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In the last several issues of this newsletter, we have
discussed how owners can methodically build the business value necessary to
achieve the post-business exit lifestyles they desire.
- Create a written value-building plan that includes
important Value Drivers (Issue 187).
- Value Driver One: Address business fundamentals
necessary to protect the value to be created (Issue 188).
- Value Driver Two: Take action to diversify the
customer base, solidify the marketing message and avoid unnecessary
taxation (Issue 189).
- Value Driver Three: Systemize internal operations
including collecting customer feedback and diversifying vendor
relationships (Issue 190).
Today, we look at Value Driver Four: Leveraging Human
Resources.
As with all of the Value Drivers described to date, there are
a number of issues owners can address, but space limitations here require
that we discuss only a few. For a more complete description of all aspects
of Value Drivers, please contact me.
When we look at all the ways owners can improve the
productivity, efficiency and quality of their employees to build business
value, we primarily look at:
- Reorganizing the company so there’s a connection
between reporting responsibilities/duties and revenue generation;
- Creating employee scripts;
- Implementing new employee training systems;
- Connecting employee activity and company success;
and ultimately
- Transferring responsibility to employees.
Let’s look at three critical activities on this list.
Connecting Responsibilities to Revenue Generation.
Conceptually, most owners understand that all activities, responsibilities,
functions and plans for the company should contribute, either directly or
indirectly, to the generation of revenue. In practice, however, owners
often organize their businesses on a seniority model: lower-level employees
perform simpler tasks and more senior employees perform more complex and
critical tasks.
So, for some owners we may suggest that it makes sense to map
all activities that the company and its employees undertake that ultimately
lead to revenue, and then work backwards from the revenue through the map
to see if we can identify places where we can increase efficiency. The
owner can then decide whether increasing efficiency involves eliminating
redundant jobs or positions, combining activities to make them more
powerful in their impact on revenue, and/or expanding activities that
typically have a significant positive impact on revenue. If an activity is
good for revenue, we will ask, “Why?” and may want to do more of it. If an
activity is not good for revenue, either directly or indirectly, we may
want to do less of it.
Connect Employee Activity to Company Success. Few
owners can give a convincing “Yes!” to the question, “Have you regularly
and directly communicated to each of your employees his or her role in the
success of your company?” When employees don’t understand their specific
purpose, they are easily frustrated, often lack motivation and are not
terribly efficient in their activities. From a value perspective, that’s
bad enough, but if your employees don’t understand how they contribute to
your company’s success, how can you illustrate that connection to a future
buyer of your company?
Transferring Responsibility to Employees. The
purpose of creating a value-building plan is to create the business value
you need to live the post-exit life you desire. If you are your business,
there is little likelihood that any buyer will find your company at all
valuable. It is one of the most counter-intuitive maxims of business value:
in the most valuable businesses, the owner is not critical to its ongoing
success. Put yourself in a buyer’s shoes: would you purchase a company if
all the knowledge, skills, and relationships were held only by the owner?
Many owners hold onto the critical marketing and sales
activities because they worry that employees who take over important tasks
will fail. Yes, it is difficult to find and hire the right employees who
will successfully locate, attract and generate sales from your target
market. But we know that your ability to train, teach and trust your
marketing and sales staff is critical to building value in your company.
You simply cannot carry this burden alone. Your experience and skills generate
much more value when you are the mentor or counselor for a staff of
employees.
In our next issue, we’ll look at Value Driver Five: Financial
Measurement and Management. If, in the meantime, we can answer any
questions you may have about the many ways you can leverage your company’s
human resources to increase business value, please give us a call.
Subsequent issues of The Exit Planning Review™ discuss
all aspects of Exit Planning. The provider of this Newsletter (James Rice) offers you unbiased
information about what you may need to know — How To Run Your Business So
You Can Leave It In Style™.
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