By definition, the term Going Concern is defined most often in the accounting world as something close to “a company that has the resources needed in order to continue to operate indefinitely.” This is a good, macro scale place to start thinking about your company and the various facets that make the organization tick.
Then there are some next level questions to discover how dependent the generation of those resources are on a single person or single group of people, whether that group is internal to the organization (employees) or external to the organization (customers). Diversification of the generation of resources, in order that it not rely too heavily on any single group, is a key component of a Going Concern for any organization.
As we meet with clients, this concept is revisited often at all levels in the structure of the business. It’s when we work toward valuation of the organization and approach the idea of bringing a company to market that the real rubber meets the road. Companies that are true Going Concerns are valued higher and sell faster than those farther down the ladder in this process. It’s worth noting that companies that achieve this Going Concern status are often far more successful, easier to operate, and more profitable for the current owners. There are far fewer “daily fires” to put out and the business is much more intentional in its daily grind.
To find out why, it is beneficial to step back from the strict, accounting driven definition of the term to understand the implications within the business; as it operates for the current owner and as it will be seen by the outsider, the buyer. We can also look at a few of the basic steps we advise anyone who is going to sell their business to take. Many times, the first thing to consider is how much autonomy can be built into the business. Larger companies find it easier; smaller companies a bit more difficult. The process is very broad and difficult to digest all at once. It is a process over time.
At any level of size, there are things that can be done to move down the continuum in an effort to become a Going Concern. First, let’s consider briefly the internal dynamic and then we will move to the external. Internally, the focus is on the employee or owner. Moving beyond that reliance on an owner is a large leap for many organizations. Quite obviously, spreading that responsibility is key. What else can be done?
Internally, the focus should be on procedures and documentation. Making things function smoothly is often not about the person, but about the procedure. Organizations that have well documented and repeatable procedures function more autonomously — even small companies that are otherwise dependent on their owner/leader. It is usually the first step in becoming a true Going Concern. From the perspective of the buyer, the company appears much different than those without good documentation. Our advice is to start at the bottom and document your way through the organization. You will be surprised at what you find.
Externally, it’s really very similar to documentation, but documenting as related to your market and niche. The company is going to operate more autonomously if the customer is easily identified and readily accessible. The focus is on the company offering and how you reach your audience. You are not trying to sell anything to everyone. A business professor once referred to a company they called AFAB, Inc. Anything For a Buck struggled to find its customer and its customer struggled to find them.
Internally and externally, everyone was confused about what the company brought to the table. AFAB needed to better identify its customer and why that customer would come to its door. While there are larger issues at play, h ere the metaphor serves to remind us of the value of a definite niche and that is very relevant in becoming a true Going Concern.
Our experience at The FBB Group is clear, the farther down the continuum to becoming a true Going Concern, the faster a company sells for a higher value.