To reach the peak of Mt. Everest mountain climbers need oxygen. For your business to reach its peak you need an oxygen influx, and one great way to get it is to (pretend to) “buy your own business.” Put your business through a mock acquisition process to uncover the opportunities and vulnerabilities a business buyer would uncover.

“Thank you,” gushed a previously frustrated sales manager. When I asked why, she replied that it was for helping Bob buy the company she worked for. “He’s a breath of fresh air,” she said. He listened to the employees, had plans to grow the business and wasn’t content to just make a good living (as the seller was).

Ask yourself, and seriously answer, would you buy your business? Would you pay the hypothetical seller (you) what you hope it is worth? Does your business meet your standards for an acquisition, knowing what you know today about your business, its industry and the economic future? If not, consider a revitalization tactic, such as the one summarized below.

What Do You Have?

The first step is an evaluation and market analysis of your firm. It will give a range of value that buyers might pay, bring to light strengths and weaknesses and give you an understanding of the status of your firm’s non-financial factors (customers, employees, management team, vendors, marketing, etc.). For many business owners the company is a large part of their personal net worth and most owners overvalue their business. It’s their “baby” after all.

This evaluation often brings up more questions than answers, and that leads to improvement, growth and more profit.

Prove It

In the buy-sell world of small and midsize businesses, due diligence is what buyers do to prove what the seller has told the buyer about the company. It is no time for surprises, for the buyer or the seller; it is the time for confirmation. This is where you get into the details; for now we’ll concentrate on five areas.

1. Is there a culture of coasting, or is your business thriving with energized and motivated employees? One of the dilemmas for many business buyers is how to energize the business’ team of employees without disrupting operations. Cultural change is not easy.

Investigative due diligence will determine if your management team has the capabilities to drive growth: Are they are at their peak? Often just getting them involved in this process (the hypothetical sale of your business) provides a spark of enthusiasm compared to their usual day-to-day routine. A standard evaluation technique for executives (and others) is called 360^o feedback. It involves interviewing everybody the executive has interaction with: employees, customers, boss, peers and others. Due diligence will do this on your key people and you.

It’s better for you if you tackle this hypothetical exercise now rather than later when you’re talking to a potential buyer about selling your business. Making fixes now will increase your cash flow and reduce headaches; making fixes or discounting the selling price, which potential buyers will demand, will cost you a lot of money; deferring reality may also close your window of opportunity to sell your business.

2. Customers are part of the 360°process, and they are trickier to handle than employees. If you call your customers and ask how your firm is doing, chances are you’ll get a stock answer of “Okay, we keep buying from you, don’t we?”

The best results are when a third party calls as part of a customer satisfaction survey or asking for a reference as a prospective customer. I’ve heard interesting stories when interviewing a client’s customers, mostly positive, and occasionally a choice tidbit that allows the firm to improve.

This goes well beyond simply analyzing customer concentration or tracking their business over a few years. This uncovers concerns, unmet needs and builds customer loyalty (because you are showing that you care).

3. In 1998, Ben, the owner of a rep and distribution company, lost his top line, which accounted for almost 50 percent of his revenue. The company was rebuilt, but he didn’t learn his lesson. In 2011 he lost his new top line, which accounted for 60 percent of his revenue (after a larger competitor lost their top line and took his).

Often overlooked, vendor concentration can be more deadly than customer concentration. How dependent are you on your top vendors?

4. Is your technology adequate for growth? In more transactions than not, the business buyer in their first year of ownership upgrades the technology, hardware and software. While it’s a cash disbursement this sort of investment usually saves time and money. One buyer dramatically improved his accounting department’s productivity by simply replacing the old printer that took “forever” to print reports with a new one that did it instantly. Getting the most out of your technology to drive sales and decrease costs is the goal. Too many companies are shortsighted; they ignore this as they focus only on the cost.

5. Financial systems, financial statements and useful management reports are a weak link in a majority of small businesses. During a recent roundtable discussion facilitated by a CPA and CFO they stated that while computerized accounting (QuickBooks is predominant) is great, the report templates rarely provide useful information. In a sales organization there should be, at a minimum, management reports tracking orders, backlog, the pipeline, lead conversion and closing cycle.

Real Life Example

During a buy-sell transaction’s due diligence, the interviewing of customers is a crucial part of the process. A seller told his buyer he couldn’t talk to the company’s customers for a variety of reasons. Over the protests of the buyer’s attorney and me, the buyer agreed to not contact any of the customers.

What a mistake! Within one month of closing the deal, the buyer discovered the top customer (prestigious and a high share of annual revenue) was extremely unhappy and was in the process of doing a “test kitchen” with all of the competitors’ products. This customer’s conference room was filled with competitors’ products (but not the buyer’s) for testing and comparisons.

The customer said they’d been “nickeled and dimed” to death over the years when the cost of converting to another product was extremely high (even converting with the buyer’s firm). The cost of conversion was now lower due to technological advances, they decided to convert, did not invite their current supplier to bid, the account was lost and it led to a (post-closing) renegotiation of the purchase price. All of which was a major distraction to the new owner and his new business. And, to the seller’s dismay, there was claw back of some of the proceeds of the business sale by the buyer.

This story demonstrates that little things can fester and why it pays to keep on top of customer relations. Do your salespeople tell you everything is just fine, up until your customers leave?

Plan to Grow

Do you have a marketing and sales plan? Is it in your head or in writing? Are your employees aware of your strategy or do they wonder what will come next?

Having interviewed more than 1,000 owners, I can say that most businesses don’t have a worthwhile sales and marketing strategy or plan. This can also be called a growth plan. When you have a plan it allows your team to contribute to it, buy-in to it and get on board with your strategy. During the hypothetical process of “buying your own business” creating a growth plan is often an integral step towards igniting sparks of enthusiasm.

I don’t have space here to go into detail on a growth plan but I can tell you it starts with research, it sets goals, defines targets, activity and requires implementation (so it’s not a shelf plan). It also takes continual monitoring. Create and implement a plan to quickly improve performance.

Double the Value of Your Company — Now

Here’s a bonus strategy. After putting your firm through a mock acquisition, go out and do it for real. Find a competitor, a firm with complementary product lines or a geographic territory beyond yours and then acquire them. You not only grow, but you can achieve economies of scale so 2+2=16.

Conclusion

Businesses are in an economic funk. Not all industries and not all companies are affected, but in general there is a consensus that we will be in this funk for a long time. Don’t sit back and wait for the recovery wave to raise you to the next level. Take action, buy your own business,” be a breath of fresh air to it and then consider buying another one.