IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities.  Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses.  The following blog has been provided by Nick Anderson, CEO of OneAccord (https://oneaccord.co/):

Does your Company need a Makeover or just a Haircut?

Introduction

“The best time to plant a tree was 20 years ago. The second best time is now.” This proverb resonates deeply with me, especially when I think about my mother’s hair salon.

My name is Nick Anderson, CEO of OneAccord. I’ve been asked to share my insights on staging a business to achieve the maximum possible value in the marketplace. This topic is close to my heart because of a personal story that has shaped my professional journey.

The Story of My Mother’s Salon

In the 70s, 80s, and 90s, my mother ran a thriving hair salon in Seattle. It was more than just a business; it was her passion and life’s work. She built a steady clientele, offered a range of services, and created a welcoming environment that kept customers coming back. Despite its success, when it came time to retire, she closed the doors without selling it. In today’s dollars, the salon could have been worth between $500,000 and $1,000,000.

Acknowledging that $500,000 to $1,000,000 is a big range, you might wonder what drives this value. Keep reading to find out.

My mother didn’t know how to sell her business. She didn’t have the right support or information to turn her career into an asset. This missed opportunity is a story I share with my clients to illustrate the importance of preparing a business for sale. This story is my “why?”

Preparing a Business for Sale

Reflecting on my mother’s experience, I realized the importance of preparing a business for sale. Key factors like steady clientele, longevity, and diverse offerings significantly impact a business’s value. With the right support and information, my mother could have transformed her career into a valuable asset.

Practical Steps to Increase Value of a Business for Owners

To avoid missed opportunities, business owners should start by assessing their business’s current state. Here are some practical steps to stage your business for maximum value:

1. Assessment: Evaluate the current state of your business. Identify strengths and areas for improvement.
   • Owner Dependence: Determine how much of the firm’s revenues come from you or another key person. If it’s greater than 30%, this is a top priority to address. Assess how many weeks you can be away from the business without contact. If it’s one or less, this is a top priority to address.
   • Decision-Making: Identify who makes decisions in key functional areas like marketing, sales, operations, finance, and strategy. If the answer is “me” in any area, your company cannot operate without you. Write job descriptions for future roles to delegate responsibilities.
2. Enhancements: Make necessary improvements to increase value. This could include updating equipment, expanding services, or improving customer experience.
   • Diversify Revenue Streams: Expand your client base to avoid over-reliance on a few key customers. Introduce new products or services to diversify income.
   • Strengthen Vendor and Supplier Relationships: Avoid dependence on a single vendor or supplier. Ensure that contracts with vendors and suppliers are robust.
3. Financial Health: Ensure your financial records are in order. Potential buyers will scrutinize your financial health.
   • Financial Statements: Regularly review your Profit and Loss Statement, Balance Sheet, Cash Flow Statement, and Statement of Retained Earnings. Keep track of Accounts Receivable Aging Report, Accounts Payable Aging Report, Inventory Control Report, and Inventory Turnover Ratio.
   • Sales and Revenue: Review your Sales Pipeline Report, Revenue Forecast, and Sales Performance Report regularly. Develop new services or products that customers might pay a subscription fee for.
4. Marketing: Develop a marketing strategy to attract potential buyers. Highlight the strengths and unique aspects of your business.
   • Customer Concentration: Assess the percentage of sales coming from your top customers. If any single customer accounts for 10% or more of revenue, it’s considered a risk. Write ideas to diversify customer concentration, such as developing a new product line, selling into new markets, or hiring a new salesperson with fresh contacts.
5. Professional Support: Seek advice from professionals who specialize in business sales. They can provide valuable insights and help you navigate the process.
   • Management Team Depth: Fill in the names of people in key functional seats and rate their ability to perform the job with no supervision. Write a list of responsibilities you can delegate today.
6. Operational Efficiency: Address any inefficiencies in your operations to improve productivity and profitability.
   • Standard Operating Procedures (SOPs): Document and regularly review SOPs to ensure adherence and continuous improvement.
   • Key Performance Indicators (KPIs): Establish clear KPIs that align with your long-term strategic goals. Regularly review and adjust these metrics to drive performance.
7. Supply Chain Management: Ensure your supply chain is robust and can handle disruptions.
   • Diversify Suppliers: Avoid reliance on a single supplier. Identify alternative suppliers to mitigate risks.
   • Contract Negotiations: Negotiate strong contracts with suppliers to ensure favorable terms and conditions.

Illustrative Stories: How to Sell My Business for the Most Money

To illustrate these points, let me tell a few (fictious) stories of salon owners who successfully staged their businesses for sale.

Story 1: The Seattle Business Owner Jane, a Seattle business owner, ran a successful salon for over 20 years. She had a loyal clientele and a team of skilled stylists. However, Jane realized that her business was heavily dependent on her presence. She decided to delegate responsibilities and train her staff to handle key roles. By documenting processes and empowering her employees, Jane reduced owner dependency and increased the salon’s value. When she eventually sold the business, it fetched a higher business sales price due to its strong operational foundation.

Jane’s journey began with a thorough assessment of her salon’s operations. She identified that she was the primary decision-maker in marketing, sales, and operations. To address this, Jane created detailed job descriptions and trained her staff to take on these roles. She also implemented standard operating procedures (SOPs) to ensure consistency and efficiency. Over time, Jane’s salon became less dependent on her, and the business’s value increased significantly.

Story 2: Maximizing EBITDA Multiple Tom owned a salon with multiple locations. He focused on improving the financial health of his business by regularly reviewing financial statements and optimizing expenses. Tom also diversified his revenue streams by introducing new services and subscription-based offerings. These efforts increased the salon’s EBITDA multiple, making it more attractive to potential buyers. When Tom decided to sell, the enterprise value of his business was significantly higher, resulting in a lucrative sale.

Tom’s strategy involved a detailed analysis of his salon’s financial health. He identified areas where expenses could be reduced and implemented cost-saving measures. Tom also introduced new services, such as monthly membership plans and exclusive treatments, which provided a steady stream of recurring revenue. By focusing on financial health and revenue diversification, Tom was able to maximize his salon’s EBITDA multiple and achieve a higher sales price.

Story 3: Enhancing Enterprise Value Lisa’s salon had a high customer concentration risk, with a few clients accounting for a large portion of revenue. She addressed this by expanding her client base and offering new products. Lisa also strengthened her vendor relationships and negotiated better contracts. By improving operational efficiency and reducing risks, Lisa enhanced the enterprise value of her salon. When she sold the business, it achieved a premium price due to its diversified and stable revenue streams.

Lisa’s approach included a comprehensive review of her customer base. She identified the top clients and developed strategies to attract new customers. Lisa also introduced new product lines, such as high-end hair care products and exclusive styling tools, which appealed to a broader audience. Additionally, she negotiated favorable terms with suppliers, ensuring a reliable supply chain. These efforts not only reduced customer concentration risk but also enhanced the overall value of her salon.

Conclusion

My mother’s story is a reminder that with the right support and information, a career can be transformed into a valuable asset. I urge business owners to seek professional advice and prepare their businesses for sale. By doing so, you can ensure that your hard work and dedication translate into the maximum possible value in the marketplace.

If you have questions relating to the content of this article or the consulting services provided by his firm, Nick Anderson, CEO for OneAccord, would welcome inquiries. Nick can be reached at (206) 280-3439 and nick.anderson@oneaccord.co.

 IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.