Document your business operations to attract potential buyers

Special to MassMutual

By Special to MassMutual

Posted on Jan 27, 2021

Running your business may seem like second nature to you, but it’s unfamiliar territory for prospective buyers. For buyers to make a good offer, they must be confident that they understand how your company operates and can manage the business successfully on day one. You can help make that happen by carefully documenting your business methods, policies, and procedures.

If your end goal is a successful sale and a seamless transfer of your business, your documentation should provide a view of how your company functions from its highest level right down to the detailed workings of every business unit. Many owners go about pulling together documentation the traditional way and create a company “policies and procedures” manual. But this process should go deeper to include the documentation of everything that makes the business unique, such as processes, innovations, and intellectual property, as well as partnership agreements that reflect ownership structure and contingency plans. (Related: Choosing the right entity for your business)

“Potential buyers are impressed when they see comprehensive documentation,” said Leslie Marenco, Esq., of Trust Counsel, P.L. “It’s a sign the owner takes the business seriously and due diligence probably won’t reveal underlying problems. I’ve seen documentation boost the value of a business and increase the selling price,” she added. “Buyers who see systemization of operations and detailed records assume the current owner isn’t essential to the future success of the organization and believe a new owner can step right in and be successful.”

Thorough documentation serves another purpose as well: It allows for the more efficient training of staff.

“Time is the most valuable asset for a business owner,” said Marenco. “If you spend one day on documentation, you can use it multiple times with many new hires.” She described how her firm made a video demonstrating how to answer the phone. “Now we don’t have to spend valuable time training every new employee to use the proper wording and inflection. They can watch a short video instead.”

For service businesses, it’s critical to document the sales funnel from top to bottom.

“Owners have to explain not only how they get work done, but where the work comes from, “said Marenco. “In other words, they should document how they’re getting customers or clients and make it clear that they have multiple sources of new business.” For example, her firm carefully documents the percentage of sales generated online, the percentage coming from organic versus paid search; who’s following up on the leads and when; and who’s closing the business and how. The firm also has a scheduled newsletter that goes out at the same time every month and a consistent response rate. “We know the cost of client acquisition. Our marketing process is teachable, valuable, and repeatable.”

Owners whose strengths lie in innovation and creative thinking may want to hire a COO or CFO who can bring structure, order, and linear thinking to the company’s operations. These executives can help owners build repeatable processes that can be documented and may ultimately increase business value. Marenco explained that her firm has benefited from hiring “a fractional CFO.” He functions as an advisor who works with her a few times a month. She believes this type of relationship could be beneficial to many owners, especially those who want to scale and sell their business.

While documenting your operations may not be the most exciting or fulfilling of your responsibilities, it has to be done. If you start the process well before you’re ready to transfer the business, you can take your time, and get creative. Also, be prepared to write down or record what you’re doing as you go about your daily work and have your staff do the same. For added motivation, consider adopting the mindset that documentation is a gold mine and you’re holding a pick and shovel.

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This article was sponsored by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001. www.massmutual.com All opinions are those of the author.
MassMutual offers this as educational information only.