Preparing your business for its next chapter

Most owners are closer than they think

Preparing a business for a sale, a new partner, or a family handoff sounds like a big project. In practice it is mostly a set of small, unglamorous habits.

When a buyer or partner looks at a business, three things usually come up first: the numbers, the customers, and the owner.

None of these need to be perfect. They need to be understood.

Clean financials

Every serious buyer or partner will start with your numbers. If the numbers are hard to follow, everything else gets harder too. Trust slows down, questions multiply, and the process drags.

"Clean" does not mean fancy. It means a reasonable person can read your books and understand how the business makes money.

Here is what that usually looks like in practice:

• Separate business and personal spending. Many owners run some personal costs through the company. That is common, but every one of those items has to be found and explained later. Fewer is better.
• Close your books on time every month. Consistent monthly reporting shows the business is managed, not just run.
• Use a good outside CPA. Reviewed or audited statements carry more weight than internal spreadsheets. Ask your CPA what level makes sense for your size.
• Know your margins by service or product line. You should be able to say which work makes money and which does not.
• Keep your contracts, leases, and licenses in one place. It sounds small. It saves weeks.

If you only do one thing this year, get two or three years of clean, consistent financial statements. It will help no matter which path you choose.

Customer concentration

Customer concentration means a large share of your revenue comes from a few customers.

Owners are often proud of those relationships, and they should be. A big, loyal customer is a real asset. But a buyer looks at the same customer and asks a different question: what happens if they leave?

If one customer could take a meaningful piece of your revenue out the door with a single phone call, that is a risk any partner will price in.

You do not have to fire your best customer. You can reduce the risk in other ways:

• Put written agreements in place where you can, with clear terms.
• Make sure more than one person on your team knows each key account.
• Keep growing your smaller accounts so the big ones carry less weight over time.
• Track your revenue by customer each year so you can see the trend yourself.

Being able to explain your customer mix honestly, with the numbers in front of you, goes a long way.

Key-person risk

This is the hard one. Usually the key person is the owner.

When you build something, you become the answer to every question. The big customer calls you. The bank calls you. The team waits on you. It feels like being needed. From the outside, it looks like a business that might not work without you.

Key-person risk can also sit with a top salesperson, an operations lead, or the one employee who knows how the billing system really works.

Reducing it is mostly about writing things down and handing things off:

• Document how the work gets done. Pricing, hiring, ordering, billing. If it lives only in someone's head, it is a risk.
• Build a second layer of leadership. Give managers real decisions, and let them make some mistakes while you are still around.
• Step out of customer relationships slowly. Introduce your team, then let them lead.
• Take a real vacation. What breaks while you are gone shows you what to fix.
• Think about how you keep key people. Fair pay, a clear future, and in some cases a path to ownership can make it easier for good people to stay through a transition.

A business that runs well without the owner in the room is worth more to almost any buyer. It is also a better place to work, and a better life for the owner.

Start before you need to

None of this has to happen overnight. Most of it is easier when you are not under pressure.

Pick one area. Fix it this year. Then pick the next one.

If you want a second set of eyes on where your business stands, or you are just starting to think about its next chapter, you can start a conversation with us here. We are happy to talk, even if you are years away.