Keeping Your Exit in Mind

Article by:
Clifford Holekamp
EO St. Louis

When starting a new business, an entrepreneur has a lot to worry about, so it might sound odd that the beginning is the best time to start considering one’s exit. When I founded my chain of podiatry clinics in 2001, I naïvely believed that I would be running it for the rest of my career. An unexpected buyout offer in 2007 changed those plans. Fortunately, while I didn’t plan on selling, I did plan for selling. As a result, I was able to take advantage of a great opportunity when it presented itself. Here are a few steps I took to build a business worth selling:

Operations From the start, I designed and built the organization to function without me. While entrepreneurs are admired for their hands-on approach, if a business doesn’t run properly without the founder personally flipping the switches, then it would not be of any real value to someone else. Each of our offices was designed to run fairly autonomously. All of the customer interactions were handled at the office level, so my departure from management didn’t impact the daily operations. Also, I planned the physical and it infrastructure with scalability in mind. An acquirer wants to know that there is an opportunity to grow the business. If there are operational hurdles or major technology changes that would have to be resolved before significant growth could occur, then acquirers would see that as a risk factor that would devalue the business.

Marketing rather than letting it evolve organically, I put significant time and attention into pre-planning my business’s brand. To avoid being seen as too corporate, we used a Norman Rockwell-inspired design theme that had an old-fashioned flair reminiscent of the days when doctors had more time and compassion for their patients. Furthermore, I designed the company’s operating philosophy to be consistent with this brand strategy. The idea was to create an environment that was built around the patient instead of the doctor. Our patient-centric approach was intended to attract the right kind of employees and retain customers, but turned out to also be very attractive to the acquirers. Several investors in the acquiring group later told me that our unusual brand and culture was what really spurred their interest.

Accounting People don’t like to invest in things that they don’t understand, so I tried to keep simple records that could be easily understood by others. The easier it is for an outsider to understand a business, the more comfortable they would be in purchasing it. For similar reasons, I tried to avoid overly complex ownership structures and legal agreements. I also avoided the mixing of personal and business assets. Doing so adds caveats and complexities that may make buyers uncomfortable with your record keeping.

Legal I leveraged intellectual property protection where I could. Patents and trademarks are assets that are unique to a business. A patent or trademark is an investment in scalability that reduces risk, and thus increases value, for a buyer. When I negotiated our contracts, I made sure that they were either assignable or did not require approval for change of ownership. If not for that, I could have inadvertently given my contract holders the power to approve or deny critical components in the sale of the business. In my experience, many important strategies for increasing the appeal and value of a business on exit are best implemented from the start. For me, the end goal was not to build a business that I would want to sell, but to build a business that others would want to buy.

Clifford Hole Kamp is the founder of Foot healers. E-mail Clifford at holekampc@wustl.edu.


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