How to Sell a Company
Is your business in a position to survive and thrive without you?
Are you building a sellable business?
According to John Warrilow author of Built to Sell, the number one mistake entrepreneurs make is to build a business that relies too heavily on them. So when it comes time to sell, buyers aren’t confident that the company can stand on its own.
Recently, I had the privilege to speak with John and asked him some key questions about creating a business that can be sold.
Q. How far in advance should a business owner start to prepare his or her business to be sold?
A. I think business owners should build their business to sell from day one. That way, they’ll have all of their options open: run the business forever without the stress of dealing with the details, install a manager and become a shareholder, or—if the price is right—sell it.
Q. What is the most difficult part of creating a sellable company?
A. Pulling the owner out of the center of the business. To be sellable, the company has to be able to run without the owner.
Q. What’s the trick to pulling yourself out of the day-to-day tasks of running the business?
A. As ironic as it may sound, I think the secret is selling fewer things to more people. You need diversity among your customer base so your business is not overly reliant on one customer, and you need other people to do the work, which means narrowing your product and service list to a point where others can be trained to deliver.
Q. Won’t selling fewer things reduce the size of a business and therefore its value?
A. Not necessarily. Once you have a narrow list of products and services that don’t change from one week to the next, you can hire a sales team—or empower the one you already have—to replace you as the rainmaker. Salespeople thrive on repetition, so they struggle when business owners keep changing the product or service or agreeing to customize a solution for an individual customer. There’s an example in the book of an ad agency owner who sells everything from websites to radio ads, and he is struggling to clear $100,000 on $1,000,000 in revenue. He narrows his offering to just logos and scales up to a $5,000,000 business with more than $1,000,000 in profit. He was able to grow because he was no longer doing all the selling.
Q. What’s the secret to getting the highest price for your business?
A. Recurring revenue. When acquirers look into buying a business, they need to know how the company will continue to generate sales and profits after the business owner has sold the company. The best way to guarantee future revenue is through long-term contracts that include a change of ownership provision. The second best way is a recurring revenue model—like a subscription—where customers buy regularly and owners can demonstrate an annuity stream to an acquirer based on their renewal rate. There’s a list of the top six forms of recurring revenue ranked from least to most attractive in the eyes of an acquirer in the back of my book Built To Sell.
Q. What’s the biggest mistake you see business owners make when it comes to their exit?
A. Waiting too long. Most business owners add a lot of value in the first five years of running their company, when energy, drive, creativity and gumption are all valued at a premium. Once the business is up and running, the owner often gets bored, and the business stalls. Selling a business can give you the ultimate currency: time. Ironically, business owners often use up too much of it running a business beyond the point at which they are enjoying it.
What steps are you taking to build a business that can thrive without you?
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About the author
Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and All Business.com. His articles and blog; Business Credit Blogger.com, have been featured in ‘Fox Small Business’,’American Express Small Business’, ‘Business Week’, ‘The Washington Post’, ‘The New York Times’, ‘The San Francisco Tribune’,‘Alltop’, and ‘Entrepreneur Connect’.