Many business owners see their company through rose-colored glasses. But when an outside party or a sophisticated buyer looks at that business, they may view it different.

“There are a lot of factors that go into that and oftentimes the owner of the business doesn’t realize those factors because they’re a part of the business,” says Gary Schuster, president and CEO of OMCO. “Many of these factors would compromise the value of the business.”

So Schuster, speaking at the recent Cleveland Smart Business Dealmakers Conference, offered a list of soft-side considerations that he uses to evaluate businesses.

  • Make sure the facilities are clean and organized inside and out.
  • Organize inventories inside the facilities, have good inventory records and purge obsolete inventories.
  • Make sure you’re in compliance with OSHA. He says some regulations might not be apparent, so have someone with expertise in this area look to see where you might be out of compliance.
  • Manufacturers should embrace some level of lean manufacturing, even if it’s only 5S and continuous improvement. For companies that aren’t currently doing that, he says there’s likely someone in the organization who would be interested in leading that charge. Many community college have training programs to get candidates up to speed.
  • Have some level of shop floor data boards, including employee engagement notifications, to show prospective buyers that employees are engaged with management.
  • Have some level of a quality program. ISO9001 is the most internationally recognized. For companies that might not be able to reach that standard, he says consider implementing a quality program that conforms to the key elements of that certification.
  • Be able to talk about customer service using key metrics such as on-time delivery, how you manage customer complaints and continuous improvements.
  • Have organizational charts and a succession plan.
  • The ability to demonstrate growth in the future is a big factor in the multiples the business could achieve in a sale. An investment banker can help you establish that in a Confidential Information Memorandum (CIM). Schuster adds that CIMs are a living, breathing part of your business that highlights the fundamentals of the company’s growth trajectory or potential.
  • Information systems often aren’t fully implemented, with some or many modules not being used. Schuster suggests engaging with those systems to show more professionalism.

“Even if you don’t end up in a transaction, all of these things have economical benefit when you hold and continue to operate the business,” Schuster says.

Schuster was just one panelist who spoke during the Transaction Preparedness breakout session at the Cleveland Smart Business Dealmakers Conference. He, along with the four other panelists, offered more advice for companies and business owners trying to get their business in shape ahead of a process. Hit play on the video above to watch the full panel discussion.