Steps for positioning your company for growth or succession

What are your plans for your company and yourself? Do you know where and how you want to grow your organization? If you want to turn your company into a $25 million business in the next three to five years, you have to plan that out — you can’t just snap your fingers and get there, says Ross Vozar, CPA, managing director of Transaction Advisory Services at BDO USA, LLP. Or, if you’re 55 years old and you want to retire in five or 10 years, do you know what will happen to your company or how you’ll afford to stop working?

“Planning is the most important piece. If you don’t have a plan, your concept won’t get anywhere,” Vozar says.

Smart Business spoke with Vozar about how business owners can position their company for future growth or succession.

What kind of planning needs to take place?

First, you need to have a development plan. What is it that you want to do? What are your goals for the next three, five or 10 years? What is it going to take to get there? What type of commitment will it take? What kind of mindset do you need for how you spend your time?

Then, you have to look at your people. Do they have the right skill sets or background to get you where you want to go? These can be hard questions, especially for family-owned businesses. You have to honestly determine if your current management team is capable of taking your concept to the next level, or perhaps the business needs fresh ideas from a new employee.

A lot of first-generation businesses need to be asking these tough questions now, especially if you plan on taking on a private equity partner to get you to your goals. If you’re an entrepreneur who founded the company but you don’t want to spend the time or don’t have the skills to position it for growth, you need to develop a succession plan or find ways to bring in the right expertise.

Once you have the right development plan and people in place, you likely will need some financing to reach your goals, and a financing plan. Traditional bank financing is often the least expensive option, but depending on the size of your business, lending standards have become more restrictive and many banks are wary of working with small businesses. Fortunately, there are a lot of creative financing options that are now available, from crowdfunding to private equity ownership.

You need to find a partner to have a long-term relationship with. When you’re evaluating potential deals, the intangibles are important. It may not come down to the highest offer, as a personality conflict can easily derail your plan. Do you want a hands-off partner, or do you need guidance and expertise to achieve your goals? Do you plan to retire in five years; do you need the private equity company to help you grow the company so you can do that?

You’ll also need advisers to help you build an aggressive, but achievable financial forecast. Private equity investors typically want to see that your company has already shown success.

This seems pretty straightforward. Where do business owners run into problems?

Most business owners are just too busy. They spend 100 hours a week on their business, servicing customers, so this kind of planning becomes an afterthought. Before they know it, they’ve taken a business from zero to X number of sales, and then they start asking, ‘OK, what’s next?’

The options are limitless, but it takes a commitment of time and money. It’s critical to have advisers at your side. When you’re going into growth mode, you’ll be dealing with a level of sophistication that may go beyond your expertise. Advisers cost you money upfront, but they will pay off in the end.

You can’t rush this process. It’s all about upfront planning. A lot of business owners are embracing having their accountant come in and help clean up the financial statements. Accountants can find the skeletons in the closet that will matter to a buyer, and then coach you through the story behind that. For example, you lost a $1 million client, but that account was very low-margin and now allows you to have the capacity for more profitable business. Not having control of the process from all aspects is a transaction risk that you don’t want to take. It can be a deal killer that doesn’t allow you to reach your goals.

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