? If you're going to transfer a business to another company? What are those key employees going to? Are they going to stay? Are they going to be willing to work for somebody else are they not going to be how replaceable is their skill set. And so you don't need to have, you know, you're not talking about employee contracts or anything like that. But you need to be able to understand how you retain your employees, and how you're going to be able to transfer that retention to a buyer. Now, there are many, many, many ways for a business to get transferred. And employees may or may not play a part in that depending on the situation. But if they're an important part, for example, if you have highly qualified machinists that make your product on a lathe or other a CNC machine, or whatever, and you're, they have been doing it for a long time. And there's a craft to it, you know, it isn't just pushing the button, and it spits out the right part. But there's some element of craft to it, then, you know, are those people going to be willing to stay under new ownership? So that's important to understanding the employee demographic or the employee situation with your company. So something that to kind of ask yourself, when it comes to this idea of transferability is what happens when you don't come to work? And there's really, you know, there's a wide scale, obviously, but on one hand, you have smooth sailing, you don't come to work. Nobody really cares. The operation still runs itself.
You still ship product, you still get paid. Decisions still get paid. Everything's great. On the other side of the spectrum, we have rough seas, where if you don't come to work, stuff doesn't get done. And so the the lesson there is smooth sailing is better. How do we get there? How do you get to the point where smooth sailing is? The is the, the the word of the day, if you're not there. Finally, on on this piece, what does the future look like for your business? And how do you articulate that? You know, I'm not going to say, business plan. Because a business plan because eyes glaze over and becomes mind numbing, we're not talking, we're not talking about businesses that are going to go in for a bank loan necessarily to start up. Excuse me, we're not looking at getting venture capital. We're talking about how am I going to move my business forward next year? Am I going to introduce a new product? Am I going to look into new markets? Am I going to find a different sales channel? What is my plan to make my business better next year than it was this year? How am I going to grow it and increase my impact and the value that I bring not only to the community, but to my own business portfolio or the business itself? Okay, so that's, you know, these are the practical things that we need to be looking at, as business owners to get value now, and to be able to transfer value to a buyer. Okay, what action can we take specific actions can we take to start achieving some of those goals? The first thing, review your financials. Talk, at least I say at least quarterly. That number, you know, it totally depends on your, your comfort level with Financials, this, the stability of your business, and, you know, and your own willingness to do it, obviously. But at least quarterly, you need to be looking at your financials, and discussing them with your CPA, if you don't understand them. And I want to be very clear about something here it is okay not to understand your financials as a business owner. On day one. You're not an accountant, it's not your job, unless you are a CPA, in which case, you know, that's a no brainer. But if you're not a CPA, and you're, you're, let's go back to that machine shop. You're a machinist, you built a business, you're starting to ship product, and you're not an accountant. Nobody expects you. I mean, we as business owners, we expect ourselves to know everything. And we feel bad when we don't. But you don't have to. You're not an accountant. Don't worry about the fact that you don't understand what a balance sheet is, is telling you or a profit and loss statement or a statement of cash flows. Those are the three basics. Don't feel bad, if you don't understand exactly what those mean, the first time you start looking at them. Okay, that's why we have CPAs Certified Public Accountants, I'm sorry, I use the acronym before a, I said what it is. But talk to your accountant, understand how your accounts are put together. And what they're telling you what the numbers are telling you. And then we can you can start to build on that body of knowledge. And for a while, you may be very reliant on your CPA, your accountant to tell you, Hey, your costs growing up, your, you know, your, whatever your expenses are going up, or something's going down, whatever. As you grow more familiar with the documents, you'll start to improve that, you know, prove your body of knowledge. And then you can start moving forward with, you know, maybe you'll be the one asking questions.
So don't worry about the fact that you don't know what you're looking at. When you look at financials get started, you can't learn about something you don't expose yourself to. So start looking at them. And then second on that. Sometimes we're afraid to look, let's just be honest, sometimes. We don't want to see what the real financials look like. And what I'll say about that is twofold. One, it's perfectly normal to be afraid of that kind of information. I'm not saying everyone is I'm saying it's perfectly normal to have that fear. The second thing is, you can't fix what you don't know. So this is a point where we have to face our fear and dig into get the data because that's all it is. It's just data and then start worrying about it or not worrying about it. Start working on it. You know what is the problem? And typically for us, what's it going to be high cost and low revenue? Right? Okay. There are other issues that get involved. But, you know, let's, if we were going to say the 8020 rule on there, 80% of us are going to have problems with, with revenue or cost. So that's the first thing, get familiar with your financial Second of all, we need to identify one thing, the most important thing that distinguishes your business, from the competition, what makes you special, and then document what makes that possible. Okay, write down what makes you special, and how you do it. Because that's the core of what you're going to be transferring to a buyer. Now, that might be a one paragraph thing, or it could be volumes, you know, depending on your business, and how its structured and what you make. Whether it's a service business, or a product based business, it doesn't matter what makes you special. And how do you get it done, document that. And you don't have to do it. This is one of the things on all of these action steps. And I'm just going to throw this in now. Don't worry about doing it all perfectly, and let it become overwhelming. If the only thing you can do this week is document, you know, this is what I think is that our core competency, this is what I think makes our business special. And then let that sit in the back of your mind for a week or two. And then start figuring out how to document how you get it done. That's okay. Don't let it become overwhelming. Let it become something that you do a little bit at a time. If that's what you need. Some people you're going to want to sit in a room for a day, whiteboard it out, figure out, they figure it all out, and then put it to bed and say, Okay, this is how we do it. This is what we do. That's it, I'm done. There's no right or wrong answer. It's what works for you as an entrepreneur. Okay. So, find a way next, to gather low hanging fruit ideas. Remember, I talked about finding low hanging fruit that you can fix because all of those little things eat away at your profit. And you may want to brainstorm, you may want to talk to employees, you may want to talk to customers, and you know, how much do we share with customers, that's, that's between you, and, and how you feel about it, and what your relationship with your customers is like, you may need outside help, you know, you may need to call somebody a management consultant to come in and talk about you know, or maybe more specifically a manufacturing expert in your field or a some other, you know, expert that will come to come to your maybe not come physically to your facility. But you know, maybe, and say, the here, here are the top 10 things that you could do that would tighten the ship a little bit, whatever. And then what I what I like to think of is, is you take that low hanging fruit and you make a fruit basket of low hanging fruit, and you dip into it when you can. And you don't want to just put everything on a list and say, Okay, I'm not going to that I did my job now because you haven't actually done anything, we do have to have a way of getting those things done, how do you form a habit to start addressing that low hanging fruit as you have the resources to do so or as you can reappropriate resources to do so whether that's yourself or somebody on your team. And, and you know, so habit formation and, and getting things done is a whole different topic. But
create a like I said create a fruit basket that you can start pulling out of to fix that low hanging fruit. Next, we want to find a way to identify those higher gain process projects that that we could do that would have more benefit than that low hanging fruit probably, but are going to take an investment of time, resources, whatever. And you can use the same process. You can brainstorm, you can talk to employees, you can talk to customers, you can get an outside consultant to come in. And but then you have to say okay, I'm going to pick the one that I believe is going to have the highest gain per resource. Now, this is something that actually I have a spreadsheet that I use to do this that I share on my Twitch program that you know I go through and I do a qualitative analysis of solutions. Do something and figure out, which makes the most sense in terms of highest gain with lowest cost. And cost me the time cost may be money. And like I said, it's qualitative, not quantitative, because business owners small business, we don't have time to always get exactly what the quantitative analysis would look like to get things done. We just don't have it. So if you're interested that you can find the link in the description below, you can follow my twitch channel and you'll see that information. But you know, you need to figure out a way for you to decide what is going to give you the most bang for your buck, and pick that project and start working on it. And so the next thing is that vision for the future? How are we going to convey that vision to a buyer? And how do we execute a vision for ourselves. And like I said, I don't like the word business plan, because it has a lot of connotations that small business owners don't like. And for good reason 99% of a business plan is a waste of time, for a small business owner, the numbers are never real. And there's a lot of work that goes into creating a lot of fluff, that doesn't matter on the street. So I'm not a proponent of putting together a 60 page business plan, what I am a proponent of is documenting and understanding the future of your own business, where are you going to go? How are you going to get there. And then because if you don't have a business plan of some, if you don't have a plan for your future, then you will do what you're doing until it stops. And once it stops, it's, you have a much harder time finding momentum in another direction than if you had a plan. And you said, Okay, we need to start building momentum in this new direction, while we still have momentum in the existing direction. And so we need to keep it simple. But where can you go? What would the benefit of going there be? What will it take that you don't already have? How will you get there? When will you start? And then, you know, obviously we want to execute on that that's this isn't a document that we I don't believe in making something up, that you're not going to use, we build this plan out. And we start using it to build our business. So that we're getting that value while we're the business owner. But then we can share that value that vision of the future with somebody who's, who's perceivably going to buy the business. Now, you might be thinking, if you've bought or sold a business in the past, you might be thinking, Well, my business, my buyer may not have the same vision for my my business, maybe they're just buying the IP, the intellectual property, maybe they're buying my customer list, whatever. But you can't guarantee that in every case, what you can guarantee is that if you have a plan that you're executing on day to day, trying to build your business, you're going to have a better business than if you do nothing at some point in the future. And that's going to be worth more to a buyer than stagnant business. Okay. So those are the the the actions we can really take to start this process moving forward of answering those two questions. How do you get value now? And how do you get more value? When you go to sell? How do you create something that's worth more value when you go to sell? So let's talk a little bit about sustainability.
This is one of the things that's really important anytime you talk about any action in business, and that's why it's part of the core of this show. If you start something and you don't finish it, you wasted your time. Okay, so we have to find a way to sustain the actions that we take through to completion. So you find a way first of all, we need to trigger the process in a way that actually works in your situation. And, you know, getting things done, you've got basically at this point, we've got two things. We've got paper and digital. Honestly, I rely on paper for my day to day work. That's what I use. I have tried so many to do lists, digital to do solutions. I don't even want to talk about it. They're all great, but I don't work that way. That's okay. And it's not that I'm not trainable, I know how to use them. I just don't work that way. And so Okay, find a way that works for you and run with it. I do use electronic calendars and electronic to do lists for larger projects where there are a lot of moving parts that need to be kept track of over time. But from my day to day work, I write it down in my in my on my paper calendar. So that's how my system works, and keep the end. So when we talk about triggers, I keep my calendar in my bag, but I immediately put it on my desk when I get to the office and open it to the day. And that helps me stay on track for the day, it can be and your triggers can be anything, whatever works for you. Before all the craziness of COVID happened, I would put my workout bag by the door. And that helped me remember to take it and go to the gym. So those are things that worked for me. But you need to find ways to trigger your process that work for you. And what I will say is, is work the way you work, not the way others work, or others tell you to work or sell you to work. Okay? A clever marketing campaign is not going to make stuff get done in your business, in terms of they sold you a product, whether it's a to do solution or whatever, that's not going to make stuff get done in your business, you're going to get stuff done in your business. So work the way you work on that. And don't worry about the fact that your neighbor has a different way of doing it. Or some famous person endorses some product that, you know, they use, allegedly, right. And, sure, try it. But don't feel bad. If you try something, it doesn't work for you and you move back to something else. That's okay, just find something that works for you, and then run with it. The point is not to be fancy or clever, or or at the bleeding edge of technology, the point is to get work done. That's it. All right. So finally, or just to kind of wrap up by focusing some of your time and on creating efficiency, you increase the value of your business while you're running it. And also, an efficient business is more profitable. And most of the valuation methods are going to take that into account, when you go to sell by focusing on documenting key processes, so they're not in your head or in the heads of your employees, you increase the transferability of your business, and therefore the value of your business at the point where you want to sell it. Remember, this businesses are bought and sold based on the perception of future value. And the person who's going to be the perceiver is the buyer. And things that enter into that are the operating efficiency through profitability, the vision of the future where that business can go from here to what's next. We'll call it a business plan. But I've already put a huge caveat on that. And then the transferability of that business, those are the things that are going to give the perception of value to a buyer. All right, so
your business is important to the economy. So thank you. Thank you for being a business owner. For more information about me and for learning more about building business value. Connect with me on the social platform that you use the most in the links below or in the description of the podcast if you're listening to the audio version. Thank you for being here. Thanks for doing the hard work and looking forward to continuing our entrepreneurial journey together. Remember that doing it yourself doesn't mean going it alone.
Transcribed by https://otter.ai