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Build a Business, Sell Your Job

By Sam Allman
February 11, 2003


Several years ago, I wrote an article for NFT entitled “Where There Is No Vision, the Flooring Stores Perish.” In it, I shared the results of a landmark study at Harvard University. Its conclusion: the most important determiner of success is the ability to think long term.

Long-term thinking determines much of our success, because it empowers discipline. In contrast, a focus on instant gratification weakens discipline. A good working definition for “discipline” is “the ability to do what you ought to do -- whether you feel like it or not.”

Discipline keeps you focused on the important, rather than the urgent. The measure of discipline is the degree to which you refuse being tyrannized by the urgent. In other words, it’s your refusal to “manage by crisis.” We all know it is easier to handle the urgent first, regardless of how important it is. That’s why 95 percent of business works in the reactive -- rather than the proactive -- mode.

Fact: business owners who spend most of their time reacting, and who lack the discipline and vision to do the important first, will in the end not have owned a business. Rather, they will have owned nothing more than a job. Worse yet, most business owners pay themselves less than their true value to the company. So, they lose twice.

What about you and your business? Do you own a business, or just a job? How can you tell?

Here’s one way of evaluating your situation: if you were to leave your business today, could you sell it for its future potential? Or could you merely liquidate the assets -- inventory, accounts receivable, supplies, furnishings, and real estate -- and use the proceeds to pay off the liabilities and equity owners? Would someone be willing to pay more than the value of your business assets? If you answered “yes” to the future potential scenario, you own a business. If you answered in the negative, you merely own a job.

During one of my seminars several years ago, a wonderful lady came up and shared her story. She was 69 years old and her husband, who had owned a carpet store, had just passed away. Because he had been self-employed all of his life, he and his wife had tied up everything they had in their business. She tried to sell the business, but no one would buy it.

And because she needed to support herself, guess where she went every morning? That’s right, to the carpet store. Her husband didn’t own a business, he owned a job -- and she inherited it!

Where too many owners mislead themselves is how they answer the basic question: What is the purpose of my business? In my seminars, most participants answer, “To make a profit.” Others say they are seeking freedom, or independence, through their businesses. Still others say they’re seeking a respectable paycheck without a controlling boss attached to it.

Build a profit-making machine

I urge you to consider a different answer. I submit that you aim all your efforts at building your company’s value so that, on the day you depart, you receive the optimal return for your capital investment and labor.

If you’re like most entrepreneurs, you never consider -- let alone make the effort to envision -- what your enterprise will look like on the day you’re ready to leave the company. This lack of a clear, long-term exit strategy can yield for you considerably less value than if you had turned your business into a predictable profit-making machine. Too often, owners lack a methodical approach to building long-term value. Absent that system, they must, in the short-run, work reactively (in a crisis-mode). And in the long run, they earn little business equity.

Therefore, I suggest that long-term thinking, discipline and a clear vision are the precursors to success. When a smart business owner adds proven strategies to those three ingredients, then he or she multiplies the likelihood that the enterprise can be sold for its maximum potential value.

By doing so, and applying your natural passion to build the value of your enterprise, you become enlightened. You can predict the future. How? Management guru Peter Drucker said, “The best way to predict the future is to create it.” When you systematically design business processes to enrich value, you can largely determine your company’s future.

You can do it. Your business can produce the value you want it to have. To make it work best, you must begin the transitional process years in advance of a contemplated sale. It is more difficult to achieve your dreams if you have less than five years until your exit date. (You can make progress, but you still may not have time to build your ultimate dream store.)

Planning for the sale of your business

According to Michael K. Sipe, president and CEO of middle-market mergers and acquisitions firm Private Equities, there are four necessary steps for building value in a marketable company.

1. Determine your exit date. Setting a deadline is critical to moving forward in building the rest of the plan. It infuses the process with urgency. A goal without a deadline is a place that “someday,” you say yourself, you will go.

But “someday” never comes. In contrast, once you set an exit date, you’ll find that your thinking about the company shifts both fundamentally and positively. In the fullest sense, you now own its future. You’re in charge!

2. Determine the target value your company will need to have in order to achieve your objectives upon your exit. How much money do you want from a sale? You need a specific target value that accounts for the net effect of taxes, professional fees, closing costs, etc. Unless you choose a target value, you likely will end up with a less-than-ideal result.

3. Obtain a current valuation of your company. Have your business conservatively valued by an independent third party. Without a credible value number, your vision likely will factor in more skepticism than passion.

4. Identify the required changes to move your company from its current value to its target value. Consult with professional advisors to determine what you’d have to change to increase the probability that you obtain your target value. CPAs, attorneys and other business-development experts can help you with this step. Additionally, a wealth of free and low-cost research is available from educational institutions, the Small Business Administration and a nearly endless variety of online sources.

Achieve congruity between your exit date, target value, current value, and required changes. Verify that these four factors are in balance. If the exit date seems unrealistic, adjust it or the other three variables. If target value seems unrealistic, adjust your expectations, evaluate your other assets and desires, and plan how to configure the company between now and the exit date in order to reach the target value.

If the required changes seem unrealistic, be honest with yourself. Decide what you will actually do, and adjust the other three factors accordingly. When all four factors are in balance, you can begin designing a strategic plan focused on value building in time for your exit.

Once you have aligned the four underlying factors, commit to them. By committing to the process and to the vision, you will create the discipline you need to put your mindset into the proactive mode. The process of building value encompasses your willingness to commit, plan, implement, and measure.

Be creative in the planning process. Brainstorm frequently. From among all the options, select innovative, efficient strategies that will require the least amount of investment and stress. Be sure to seek the advice of professional advisors, so you can determine the best methods of systematically assessing and structuring your business to build its value.

Document all your processes, procedures and systems in such a way that your company can easily be run by a new owner or manager. Then, delegate and execute. Establish a bias in your organization towards goals, objectives, action, and achievement.

Integral to the planning process is the design of quantifiable standards that allow you and your team to measure, and continually evaluate progress. Remember, in business, any behavior that’s measured ultimately improves.

Set a schedule for after-action reviews. You should ask: What was our intent? What actually happened? What can we learn? What can we do better today? Then, refine your processes. Periodically, have your business revalued. Reset your mile markers on the road toward your target value.

Although I’ve repeatedly stated it, the value of expert professional advisors can’t be overstated. The obscure perils throughout the value-building-and-exit process are far too numerous to go it alone. If you have questions about the process, consider checking out my www.allman-equity.com website for more information.

So, discipline yourself to develop and not just run your business. Remember the words of IBM’s Thomas Watson, who built one of the top corporations of the 20th century: “Everyday at IBM was devoted to business development. We didn’t do business at IBM, we built one.”

If you follow the disciplined, value-building approach I’ve outlined, you could have more than just a job to sell when you’re ready to leave the business. You could have an enterprise that’s worth more than assets minus liabilities. It could be worth its potential!

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Sam Allman is president of Allman Consulting and Training. He is an internationally recognized motivational speaker, consultant, trainer and author who delivers inspiring programs in areas such as leadership, customer service, management development, team building, retail sales and personal quality management. He has developed many audio and video programs and has created hundreds of training and educational learning systems.

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