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Columns

Why Build A Business To Sell?
Randall Hilton

By Randall Hilton
October 7, 2003
Focusing your energies on selling out may result in a ‘no sale.’

Special message for readers: If you’d like to participate in or eavesdrop on a challenging discussion, be sure and check out the invitation at the end of this column. Thanks!

“I want to build a sellable business” is a statement I hear quite frequently these days. It seems that one morning, somebody in the PHC world suddenly awakened and said, “Hey, selling my business is the path to prosperity!” and the next thing you know, everybody is making exit plans.

Now, before everybody starts rushing out to learn the latest business-selling strategy, let’s take off our Red Wings and get some grass between our toes. From my perspective, this vision of “selling out” isn’t going to create a successful company and may even end up with a “no sale” at the end of the game. Follow me down a few rabbit trails and you’ll see why I think this way.

Rabbit Trail No. 1

What must a business have before it can even claim legitimacy? Employees? Not if you consider the huge segment of “One-Man Band” PHC contractors as businesses. How about profits? Apparently, profits aren’t necessary for the survival of a business since so many contractors seem to survive without them. Notice that we’re talking about survival here, not prosperity.

Whether you’re a Fortune 500 company or a plumbing contractor starting from the kitchen table, the one thing your business cannot survive without is a customer. Businesses must have customers and when one business wants to buy another business, all they’re interested in is how that acquisition will bring them more customers or enhance the way they deal with the customers they have.

If you want to do business, then you’d better attract customers. This means you need to focus on what makes them interested in doing business with you. By focusing on taking care of your customers, you’ll build a better business. A better business, of course, is worth more to sell but it’s also more fun to keep. With that in mind, is it fair to say that a customer-service strategy is more important than an exit strategy?

Rabbit Trail No. 2

Have you noticed how the realtors have us convinced that formal dining rooms are necessary just in case we decide to sell our home? Why do we pay for that valuable space we never use? So we’ll be able to sell it to the next owner who won’t use it!

Grooming a business for sale may have some of the same issues. Maybe it’s service agreement programs that don’t make sense to our customers or to our field personnel. Maybe we’re supposed to have a whiz bang computer system capable of serving up customer files in 32 flavors while requiring an IT professional to maintain. Before investing thousands of dollars in “window dressing,” make sure you’re taking care of your customer. You may still end up with a whiz bang computer system and a service agreement program that sets the industry standard, but do it all to improve productivity and customer service, not because the next owner might want a formal dining room.

Rabbit Trail No. 3

Speaking of window dressing, how much debt to you intend to incur while building this model business? Business buyers typically don’t buy beautiful buildings and fleets of sharp-looking trucks. Oh, they’ll pay a price for them all right, but any way you slice it, you’ll be paying down the notes out of the proceeds from the sale. Selling your business for three million bucks might sound pretty good, but if you have $2.97 million in debt you’re not going to be very happy. I’m sad to say that I’ve seen it happen on multiple occasions. Run your business to be profitable now. Be conservative and be happy.

Rabbit Trail No. 4

“George,” the owner began, “I’m thrilled to have you join our little company. I just want you to know that everything you do is going to affect how much this little cash cow of mine is going to be worth when I finally put her on the auction block. If you do a great job for me, I’ll even come by to let you see my new motor home.”

That unlikely conversation highlights the owner’s lack of a vision that his people can share. The owner’s exit plan is just about the last thing that an employee would care about unless that exit resulted in an opportunity for the employee. If your exit plan doesn’t include the people that help you build your business, you’re probably shortchanging yourself.

If your vision is to create happy customers, you’re offering something your employees can run with. If your vision is to provide advancement opportunities for your employees, you’re building a fire that will keep them motivated. If your vision is to sell the business to your employees, you’re grooming a ready-made buyer at the right price. At the same time, you’ll be doing your part to elevate our industry. Selling your business, then, would not be your daily focus even though it’s the ultimate outcome. Your daily focus should be to elevate your people. Better people mean better customer care so the customer wins again.

Rabbit Trail No. 5

If your goal is to build it and sell it, who do you expect to buy it? In the past decade or so, we’ve seen consolidators come and go. Will they be coming when you’re ready to go? What about local competitors? Will they be interested in your shop? Only if it’s undervalued — otherwise, they couldn’t afford it.

If you’re going to build a business, define success as being a profitable, customer-focused, employee-friendly business. This way, you can achieve your vision even without a bill of sale. If all the timing works out just right and your knight in shining bank bags comes along, you can win that way too. Another way to win is to hand over the reins to someone within so that you’ll reap your profits as well as continue your legacy.

P.S.

Join our "Hot Topic" on-line discussion. The next discussion will be "One Man Bands." Are one & two truck shops helping or hurting our industry? What can a one man shop offer that the "big guys" can't? If you have an opinion and an e-mail address, you're invited to join us in a "Hot Topic" on-line discussion. You're even welcome to "eavesdrop" if you don't care to join in.

To participate, simply send a blank e-mail to hottopic@serviceroundtable.com. You'll see first hand how e-mail discussions work and, at the same time, have an opportunity to influence your industry. Note: The discussion will begin on October 20 and will take place over the following two weeks so sign up as soon as possible.

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Visit Randall's Web site at www.UpFrontPrice.com or e-mail him at Randall@upfrontprice.com.

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