When my wife and I saw the ad for a small, lemon-yellow cottage, we immediately knew we wanted that house. It was in Toronto's Beaches community. Newly married and without kids, we envisioned going for long walks on the beach and then retreating to our cottage abode. We called our real estate agent and arranged a showing.
We walked through the front door into a sun-drenched living room. As we climbed the stairs to the second floor, I turned to my wife with a giddy smile—we both knew we were going to buy the house.
Like your house, your business projects an image to potential buyers, making them more or less inclined to buy your company. One of the traits that can make a buyer fall in love with your business—or walk away from it—is what Jeffrey De Wolf, president and managing principal of Wolf HR Solutions, calls "organizational curb appeal."
"When you buy the company, you buy their history," says De Wolf. He has found that documenting your office procedures, core processes, and other intellectual capital can help you attract more bidders willing to offer a higher price for your company while also lowering the chance of the deal falling apart during diligence.
Ready to spruce up your organizational curb appeal? Here's a three-step plan:
1. Fix Your Leaky Faucets
Before you put a fresh coat of paint on your walls, stage your furniture, and bake cookies for the showing, there are more basic things that need to be done, such as fixing anything that is obviously broken. The same is true when it comes to improving your organization's curb appeal.
"Many business owners start their business from scratch and over the years grow it to a point where they turn around one day and are employing 25 people," says De Wolf. "The problem is, they have not put the HR infrastructure in place for a 25-person company. In fact, they often take pride in their informal management style, but it can prove to be a liability when it comes time to sell. Savvy buyers may become concerned about past employment practices and the risks they create."
Think of your curb appeal from the buyer's perspective. While you may not need (or want) formal people policies, chances are the buyer will. Like a speaker who matches his or her attire to the audience, you want to make sure your human resources policies are at least as stringent as those of the company you want to have buy your business.
Here are some basic things to ensure you have in place:
• A written policy making it clear you forbid any form of harassment or discrimination
• A written letter of employment for each of your staff members
• A written description of your bonus system
• Written policies for employee expenses, travel, and benefits
2. Assemble the Binder
After a few great years in the Beaches neighborhood of Toronto, my wife and I started a family, and all of a sudden, our cozy beach cottage felt a little too cozy. We needed more space, so we started looking for a larger house.
We visited one house in particular that we liked. It had enough space and a new kitchen. When we went back for a second visit, the owner had left us a large binder to review. Inside we found what amounted to an owner's manual for the house. The owner had saved and painstakingly catalogued every appliance instruction manual for the house—from the fridge to the furnace to the fire alarm. He had documented when each appliance was purchased, who to call if something should break down, and the nature of the guarantee if any.
This, of course, gave us a huge boost of confidence in buying the house. We knew we could manage it. The neighborhood was good, nearby schools well respected, the yard well kept, but it was that little binder that sealed the deal for us.
Your business—if you want to attract a buyer one day—also needs a binder with instructions for running basic functions. To determine what should go in your binder, think about all of the information you would want to impart to a new employee on his or her first day. It would likely include things like these:
• Instructions for locking the door, setting the alarm at night, and opening up in the morning
• Information about how customers are billed
• Emergency numbers for key service providers
• Forms and step-by-step instructions for routine tasks
• Templates for key documents you use often (letterhead, e-mail signature, fax cover sheet)
• A statement about how your company is to be positioned in the market and any slogan or marketing statements you want consistently used
3. Document Your Intangibles
Because we now have two kids, our criteria for buying a house have changed. When we toured the last house we bought, the real estate agent spent as much time describing the intangibles as she did the features of the house itself. She was sure to let us know that the local school is considered one of Toronto's best; the street is closed to cars on Halloween night for a party at which all of the neighbors meet to hand out candy and mingle; a young family two doors down had boys similar in age to ours; and the closest Starbucks was stumbling distance away.
In fact, if the house had burned down, I think we would have still bought the land and rebuilt in its footprint because of all of the side benefits that we learned about in the wooing.
Your business also has intangible, often intellectual, assets that a potential buyer needs to be made aware of. One way to start brainstorming which intangible assets to document is to imagine the country being taken over by a wayward military regime and your being forced to flee without any money or things. What intellectual capital have you acquired that would allow you to set up your business in another country and be successful again? For example, McDonald's famously has a secret checklist of criteria it uses to determine new franchise locations with the best chance of success.
To improve your organizational curb appeal, document your intangibles, which could include:
• Criteria you use to evaluate a potential new location
• A formula for acquiring new customers
• Proprietary research you've conducted
• Your unique approach for satisfying a customer
As with selling a house, your company's curb appeal goes a long way toward closing a deal. While hard assets are easy to see and value, your people and your approaches are the intangible things that give a buyer confidence to make an attractive offer to acquire your business.
John Warrillow is the author of Built To Sell: Creating a Business That Can Thrive Without You, which will be released by Portfolio/Penguin on April 28, 2011.