Years ago, a mentor taught me a lesson that forever changed the way I think about running a business. The advice was to run the business like it would be for sale tomorrow.
The implications of this thought experiment are far-reaching and foundational.
The point of the advice was to help focus every day’s activities and priorities on what creates the most value, while still making sure that the basics of the business’s operations are always in order.
So, what does it look like to run a business that’s for sale tomorrow?
1. It’s run with a sense of urgency
If the business was being sold tomorrow, its managers and employees would be in a hurry to complete whatever it was they were working on today in preparation. That constant, relentless sense of urgency is one of the critical success factors of successful operational execution.
2. Its housekeeping is tidy and current
Keeping the facilities and equipment looking clean and tidy would be near the top of the list every day in case of a pending sale. You’d want everything to be in its best shape to ensure that any buyer that was coming to visit would be most favorably impressed.
3. Customers and vendors are taken care of
Within reason, customers and vendors should always be ready to provide a positive reference for the business. Treating them fairly is a best practice at all times, and especially in the days leading up to a sale.
4. Accounting books and records are clean
All accounting records should be reconciled timely, with documents neatly filed for easy reference. Payroll and other human resources records should be current, tax filings should be current, and customer and vendor invoices should fully support the financial records.
5. IT resources are in good order
Increasingly, businesses are reliant on public cloud service providers and subscribe to a large number of online services to maintain both front and back office operations. It’s critical to the smooth operations to have those credentials centrally located, and securely maintained. Further, hardware (especially including laptop computers) may be locked down with encryption passkeys. Those, too, need to be carefully tracked and securely recorded.
6. Physical assets are safe and secure
The business’s physical assets should be safe and secure at all times. They should be accounted for, fully safeguarded, and in known condition.
7. Profitability is maximized, and spending is minimized
It should go without saying that profitability should be maximized at all times. However, discretionary spending should be kept to a minimum to conserve cash.
8. Employees know what to expect
If the business were being sold tomorrow, employees would need to know what the direction of the business is. They would need to be aligned with the goals of the business to ensure that all the other items in this list were being tended to. Similarly, even if the business wasn’t being sold tomorrow, they need to be well aware of the organizational goals and objectives so they can help achieve them.
9. Legal affairs are in order
If there is a looming legal threat from a vendor, customer, or competitor, that’s inevitably distracting to you as a manager. Any moments spent planning responses, researching facts, or talking to lawyers is time not spent on maximizing profitability.
Further, those are problems that need to be understood and solved by an acquirer, which can be terrifically value-destroying.
10. Intellectual property is protected
Ensuring that intellectual property is secured is critical, just as it’s important to protect physical assets. This includes employees, key vendors, consultants, and others that are privy to sensitive information. Typically, agreements of confidentiality or non-disclosure are appropriate to have on file at all times. Further, those agreements should be reviewed for currency and completeness on a regular basis.
Of course, the thought experiment of running your business like it’s for sale tomorrow has its limitations, especially including the drive to very short-term profit maximization at the expense of longer-term returns. Specifically, capital does need to be redeployed for long-term business maintenance and growth. If the notion of being sold tomorrow overshadows the good sense, then it’s time to reconsider!
Jeff Martini is an occasional blogger and full-time finance executive. You can read as much as you care to know about him on his LinkedIn page here.