Prepping Your Business For Sale

by Ashley Lapin Olian

Ken: I haven’t known many kitchen and bath owners who have retired from this industry as wealthy individuals. However, all of those who have retired over the last 40-50 years probably banked on getting a lot more money from the sale of their businesses than they did. Many sold their companies to a lead salesperson or installer – for low down payments – only to have the operations go bankrupt in a couple of years, terminating the expected long-term payout. I’ve even run across a few former owners in Florida selling a kitchen every once in awhile just to make ends meet.

Leah: How sad! It must be really disheartening for owners, who have loved a business so much for so long, not to be paid what they think their business is worth – particularly when they counted on the business sale proceeds to finance so much of their retirement. What does it take to avoid such a disappointing scenario?

Ken: Thorough, advanced planning. Nothing beats a written strategic plan to get your business in shape to command a premium price. Unlike the conventional business plan that is drafted for startups, a strategic plan defines what your business will look like when it is completed. It forces the owner to finally put his vision for the business in writing.

Leah: I imagine most owners carry around some vague ideas in their heads of what they hoped their businesses will become. But when they are grinding away in their operations every day, putting those ideas down on paper in a cohesive, cogent manner must be difficult for them. Probably need to block out some quiet time to develop a draft or two.

Ken: No doubt. Most kitchen and bath firm owners say getting started on this vision statement, and being happy with the final draft, are the most challenging parts of creating their strategic plan. After writing a vision, the next step is to unbundle that statement into a number of written operational definitions. These phrases flesh out and clarify elements of the vision paragraph. Measuring each of these operational definitions on a scale of 0-10 (10 being the highest rating) is called “gap analyses.” The last step is when owners establish “critical success factors” (CSFs) each year that must be accomplished to “close the gap” on the weaker-rated operational definitions.

Leah: Exactly. As you know, we just finished up this annual exercise for SEN. I believe our team loves the involvement in shaping the company going forward. What’s great about this strategic plan document is that it clearly spells out each person’s assignments, target dates for completion and budget amounts allocated for any particular CSFs. We can then easily track our progress during weekly team conference calls and day-long meetings – three times a year – to update the plan.

Ken: Right. The ultimate objective is for kitchen and bath owners to score 9s and 10s in all operational areas of their company to ensure earning a premium price for it. Of course, it may take many years for kitchen and bath owners to realize this objective because they are so busy working in their operations on a daily basis – one good reason to commence this process 15 years or more before you expect to sell the business.

Leah: Fifteen years? No way! Too many industry owners today are in their late 50s and 60s without a formal succession or exit plan. That’s what is making our vendor partners so nervous about the industry’s future. How can the time-line be reduced?

Ken: Hiring an industry-specific business coach can substantially accelerate the strategic planning process. Getting it done in 2-3 years is then possible. But it would be dependent upon (a) what stage of development the company is in and (b) how much time and money the owner allocates towards completing the necessary critical success factors.

Leah: Okay, that makes sense. Is there any one particular success factor that you would consider to be more critical than others – like the centerpiece of an owner’s strategic plan to attract a qualified NEXTgen owner?

Ken: Yes, actually two. The first would be a written document that details the company’s process from the client’s first hello to collection of the final check. For example, in order for me to roll out three additional showrooms in Connecticut, I had to develop a 250-page Policy & Procedure Manual that covered every step of the pathway. It was a fantastic training tool to develop top caliber personnel. And then an equally fantastic operational tool to launch the satellite showrooms that consistently generated 51% gross profit margins.

Leah: Well, that may have worked in the 1980s. But it won’t work today. No one has the time, or the attention span, to write operations manuals. Today, business is all about speed and efficiency. So what’s the second pivotal success factor?

Ken: The second is a business valuation. Frankly, it’s not a bad idea to have one done every year to measure company progress. Accountants use a variety of methods for calculation. But I prefer the one business brokers typically use, which recasts the owner’s income before (a) applying a multiple on net profit for a company’s intangible value and (b) adding balance sheet assets. We have used this same methodology even in helping an aging SEN member value his business for a son or daughter to buy it.

Leah: These topics – how to develop a strategic plan, documenting a successful sales process, correctly valuing your business for sale – are three of the 10 workshops being presented at the inaugural NEXTgen: Future Business Leaders Conference. Sponsored by some progressive-thinking vendors, it’s scheduled for this fall in Austin, TX. With two educational tracks – one for business startups and one for buying an existing business – this educational event should draw the interest of young, current industry professionals with aspirations of owning a business some day as well as individuals considering entry into the creative, expansive world of kitchens and baths. ▪

Ken Peterson, CKD, is founder and president of the SEN Design Group, the industry’s first buying and business development group. Leah Peterson joined her father in 2013 after a decade in corporate sales and marketing; she is now the company’s executive v.p. Representing both industry-specific and corporate business experiences, as well as different generational points of view, Peterson & Peterson will be addressing industry issues for KBDN in a new quarterly column, NextGen Business Matters. For more information on anything mentioned in this column, please contact Ken at [email protected] or Leah at [email protected] (1-800-991-1711). The Petersons welcome comments, questions or concerns.

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