Tag Archives: Selling Your Business

One Hidden Thing That Drives Your Company’s Value

Republished with permission from Built to Sell Inc.

You already know that your company’s revenue and profits play a big role in how much your business is worth.

Do you also know the role cash flow plays in your valuation?

Cash vs. Profits

Cash flow is different than profits in that it measures the cash coming in and out of your business rather than an accounting interpretation of your profit and loss. For example, if you charge $10,000 upfront for a service that takes you three months to deliver, you recognize $3,333 of revenue per month on your profit and loss statement for each of the three months it takes you to deliver the work.

But since you charged upfront, you get all $10,000 of cash on the day your customer decides to buy. This positive cash flow cycle improves your company’s valuation because when it comes time to sell your business, the buyer will have to write two checks: one to you, the owner, and a second to your company to fund its working capital – the cash your company needs to fund its immediate obligations like payroll, rent, etc.

The trick is that both checks are drawn from the same bank account. Therefore, the less the acquirer has to inject into your business to fund its working capital, the more money it has to pay you for your company.

The inverse is also true.

If your company is a cash suck, an acquirer is going to calculate that she needs to inject a lot of working capital into your business on closing day, which will deplete her resources and lessen the check she writes to you.

How To Improve Your Cash Flow

There are many ways to improve your cash flow – and therefore, the value of your business. One often overlooked tactic is to spend less on the machines your company needs to operate.

In the restaurant business, for example, there is an often repeated truism that it takes three bankruptcies at a single location before any restaurant can make money. The first owner of the restaurant walks in and – with all of the typical optimism of a new entrepreneur – pays cash for a brand new commercial kitchen complete with fancy stove, commercial grade walk-in coolers, etc., as well as all new dishware, pots and pans, thus depleting his cash reserves before opening night. Within a year, the restaurant owner runs out of cash and declares bankruptcy.

Then along comes a second entrepreneur who decides to set up her restaurant at the same location and buys all of the shiny new equipment from owner number one’s creditors for 70 cents on the dollar, figuring she has made a wonderful deal. But the outlay of cash is still too great and she too is out of business within a year.

It’s not until the third owner comes along that the location actually survives. He saves his cash by buying all of the equipment off the second owner for 10 cents on the dollar.

The moral of the story is: find a way to reduce the cash you spend on equipment, however you can. Can you buy your gear used on sites like eBay? Can you share a very expensive piece of machinery with another non-competitive business? Can you rent instead of buying?

Profits are an important factor in your company’s value but so too is the cash your company generates. We call this phenomenon The Valuation Teeter Totter and it is one of the eight key drivers of the value of your company. Curious to see how you’re performing on all eight drivers?

Sellability Score

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

10 Things That Make Your Business More Valuable Than That of Your Industry Peers

Republished with permission from Built to Sell Inc.

The value of your company is partly determined by your industry. For example, cloud-based software companies are generally worth a lot more than printing companies these days.

However, when we analyze businesses in the same industry, we still see major variations in valuation. So we dug through the data available to us from our partners at The Sellability Score and we found 10 things that will make your company more valuable than its industry peer group.

1. Recurring Revenue

The more revenue you have from automatically recurring contracts or subscriptions, the more valuable your business will be to a buyer. Even if subscriptions are not the norm in your industry, if you can find some form of recurring revenue it will make your company much more valuable than those of your competitors.

2. Something Different

Buyers buy what they cannot easily replicate on their own, which means companies with a unique product or service that is difficult for a competitor to knock off are more valuable than a company that sells the same commodity as everyone else in their industry.

3. Growth

Acquirers looking to fuel their top line revenue growth through acquisition will pay a premium for your business if it is growing much faster than your industry overall.

4. Caché

Tired old companies often try to buy sex appeal through the acquisition of a trendy young company in their industry. If you are the darling of your industry trade media, expect to get a premium acquisition offer.

5. Location

If you have a great location with natural physical characteristics that are difficult to replicate (imagine an oceanfront restaurant on a strip of beach where the city has stopped granting new licenses to operate), you’ll have buyers who understand your industry interested in your location as well as your business.

6. Diversity

Acquirers pay a premium for companies that naturally hedge the loss of a single customer. Ensure no customer amounts to more than 10 percent of your revenue and your company will be more valuable than an industry peer with just a few big customers.

7. Predictability

If you’ve mastered a way to win customers and documented your sales funnel with a predictable set of conversion rates, your secret customer-acquiring formula will make your business more valuable to an acquirer than an industry peer who doesn’t have a clue where their next customer will come from.

8. Clean Books

Companies that invest in audited statements have financials that are generally viewed by acquirers as more trustworthy and therefore worth more. You may want to get your books reviewed professionally each year even if audited statements are not the norm in your industry.

9. A 2iC

Companies with a second-in-command who has agreed to stay on post sale are more valuable than businesses where all the power and knowledge are in the hands of the owner.

10. Happy Customers

Being able to objectively demonstrate that your customers are happy and intend to re-purchase in the future will make your business more valuable than an industry peer that does not have a means of tracking customer satisfaction.

Like a rising tide that lifts all boats, your industry typically defines a range of multiples within which your business is likely to sell for; but whether you fall at the bottom or the top of the range comes down to factors that have nothing to do with what you do, but instead, how you do it.

Sellability Score

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

A blood pressure test for your business

Republished with permission from Built to Sell Inc.

When was the last time you had your blood pressure tested?

Taking your blood pressure is one of the first things most doctors do before treating you for just about anything. How much pressure your blood is under as it courses through your veins is a reliable indicator of your overall health; and it can be an early indicator of everything from heart disease to bad circulation.

Does it tell the doctor everything they need to know about your health? Of course not, but one powerful little ratio can give the doctor a pretty good sense of your overall wellbeing.

Likewise, your Sellability Score can be a handy indicator of your company’s wellbeing. Like your blood pressure reading, your company’s Sellability Score is an amalgam of a number of different factors and can help a professional quickly diagnose your company’s overall health.

Predicting Good Outcomes Too

When a doctor takes your blood pressure, they not only rule out possible nasty ailments; they can also use the pressure reading to forecast a healthy life ahead. Similarly, your Sellability Score can predict good things for the future. For example, based on more than 10,000 business owners who have completed their Sellability Score questionnaire, we know the average multiple of pre-tax profit they are offered for their business when it is time to sell is 3.7. By contrast, those companies that have achieved a Sellability Score of 80+ are getting offers of 6.6 times pre-tax profit.

In other words, if you have an average-performing business turning out $500,000 in pre-tax profit, it is likely worth around $1,850,000 ($500,000 x 3.7). If the same company improved its Sellability Score to 80+ while maintaining its profitability of $500,000, it would be worth closer to $3,300,000 ($500,000 x 6.6).

Are you guaranteed to fetch 6.6 times pre-tax profit if you improve your Sellability Score to 80? Of course not. But just like blood pressure, one little number can tell you and your advisor a whole lot about how well you are doing; and your advisor can then prescribe an action plan to start maximizing your company’s health – and its value down the road.

Heart disease is called “The Silent Killer” because most people have no idea what their blood pressure is. People can walk around for years with dangerously high blood pressure because they haven’t bothered to get it tested. The first step on the road to health is to get tested. If you have a great score, you can sleep well at night knowing you have one less thing to worry about. If your score is not where it should be, then at least knowing your performance can get you started down the road to better health.

Sellability Score

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

5 Ways To Attract The Attention Of An Acquirer

Republished with permission from Built to Sell Inc.

In any negotiation, being the person who makes the first move usually puts you at a slight disadvantage. The first-mover tips their hand and reveals just how much he/she wants the asset being negotiated.

Likewise, when considering the sale of your business, it is always nice to be courted, rather than being the one doing the courting. The good news is, the chances of getting an unsolicited offer from someone wanting to buy your business are actually increasing.

According to the Q2, 2014 Sellability Tracker analysis released in July 2014, 16% of business owners have received an offer in the last year, which is up 37% over Q1. Said another way, you’re 37% more likely to get an offer to buy your business today than you were at the beginning of the year.

Big companies are buying little ones for a lot of reasons and the current market conditions are accelerating their appetite: interest rates are low and stock markets are high, which provide the ideal platform for acquirers to realize a return on their investment from buying a business like yours.

So how do you ensure you are on their shopping list? Here are five ways to get noticed by an acquirer:

1. Win an award

Getting recognized as the “Widget Maker of the Year” by the Widget Makers Association is a great way to get the attention of acquirers in your industry.

2. Hire a PR person

Engaging a public relations professional to tell your story to the media can get you on the radar of buyers in your industry. A lot of media relations professionals focus on the big mainstream publications, and while these are important, ensure that your PR firm also targets trade publication and industry-specific websites that are read by acquirers in your industry.

3. Host an event

Consider hosting an event (e.g., conference, tradeshow, summit) for your industry and invite representatives from potential acquirers to attend. Being invited to an industry event can be flattering for acquirers and it is a good way to get them to notice you as an industry leader.

4. Join a board

If an executive from a company you think would make a natural buyer for your business is serving on a board of directors, consider joining the board. Serving on a board together can be a great way for an acquirer to notice you and your company without you having to say you’re for sale.

5. Grab lunch

Consider inviting a senior executive from a potential acquirer to share a meal under the guise of discussing trends in your industry. At the very least, you may glean some useful information about how big companies are seeing your industry evolve. At best, your lunch mate may realize that your company could play a key role in helping them grow.

The sale of your business is a delicate dance where it is usually better to be the courted, rather than the courter. Acquirers are on the hunt for new businesses, and having them notice you will put you in a position of strength when you get to sit down at the negotiation table.

Why not find out now if your business is sellable?

This free online tool is the only no-risk step you can take to determine if your business is ready to get full value. Fast-track your analysis by taking advantage of this free, no-obligation free online tool.

This Sellability Score you instantly receive is a critical component to any business owner’s complete financial plan and is something that, until now, we have only made available to existing clients.

However, we recognized that there is value in knowing in advance of working with a financial planner whether or not your largest asset is ready to be exchanged for your retirement nest egg. Our view is that you are better to learn more about your businesses sellability today and find out how your business scores on the eight key attributes so that you can ensure you obtain full value.

If your business part of your retirement plan, finding out your sellability score will be the best 10 min. you could ever spend working “on” your business.

Take the Quiz here: The Business Sellability Audit

Sellability ScoreFor more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Six ways to profit from your vacation this summer

Republished with permission from Built to Sell Inc.

Summer is here, and although it may seem strange, now may be the perfect time to increase the value of your company.

The most valuable businesses are the ones that can survive without their owner. A buyer will pay a premium for a company that runs on autopilot and levy a steep discount for a business that is dependent on its owner.

This summer, consider taking an extended break from your business to see how things will run when you’re not in the building. It’s likely that some things will go wrong, but use those errors as the raw material for making your business operate more independently of you – and therefore more valuable.

Here is a six-step plan for profiting from your vacation time this summer:

Step 1: Schedule your vacation plus one day

Whatever day you plan to start working again after your holiday, tell your staff you’ll be back one day later. That way, you’ll have a full day of uninterrupted time to dedicate to understanding what went wrong in your absence.

Step 2: Bucket the mistakes

When you return, make a summary of the things that went wrong and categorize them into one of three buckets:
• Mistakes: errors where there is a right and wrong answer;
• Bottlenecks: projects that had difficulties because you weren’t there to provide your feedback;
• Stalled projects: initiatives that went nowhere while you were gone because you’re the person leading them.

Step 3: Correct the mistakes

The first and easiest place to start is to simply correct the mistakes that were made. Usually mistakes are due to a lack of training rather than outright negligence. The right answer may be crystal clear in your head but not immediately obvious to your staff. Write up some instructions for next time the employees face the same situation. Make sure your instructions are clear, and share them with your team so everyone has them (a file sharing service like Google Drive or DropBox can be a helpful repository for your instructions).

Step 4: Unblock your bottlenecks

If you’re being asked for your personal input on projects, there’s probably going to be a bottleneck if you’re not around. Make sure your staff is clear on the projects where you need to have a say and the projects where you don’t. Some employees may wrongly think that you need to approve all decisions. Make it clear when you want them to act alone and when you still need to have a say.

Step 5: Re-assign stalled projects

The hardest part of making your business less dependent on you is dealing with projects that get stalled when you’re away. Start by asking yourself if you’re the right person to lead the project in the first place. As the owner of your business, projects often fall in your lap by default, rather than because you’re the best person to lead them. Categorize your stalled projects into two groups: a) strategic projects you need to lead; and b) non-strategic projects you are leading by default. Hang on to the strategic projects, but delegate the non-strategic projects to someone on your team who is better suited to drive them forward.

Step 6: Give every employee a blank check

At Ritz Carlton Hotels, they give every employee discretion to spend – without approval from their general manager – up to $2,000 on a guest. The $2,000 figure is a large enough number to make the message clear: front line employees should act first, make the customer happy, and ask questions later. Many employees know how to make a customer happy but lack the confidence to act. Giving employees some spending authority will speed up the resolution of customer issues and empower your team to do the right thing when you’re not there.

The sunshine is beckoning, so go ahead and take a vacation – if you follow the six steps here, you may end up with a tan and a more valuable company.

Why not find out now if your business is sellable?

This free online tool is the only no-risk step you can take to determine if your business is ready to get full value. Fast-track your analysis by taking advantage of this free, no-obligation free online tool.

This Sellability Score you instantly receive is a critical component to any business owner’s complete financial plan and is something that, until now, we have only made available to existing clients.

However, we recognized that there is value in knowing in advance of working with a financial planner whether or not your largest asset is ready to be exchanged for your retirement nest egg. Our view is that you are better to learn more about your businesses sellability today and find out how your business scores on the eight key attributes so that you can ensure you obtain full value.

If your business part of your retirement plan, finding out your sellability score will be the best 10 min. you could ever spend working “on” your business.

Take the Quiz here: The Business Sellability Audit

Sellability ScoreFor more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

How to increase the value of your business by 71%

Republished with permission from Built to Sell Inc.

How much did your home increase in value last year? Depending on where you live, it may have gone up by 5 – 10% or more.

How much did your stock portfolio increase over the last 12 months? By way of a benchmark, The Dow Jones Industrial Average has increased by around 13% in the last year. Did your portfolio do as well?

Now consider what portion of your wealth is tied to the stock or housing market, and compare that to the equity you have tied up in your business. If you’re like most owners, the majority of your wealth is tied up in your company. Increasing the value of your largest asset can have a much faster impact on your overall financial picture than a bump in the stock market or the value of your home.

Let us introduce you to a statistically proven way to increase the value of your company by as much as 71%. Through an analysis of 6,955 businesses, we’ve discovered that companies that achieve a Sellability Score of 80+ out of a possible 100 receive offers to buy their business that are 71% higher than what the average company receives.

How long would it take your stock portfolio or home to go up by 71%? Years – maybe even decades. Get your Sellability Score now and you will be able to track your overall score along with your performance on the eight key drivers of Sellability. Like a pilot working his instrument panel, you can quickly zero in on which of the eight drivers is dragging down your value the most and then take corrective action.

Your overall Sellability Score is derived from your performance on the eight attributes that drive the value of your company:

1. Financial Performance: your history of producing revenue and profit combined with the professionalism of your record keeping.

2. Growth Potential: your likelihood to grow your business in the future and at what rate.

3. The Switzerland Structure: how dependent your business is on any one employee, customer or supplier.

4. The Valuation Teeter Totter: whether your business is a cash suck or a cash spigot.

5. The Hierarchy of Recurring Revenue: the proportion and quality of automatic, annuity-based revenue you collect each month.

6. The Monopoly Control: how well differentiated your business is from competitors in your industry.

7. Customer Satisfaction: the likelihood that your customers will re-purchase and also refer you.

8. Hub and Spoke: how your business would perform if you were unexpectedly unable to work for a period of three months.

To find out how you’re performing on the eight key drivers of Sellability and start your journey to increasing the value of your largest asset, get your Sellability Score now:

This free online tool is the only no-risk step you can take to determine if your business is ready to get full value. Fast-track your analysis by taking advantage of this free, no-obligation free online tool.

This Sellability Score you instantly receive is a critical component to any business owner’s complete financial plan and is something that, until now, we have only made available to existing clients.

However, we recognized that there is value in knowing in advance of working with a financial planner whether or not your largest asset is ready to be exchanged for your retirement nest egg. Our view is that you are better to learn more about your businesses sellability today and find out how your business scores on the eight key attributes so that you can ensure you obtain full value.

If your business part of your retirement plan, finding out your sellability score will be the best 10 min. you could ever spend working “on” your business.

Take the Quiz here: The Business Sellability Audit

Sellability ScoreFor more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Why fire trucks always back in

Republished with permission from Built to Sell Inc.

Have you ever noticed that fire trucks always back into the fire hall?

Why don’t they just pull into their parking spot snout-forward like the rest of us?

Backing in at the end of a shift saves them time when they have to get to a fire. They back in to be ready; whether the call comes in 5 minutes or 5 days, they are prepared to pull out as quickly as possible.

Like the firemen, you, as a business owner, need to be ready when you get the call from someone who wants to buy your business. And these days, owners are getting that call more often. According to the latest Sellability Tracker report, the proportion of business owners who received an offer to buy their company in the quarter ending March 31, 2014 was up considerably from Q4 2013. Roughly 12% of business owners using The Sellability Score last quarter had recently received an offer to buy their business.

business liquidity index

The proportion of owners getting an offer is an important statistic because it measures one half of the equation of a business sale. For a transaction to take place, there must be both a willing seller and a willing buyer.

Companies are becoming more acquisitive because they have access to more cash than they know what to do with. Interest rates are next to nothing, and after the liquidity crisis of 2008, companies have been socking away profits on their balance sheet for a rainy day.

This increase in acquisitiveness among buyers has important implications for you as a business owner. Chief among them is that you need to have a sellable asset when opportunity strikes.

Statistically speaking, the two most common reasons you are likely to sell your business are:

  1. A health scare;
  2. An unsolicited offer to buy your business.

As unsolicited offers increase, so too does the need for you to be ready if an opportunity comes your way. Unlike when the owner is in control of when he/she decides to list a property, the hallmark of an unsolicited offer is the fact that the owner doesn’t’ know when it is going happen; which means you need to operate your business as if an offer were always around the corner.

Companies that are sloppily put together with shoddy bookkeeping or too much customer concentration, or that are run by a Hub & Spoke manager, will end up being passed over for turnkey operations.

The time is now for you to get your company ready to showcase when opportunity comes knocking.

Why not find out now if your business is sellable?

This free online tool is the only no-risk step you can take to determine if your business is ready to get full value. Fast-track your analysis by taking advantage of this free, no-obligation free online tool.

This Sellability Score you instantly receive is a critical component to any business owner’s complete financial plan and is something that, until now, we have only made available to existing clients.

However, we recognized that there is value in knowing in advance of working with a financial planner whether or not your largest asset is ready to be exchanged for your retirement nest egg. Our view is that you are better to learn more about your businesses sellability today and find out how your business scores on the eight key attributes so that you can ensure you obtain full value.

If your business part of your retirement plan, finding out your sellability score will be the best 10 min. you could ever spend working “on” your business.

Take the Quiz here: The Business Sellability Audit

Sellability ScoreFor more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

8 ways to know if you have a job or own a business

Republished with permission from Built to Sell Inc.

The ultimate test of your business can be found in a simple question: would someone want to buy your company?

Whether you want to sell next year or a decade from now, you must be building an asset

someone would buy – otherwise, you have a job, not a business.

Here are eight ways to ensure you are building a company, not just doing a job:

  1. A job requires that you show up at work to make money, whereas a company generates revenue whether you are there or not.
  2. If your company is so reliant on a single customer that they can dictate how you deliver your product or service, your company is more like a job than a valuable business.
  3. A job is a place where your personal reputation impacts your results, whereas a company is a place where the brand is more important than the personality of the founder(s).
  4. A job requires you to use your personal experience and expertise to get a result, whereas a company is a place where a process – not a person – consistently produces a desirable result.
  5. In a job, you get fired for taking too much vacation, whereas if you own a company, the more vacation you can take without impacting your company’s performance, the more valuable your business will be.
  6. In a job, the harder you work, the more money you earn. In a company, the smarter you work, the more money you earn.
  7. In a job, you solve the problems. If you own a company, your employees solve the problems.
  8. If the majority of your customers know your mobile phone number, it’s likely you have a job, not a company.

If you’re not sure whether you have a job or own a business, it’s time to get your Sellability Score. Whether you want to sell now or in a decade, the Sellability Score assessment allows you to see your business as a buyer would see it, and to identify how you perform on each of the eight key drivers of sellability. The questionnaire takes about 13 minutes to complete, and after you’re finished you’ll get a customized 27-page report outlining how you performed and where you could improve the value and sellability of your company. Get your score now (link to the Sellability Score questionnaire on your site).

Why not find out now if your business is sellable?

This free online tool is the only no-risk step you can take to determine if your business is ready to get full value. Fast-track your analysis by taking advantage of this free, no-obligation free online tool.

This Sellability Score you instantly receive is a critical component to any business owner’s complete financial plan and is something that, until now, we have only made available to existing clients.

However, we recognized that there is value in knowing in advance of working with a financial planner whether or not your largest asset is ready to be exchanged for your retirement nest egg. Our view is that you are better to learn more about your businesses sellability today and find out how your business scores on the eight key attributes so that you can ensure you obtain full value.

If your business part of your retirement plan, finding out your sellability score will be the best 10 min. you could ever spend working “on” your business.

Take the Quiz here: The Business Sellability Audit

Sellability ScoreFor more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.