Part 3 — A True Story: Using Value Drivers to Sell a Valuable Business.
In our first article (Feb. 28), we encouraged entrepreneurs to “begin with the end in mind” when they start their business. A plan needs to be focused on the kind of business you plan to create over time. Then in our second article (June 14), we explained the importance of paying attention to the road signs along the way to ensure you get there. We called those road signs “value drivers,” milestones that get you to your final destination.
In this article we share a true story of a client who had an auto repair shop for more than two decades. This past year the owners sold their shop and they are clear that without knowing about and using value drivers, they would not have enjoyed the hard cash that resulted from their hard work. Here are their experiences with growing the business using the value drivers to guide them:
1) An effective management team. This was the most challenging task to develop. The owners wanted to make themselves dispensable, and worked diligently to build a strong management team. Twice they had managers whom they thought were owner-caliber, but neither worked out. When they realized they needed help developing their management team, they hired an organizational development coach who helped them accomplish that. Ultimately, the owner came from outside, yet the work they had done created an effective team for the new owner to work with.
2) Effective financial controls. From early on in their business, the owners committed to understanding their numbers. One of our partners provides what we call “part time CFO services” and he had periodic conversations with them not only about taxes but also about how their decisions could help them grow. They also joined an auto repair industry group that was focused on all the numbers that made auto repair shops successful. Year by year, their numbers improved.
3) Stable, improving cash flow. The owners became very adept at making decisions that not only maximized their profit, but also their cash flow. This proved key to the price they received when they sold their business.
4) A written, realistic business plan. These owners were a great team documenting business processes and procedures. A month-end closing routine looked at the past month and the five-year budget to see if they were on the trajectory they had set and then make course corrections to keep them on track.
5) Operational measurements. For this business, the Key Performance Indicators that helped them drive the business where they wanted it to go were sales, gross profit and operating cash flow.
6) Attractive premises. They wanted women to feel welcomed and comfortable in their auto repair shop. A handsome espresso machine, a jar of biscotti, magazines about more than cars and a restroom that was well-appointed — and clean! — accomplished that. When the new owners, another husband-and-wife team, came for a visit, it was a big plus to see a place they could both be proud of.
7) Time. These owners had their eyes on their future in an intentional way for about a decade before they planned to sell. Several times along the way they thought they had found a buyer, but it was not to be. The benefit of their planning was that each time they had a plan to come back to.
The plan also helped them deal with the unexpected situation of the new owner showing up out of the blue, knocking on their door saying, “We’d like to buy your business!”
All the work they had done, over all those years, with all the plans written down and measured, made the sale look easy.
But they knew it had been hard work. And they got to celebrate it when they received the cash that rewarded them for it.
As you can see from this story, the more value and cash flow you can create with value drivers, the better!
Loni Woodley, CPA, is a partner at Auer Woodley Hilderbrand & Sanders LLP (AWHS), in cooperation with Dennis Smith, CPA, CExP (Certified Exit Planner). AWHS is a full-service accounting and consulting company, specializing in helping business owners accomplish their goals. Call 634-2815 for a free review.