While 80% of all business owners close their doors within just five short years of launch, you have created a going concern that has lasted years and paid your family’s way. Unfortunately, while successful in the eyes of everyone around you, you know that your business’ success is largely due to your extremely busy days and almost non-stop work.
As the years go on, your busy days (and often, your busy weekends) are starting to take their toll. You start to wonder… how long you can keep up this day-to-day hustle?
When you first launched, you loved your business – and you told yourself that you’d likely be able to sell it for a premium. Perhaps you even considered it your nest egg, as opposed to saving one. But now you realise that you don’t have the first clue about how to sell, or if someone would even be interested in buying the business you’ve worked so hard to build. It’s not your fault; most people don’t know how to create a successful business in the first place, which leaves almost no one there to teach you how to sell one.
That’s why I’ve identified three major pillars that will help turn your going concern into something special – something that can be sold for profit!
Step 1: Sell A Business, not a Job
When you first started your business, I’m sure that, like most business owners, you had big aspirations about what owning your own business would look like. You dreamed of being the master of your own empire. Heck, let’s be honest: You dreamed about having it all – time off for family or personal pursuits without feeling guilty, all the while enjoying the money you would make from your new business venture. Am I right?
Originally, this might have been something you took pride in. After all, who doesn’t want to be needed? However, as you got older – and perhaps a little overwhelmed with your seemingly impossible workload – it started to get a little frustrating.
I often say to my clients, “If you can’t systemise your business, you don’t have a business to sell.” After all, who’s going to buy a business that offers so little freedom or capacity for growth?
Belinda is a great example of this. When she first came to us, she was focused on selling her business within the next two years.
Belinda and her husband Brian had spent 17 years hustling and grinding, creating a business that was turning over nearly a million dollars annually. Their customer service was second to none, and their product offering was the go-to for customers in their niche.
However, behind the scenes, Belinda and Brian were incredibly stressed. Every day Belinda was peppered with questions from her team: “How does this work?” … “Can you show me how to do this?” … “What should I do about this?” It got to the point that Belinda could only start her own work when everyone else went home, leading to some very late nights and some very exhausting mornings.
In our first session together, she finally realised exactly what had been going wrong. Belinda had succeeded in making her team dependent on her, rather than working with them to create systems and procedures that would allow for self-reliance. The lack of proper systems was not only hurting her; it was also preventing the business from growing and providing the payday she and Brian deserved.
While the thought of systemising her business was initially overwhelming, Belinda quickly found that it came together amazingly fast. In fact, within weeks, Belinda found that her new systems were saving time. And within just a few months, she finally felt free to take an entire week off work.
Today, Belinda’s business is no longer in shambles. And even better, the freedom that comes from systemising has actually made her rethink her decision to cash out quickly. She now enjoys running her business like never before, and profits have increased by a massive 30%. Belinda has decided to let the profits continue to increase for an extra year or two, resulting in an additional 20% return for their retirement. Not bad for two more years of enjoyable work!
Step 2. The Holiday Rule
The second most important thing most business owners don’t do is replace their direct involvement in their business. This leaves them hustling to get sales until they are old and grey, tearing their hair out at month end trying to process all the invoices. They drink endless amounts of coffee just so they can stay awake for an hour or two longer before crashing into bed, exhausted. This grueling cycle continues every single week without exception.
One of the key questions I like to ask my clients when they’re assessing their readiness for sale is, “If you walked away from your business for six months, what would happen? Who could step into your shoes?” Unfortunately, clients can’t often answer this question with confidence.
This is a huge issue, as buyers are looking for business opportunities with the goal of optimising and improving, not stepping into an overwhelming job.
It is therefore not surprising that the best way to start preparing your business for sale is to remove the need for any task to be done by you and only you.
To do this, I want you to stop “doing,” and start leading. Shift your mindset from an employee of the business to being in charge – to being a boss! Review which areas of the business could be outsourced, which areas should probably stay in-house, and who internally could take over your responsibilities.
It’s important to note that replacing yourself in the business does not mean you cannot still have an active role. It simply means that now your job will be acting as a sounding board for key staff, and supporting them with value-driven strategies.
Paul is a great example. Having started his multimillion-dollar business six years ago, he was still heavily involved in the day-to-day, working 70 hours a week because the business rested almost entirely on his shoulders.
He was still making most of the sales calls, data entering all the invoices, and preparing all the quotes. Follow-up was not happening at all, because he just didn’t have time.
Paul was planning on selling his business in 8-10 years, which felt like a lifetime away. He was already fatigued and had 40 winks at his desk most days. He knew that he was getting older, his body and mind were slowing, and he was worried about any implications a potential health risk might have on his business.
But Paul was nervous of letting go. You see, Paul had two major fears at play: Fear that his business would fail without him, and fear that it wouldn’t.
In our first session, it became clear that Paul didn’t think anyone could do his tasks better than he could himself. I helped him realise that, while true, he had no time to do other essential parts of his job, so someone else doing it was actually still better than nothing.
He quickly delegated the data entry of invoices and assigned the follow-up calls to a team member who had more energy and a fresh approach.
In fact, the success of this delegation soon led to a new hire for quoting, something Paul would have never let go of before.
Today, Paul is a real business owner! He’s watched his team grow and has seen revenue increase by 40%. To top it all off, he continues to let go of more tasks, is less fatigued, and is no longer napping at his desk. Better yet, his willingness to let go allows him to spend more time with his family (without having to check on the business) and has provided a HUGE jump in what his business will be worth when he’s ready to sell.
Step 3. The Numbers are Missing in Melody
The challenge in selling a business is knowing what it’s really worth. You might think that you know, but the person on the other side of this deal will likely have their own opinion!
When buyers are purchasing a business, they want to make sure that it’s the real deal. A lot of people love the idea of buying a going concern, but are terrified of being sold a lie, or purchasing something which may turn out to be wrong for them. Numbers should always reflect reality; therefore, any numbers that appear to be missing in melody will produce an overly conservative offer – or even no offer at all.
In addition, most buyers will compare your business to others for sale, which is not a fair, oranges to oranges comparison.
So, how do you go from a lowball offer to one that’s worth 5-15x as much? By not being seen as any old orange at all, but instead as something much juicier.
It all comes down to the numbers. You need numbers that sing.
Stephanie and Matt’s story of how they cashed out with a high multiple is an excellent example for those who want to make their dreams come true.
Stephanie and Matt wanted to work in their business for just a few more years before going on to retire. But they were in a tough spot. For years, they had failed to fully understand the numbers. This made it impossible for them to report on maximizing revenue or profits. The pair knew this would create an issue when selling. They decided something needed to change, and fast.
In our first session, I helped Stephanie and Matt see how important it was for them to start taking control of their numbers. We came up with a plan to dedicate the remaining years of their business to recording their numbers in a way that would show growth, stability, and success.
Together, we did a full audit on all aspects from taxes down. We reviewed every possible opportunity to increase gross margin, showing their business in the most profitable light.
Knowing that their retirement plans were on the line, Stephanie and Matt used this time to fully understand their numbers, as well as what they needed to monitor on a regular basis, in order to attract high multiples and multiple offers when it came time to sell – and it paid off!
With their numbers being recorded so enticingly, they now knew that selling the business would fully fund their retirement. Stephanie and Matt were excited to accept an offer of a 15x multiple, securing themselves an additional $5 million!
The Takeaway
Selling your business for a significant profit relies on the three often neglected steps outlined in this article. That’s what will lead to high multiples and several offers.
I love it when I get to see business owners like Stephanie and Matt, who were able to cash out of their business and get the payday they deserved.
However, I hate seeing business owners, who have been working hard for years, get turned away by brokers because they didn’t properly get their business ready for sale.
