It does not matter what exact choice you make; in all cases you want to leave your business in the best state possible. This article highlights some of the key aspects you need to consider when planning the long-term future of your company (and your retirement).
Specialize in a (single) service or product
One sure way to maximize the value of your company is to be the go-to specialist in your field. Companies that are seen as the specialist in their field attract more customers and can ask a higher price for their products and / or services.
When planning for the long-term future, make sure that your company builds a strong presence in one key area. It is fine to have a wider offering, but you really want to stand out from the competition in one area, which also represents the bigges
t category in terms of top-line revenue.
If you have no clear key area, this is a good starting point: list your top 10 areas and review the top-line and bottom-line performance of these over the last 5 years. Most likely, the more promising areas are those that have continued to perform well over that 5-year period in both top-line and bottom-line.
If the list is still too big to choose from, you can perform a SWOT analysis on each high-potential area. Especially focus on market growth (Opportunities), your competitor base (Threats), internal capabilities (Strengths) and required investments (Weaknesses). Doing this will give you a good insight in what area you might want to focus on as your key area of business.
Ensure the business can run without you
Chances are that as a business owner, you have a hand in every part of your organization. Let us be clear be very clear: this has to stop now! As a business owner, it is critical for you to create a team around you which can run the business independently of you. This does not mean that you are doing nothing, you can still be the CEO… Every good CEO focuses on the medium and long-term strategy of the organization and still is involved in the day-to-day business by joining in meetings with key customers, being visible and approachable for all employees, chairing the management team meetings and so on.
There is a distinct between being a CEO that leads and builds a strong and capable management team and being a business owner who micro-manages every aspect of the business. The value of your business and the ease at which you will be able to retire will greatly increase if you act as a proper CEO. A good way to get used to this habit is to take 2 weeks off on a regular basis and not interfere with the business at all. This forces your management team members to assume the responsibilities they need to focus on. It also allows you to become a better CEO and let behind any tendency to micro-manage your business.
Get your management team to stay
If your plan as a business owner is to sell your business at some point in the future, you of course need to be clear on this intention to your management team. At the same time, you also want to make sure that the management team stays on board until (and after) you have sold the company. One way of doing this is opening an equity scheme for your management team. There are pro’s and con’s for this route. If equity gets diluted to far, a future buyer might be less interested. On the other hand, it is more difficult for a new owner to replace a management team that has a share in the company.
One route that might be considered is to create a longer-term incentive plan. One example of such a plan is to create a bonus structure where managers will get a bonus, based on their contribution to long-term company goals. Next to this, the bonus will not be paid in full each year, but only for let’s say 25%. The other 75% of the bonus will be put in a safe deposit fund, so it will increase in value. Every subsequent year, one third of the 75% of the bonus will be paid to the manager – including the increase of the value of the deposit fund.
This way, managers will not only be more invested in the long-term success of the company, but they will also be much more likely to stay on board as a large part of their bonus is invested in their future at the company. Of course, you need to set some rules on what will happen when a manager leaves the company.
Build a broad customer base
Customers are at the centre of every business. Having a lot of customers is a good thing, as this greatly reduces the risks involved in customers stepping away from your business, customers who are unable to pay the bills and customers that go out of business. By the same token, if your business revolves around one (or just a few) big customer(s), it is a risk for the long-term stability of your business.
At all times when running a business, you should have a good insight in who are your bigger customers. Moreover, you should also keep track of the top-line and bottom-line impact for all customers. In the end, you should take action towards customers that have a too low (or even negative) impact on your bottom-line.
Building and maintaining a sound customer bases needs continuous attention and effort. This is why the next point is of equal importance.
Maintain a strong sales force
Ensuring yourself of a constant influx of new orders and a structural growth of your customer base is important. Hence, maintaining a strong sales force is paramount. Let us dive a bit deeper in what we mean with a strong sales force.
At a very minimum the sales force will consist of two people. Salespeople tend to be competitive and it is this part of their nature is what you will exploit when setting up a sales team of at least two people. By properly incentivising success for the sales force, you will be sure to have a continuous stream of orders and new customers for your business.
Similar to what was discussed in terms of getting your management team to stay, you can set-up a bonus retention structure for the sales force as well. This will help in retaining the talents in your sales force longer and will focus them on bringing on and maintaining a great set of customers for your business.
Create a compelling multi-year strategic plan
Perhaps the most important aspect of all is to have a sound multi-year strategic plan in place for your business. Any potential buyer (or merger partner) will want to see the future potential of your business on paper. The plan should be a holistic plan, embracing all the areas of your business. It is even wise to embed your exit strategy in the plan. This shows you have not only considered your personal agenda but have also made sure that the long-term prosperity of the business is safeguarded.
Another important reason to have a holistic strategic plan in place is to bring along the entire workforce in the process. A strategic plan has only value if it is effectively communicated and even owned by all layers of the organization. This can be done by involving staff members in the creation of the long-term strategy. This approach might take you a bit longer, but it will also be more effective and has a high potential to prevent disgruntled employees.
If you are a business owner and this article rings a bell (or two), we invite you to contact us and set-up a free exploration call. During the call we will focus on your situation and questions you might have. To schedule your call with us today, click on the button below.