Why is it that only a handful of businesses are significantly more profitable than others? It isn’t rocket science, yet some companies seem to be light years ahead of their peers. It can be frustrating thinking that you’re doing all the right things (streamlining your processes, reducing operational costs, providing best-in-class services), but then continuing to come up short. Seriously, what must a seller DO to be sought after and worth more in the marketplace?
The good news is that the solution is simple.
The bad news is that the answer takes work.
However, if at the end of the day, you’re looking to maximize your business growth, you’ll need to buckle down and get to work.
Here are the top 5 things that you MUST DO to sell your business and get your fair economic value:
- Run a profitable business
- Know your business
- Track your company’s gross margin correctly
- Make yourself expendable
- Be humble
We’ll walk you through each item step by step below:
Why is it hard for owners to implement these top 5 things?
- Run a profitable business. The biggest issue that detracts from your company’s value during a sale is the failure to properly track your business versus your personal expenses. It’s easy to get confused about whether you’re running a lifestyle business or an actual business, which often leads to poor boundaries in your spending. In some cases, owners may intentionally mix all their expenses together for vanity’s sake. This is a HUGE mistake. Buyers are hyperaware of what to look for when reviewing another company’s financials, especially if they’re looking to buy the business. They’ll quickly uncover your expense tracking discrepancies and then use it to their advantage by assigning a generic 50/50 (business/personal) split to your one big happy family expense account. Though, it won’t stay happy for long because you’ll end up taking a hit on your selling price, especially because you won’t have the financial data to prove otherwise. Other profitability barriers include failing to consistently control operational costs, accurately review contracts with vendors, and paying salaries that are higher than market rates.
- Know your business. Owners may misrepresent their financials for a variety of reasons when selling their business. Sometimes, it’s out of pride, ego, or the fear of looking bad in front of their peers. Other times it’s because sellers don’t know their financial figures. Emotional reactions or ignorance can cause sellers to withhold critical financial information from buyers, which undermines the selling process.
- Track your company’s gross margin correctly. When setting up their businesses, many sellers fail to implement their accounting and financial reporting systems the RIGHT way. Typically, sellers make this mistake because they don’t have the time to and will “worry about it later.” Unfortunately, this forces them to redo their books, a lengthy and time-consuming process. Tracking labor time appropriately is a particularly common challenge for most sellers. However, it is vital that labor hours are tracked and recorded as they pertain to specific revenue streams. Any respectable buyer will expect and need access to this type of information at some point during the selling process.
- Make yourself expendable. Let’s face it, as a business owner, you’re probably a Type A personality, and at times, a control freak. Listen, we’ve seen it all before. The reason is because you know your business inside and out and you created it. This level of control and dedication is essential when building a business but is often detrimental when you’re trying to grow it. Transitioning from a start-up operation and mindset to one focused on growth requires a huge shift and energy. Owners will need to learn how to delegate tasks to their team. This is critical. If an owner is unable or unwilling to delegate more tasks, they will be stuck in production management role and unable to dedicate more time and energy to growth producing activities. Also, if no one can cover the owner’s tasks, what happens if you try to take a vacation, fall ill or eventually, want to sell your business? The answer is you can’t. To do these things, you must prepare. To prepare, you must delegate.
- Be humble. Business owners can be extremely bold and overly confident, which makes sense because these qualities are needed to build a business. However, during a sales process, too many of these qualities could turn off a potential buyer. Here’s some of the most common issues caused by a seller’s lack of humility:
- Assuming that all customer bases are the same. What worked in your business will OBVIOUSLY work for others. This couldn’t be further from the truth. Strategies and tactics that worked for one base do NOT automatically translate to another base.
- Giving buyers unsolicited advice is the epitome of an annoying faux pas. Please don’t. Instead, mindfully stay in your own lane so you don’t turn the buyer off from the transaction at hand.
- Being extremely proud of and boasting about your business every chance you get. Okay, this is also irksome because it can lead sellers to promote themselves even in improper situations, which again turns off potential buyers. Remember that selling and buying a business is an intense and at times “intimate” affair. How you conduct yourself, behave and treat the potential buyer plays a significant role in their decision to move forward.
What does a seller need to DO to ensure greater success throughout the selling process?
- Run a profitable business. Your profitability is the key to your business’s success
Your company’s profitability is hands down more important than the amount of savings you have in the bank. Saving money does NOT lead to profitability. It’s there for you if or when you need a bailout. (If you’re floating your business with your savings, it’s time to get expert help.) Profitability is determined by how much you make from your services and products in the marketplace. As long as people are willing to pay you for your offerings, you will be profitable. However, uncontrolled spending is the fastest way to destroy your profitability. So, be sure to follow these profit-protecting behaviors so you can sell when you’re ready rather than forced to.
- Consistently explore ways to reduce your operational costs while increasing your efficiency
- Avoid overpaying vendors by meticulously reviewing contracts with a fine-toothed comb and ask questions when needed
- Avoid overspending on employee payroll by staying up to date on competitive and fair market wages
- Know your business. Take time to recognize and fix company issues effectively
- Review your financials on a regular basis.
- Focus on metrics that will move the needle of the business, not vanity metrics.
- Identify essential performance measurements through key performance indicators (KPIs).
- Know your profit margin percentage.
- Distinguish your gross margin numbers.
- Track your company’s gross margin correctly. Create a weekly habit to track your numbers
- Join a peer group to network and stay current on best business practices.
- Track your company’s revenue streams correctly.
- Monitor your company’s costs as they relate to your revenue streams and labor hours.
- Utilize your company’s financials to identify how you and the buyer may bring added value towards the business.
- Make yourself expendable. Transfer your company knowledge to someone else
- Bring in people who align with your company’s culture.
- Train your employees to lead and execute duties with efficiency.
- Empower your team to create and set up processes, tactics, etc.
- Encourage your managers to make tough decisions on their own.
- Create a positive working environment that doesn’t rely on you.
- Be humble. Strive for an accurate and balanced view of your company.
- Identify your subject matter expertise in your business.
- Assume the buyer knows everything about your business.
- Share best practices and learn from other sellers.
- Be self-aware of your strengths and weaknesses.
- Conduct a Strength Finders assessment on yourself.
Lastly, before you decide to sell your business, you’ll need to know if you’re ready to exit your business. Before you make the critical and life-changing decision to sell your business, do these things first:
- Talk to someone who’s sold their business.
- Speak with a loved one, spouse, or trusted friend. Focus on recognizing what is meaningful in your life right now and will be in your future.
- Discuss your options with a mergers and acquisitions expert. We want to provide you with a FREE DISCOVERY CALL to help you roadmap a strategy for your business.
Listen, selling a business is a hard decision as well as a lengthy, complex process. You’ll need an expert guide to help you navigate it. We’re here to help you increase your chances of a successful sales transaction so you can move on to the next stage of your life.
Click here to contact us for more information.