An Introduction to Part 1 Transformation

I have come to believe that an effective business exit strategy hinges on:

A Transformation of what is most commonly an owner-operator-replica-business into a business with the internal capacities and financial resources to operate profitably and independently,

A Transaction, that is a transfer of ownership that results in a win-win for both the seller and buyer of the business, and

A Promotion, of the business as an investment opportunity to prospective investors.

In this article, I present a summary of Part 1 of a book that I have written on the topic of successfully disposing of a small business to an investor.

This summary can be viewed as a video by visiting Constructum Online Learning on YouTube – Click on the link - https://youtu.be/Y150GcmpAFc

The first step to transform the business into an asset of value is to reimagine how the business creates value. The business owner must craft a strategy to create a unique mix of value on three levels:

·         Value for the Customer,

·         Value for Suppliers, and

·         Value for Shareholders

A strategy is a set of decisions, or choices, that the business owner makes about the direction the business takes to create a unique mix of value. This unique mix of value is the result of a careful selection of complimentary value drivers that together generates value on all three levels.

From the chosen strategy the business derives its value proposition, and this is the message the business communicates to customers, suppliers, and shareholders about how it creates value for all stakeholders.

To effectively deliver a unique mix of value the business owner must design a business model around the value proposition. The objective of the transformational process is to endow the business with the internal capacities and financial resources that enables it to operate profitably and independently. This is what transforms the business into an asset of value.

But first the owner must take stock of the present state of the business against the following six criteria:

·         Dependency

·         Transferability

·         Indebtedness

·         Customer Base

·         Systems and

·         Financial Reporting

This initial assessment is important because it gives the business owner a starting point from where to embark on the transformational journey.

A value proposition is in fact a hypothesis that must be tested. Before continuing, the business owner must test the value proposition to ensure “market fit”. Only after thoroughly testing the hypothesis can the business owner embark on the process of redesigning the business model around the value proposition.

A business model is an organization of people, processes, and policies. The newly designed business model is a picture of what the business must ultimately look like when the current owner presents the business as a viable investment opportunity to prospective investors.

Consequently, the transformation of the business must coincide with the roll out of the chosen exit strategy. The business owner must decide right from the start how the transfer of ownership to the investor will take place.

But to present the business as a viable investment opportunity the business must present an attractive set of financial results. To deliver attractive financial results the business must set financial goals and implement financial controls. A single page financial dashboard serves as both a guide and target to develop the business into an attractive investment opportunity.

Now the proverbial rubber hits the road. The business owner must set out a plan of action which, at a minimum, will consist of the following:

·         Build Sales Machine

·         Develop a Recruitment & Selection Process

·         Craft a Training & Development Strategy

·         Decide how to Fund Operational Assets

·         Decide how to Fund Trading Activities

·         Decide how to Fund Fixed Assets

Conclusion

The aim of the transformational process is to develop the business into an asset of value with a view of persuading an investor to pay a premium for an ownership stake in the business. This is how the business owner maximizes value from disposing of the business.