The Business Transition Blog

Keep Your Eye On the Ball

Performance is a critical component as you prepare your business for sale or transition and as the owner you are responsible for identifying the performance measures that a new buyer will be looking for and upon which they will judge the value of your business. It’s also your responsibility to keep your eye on the ball and not let performance slip because you’re distracted. That’s one of the reasons you need to start the transition process a few years before you plan to sell, so that you already have the track record and supporting systems in place to manage and sustain a consistently high level of performance.

Reflect on these questions:
• If I were a prospective purchaser of this business, what performance measures would I look for to indicate this was a successful company?
• How many months or years of performance would be necessary to show a positive trend?
• What systems are in place to track performance and enable quick response time if something goes wrong?
• What expectations have I communicated to my management team to let them know my goals and priorities as I prepare for my exit?
• How do I know if these expectations are being filtered down through the company?

Managers were once asked in a survey, “Why don’t employees do what they’re supposed to do?” The most common answer was, “They don’t know what they are supposed to do.”
Too often we make assumptions that employees can read our minds, or through some process of osmosis they understand our specific expectations of what to do, how to do it and what the priorities are. This is tough enough in normal day to day business, but if you expect them to guess what you are thinking and then adjust to the new nuances of a transition plan or your intentions to exit the business, give your head a shake. That’s a naïve assumption.

Use these steps to manage performance:
• Define the key performance indicators that a new owner of your business would look at as part of their due diligence and as part of establishing value. This might include:
o Revenue trends,
o Profit trends,
o Dividends to shareholders,
o Cash flow,
o Employee retention,
o Customer retention,
o Diversity of customers versus dependence on a couple large customers,
o Quality control systems.
• Set specific goals in each area:
o Increase sales by 15% each year;
o Increase profits by 20% each year;
o Increase dividends to shareholders by 20% each year;
o Do an employee survey to establish a benchmark and get feedback on areas for improvement, set specific goals to improve and survey again every 12 months;
o Reduce our dependence on ABC Company by targeting sales in other industries and getting their business to represent a maximum of 15% of our revenue over the next 36 months.
• Communicate those goals to your management team and discuss strategies for making them happen. Assign them ownership of the goals and set up a suitable reward system for reaching them.
• Get your management team to tell you how they plan to reach the goals, how they will measure their progress and how they will communicate the goals to their employees.

If you do it right, the race to sell your company is a marathon, not a sprint. Give yourself enough time to set a goal, prepare, practice, test for efficacy, adjust, practice, test and fine-tune. Once you have performance systems and measurements in place that show consistent, sustainable, positive trends managed by your team, you are in a much better position to sell your business. In the mean time, you’ll also be increasing your personal income and ability to pull money from the business without hindering its growth.
Stay focused and keep your eye on the ball.