Last Wednesday a major event happened. I sold one of my companies.
I didn’t sell it because I was tired of running my business.
I didn’t sell it because I was in debt or financially unstable.
I didn’t sell it because I wanted something new.
I sold it because I built this business with a plan that one day it would provide a substantial nest egg for our family. I knew from Day One that in order to sell this company it would need accounts receivables and financials that warranted a serious price tag for my buyer and his banker.
In every decision we made over the last eight years, we considered this possibility.
I thought about it when I bought equipment and chose not to overspend.
I thought about it when I mapped out my packages and built hundreds of thousands of dollars in accounts receivable {that’s just invoices that we’ve sold and haven’t been paid on yet}.
I thought about it when I changed my pricing and grew my profit margins substantially.
I took emotion out of my decisions because in the end, I knew that this business was part of a much bigger plan for my family. I made decisions based on the numbers first and my dreams at a far second. And, on Wednesday, I confirmed my decisions were right, when I looked at my bank account and saw peace—peace in the future; peace in the ability to do less work because I had a nest egg; and peace that I could live the life of my dreams.
Whether you’re building a practice from the ground up or you’re years in, you can start building a saleable business. But, there are three things that your buyer {and their bank and appraisers} will want to see in order to complete the sale at your dream price.
- Net Profits: Gross Income – Gross Expenses = What You Actually Make, otherwise known as Net Profit. For your buyer this means looking at two very important things:
Is this business making as much money as it could be making?
Is this business spending more than it should be?
Let’s start with Gross Income. I think we all know our business has left something on the table. Maybe we could add another program, become better at sales or increase our prices. From a buyer’s perspective, they’re going to wonder why you didn’t make these changes, which could result in a much lower offer.
So take off your owner eyes for a moment. Right now, what could dramatically increase your sales? Is it packaging for long term income? Is it hiring a sales manager to draw in new business? Is it learning Facebook ads and building a funnel of new clients? If you were buying this business today, what’s the first thing you would do to bring it to the next level?
Gross Expenses are one of my favorite things to dig into when I look at buying a business. My number one reason for turning down businesses that are offered to me is always an inflated rent. So take a good hard look especially at your rent, your salaries, and your software expenses. What would a new owner do to get these expenses in check? What would they not tolerate—is this something you should let go of and alter now? Do you have a fear of change?
When you take off your {probably slightly overwhelmed} owner’s shoes, you can see potential. Then it’s only a question of making the decision to do it!
- Gross Receivables: Every time someone signs a contract with you promising future payments, you build Gross Receivables. For a buyer, this means your business has guaranteed income in. For a buyer’s bank, the higher the Gross Receivables, the better investment a business is.
So what happens when all you sell is a single session, a pre-paid package, a month of services? You eliminate the possibility of Gross Receivables.
For your business, this isn’t good—you personally have no guaranteed income.
For your buyer, it’s even worse. They’ll have to hope that they keep as many of your clients as possible to warrant a high price tag. Their question will be: Are the clients there because they are loyal to the business or to the business’ owner?
Chances are it’s a little bit of both. But, you can resolve this by simply building packages with long term income. And, trust me….you won’t complain when July hits and you have another great month!
- Business Infrastructure: Is your business running steady with a great, well-built team that has clear systems they operate under? Or is it in constant chaos, filled with last minute decisions, no clarity and zero direction as to what comes next?
The fact is, the greatest value my company offered was in its systems. They were exceptional. I only walked through the doors a few times a year.
I had great hiring systems, which enabled me to build a 7 Figure Team that grew my business for me.
I had great compensation systems that kept my team motivated.
I had great sales systems that were easy for my team to learn and grow my revenue {and their paychecks}.
I had great customer systems that kept our clients going strong and our profits compounding.
For that new owner, they knew they could walk into a business that was running strong and just keep the current systems rolling on ahead. No major effort. No hard work. Just keeping the status quo.
Out of these systems what do you need help with today? What needs to change? And, how will you ultimately build them?
What do you need to do today to build a saleable future? My friend, there is nothing better than seeing what you’ve built and knowing that you can sell it for great profits in the end. It truly is a beautiful thing!
If you want to dig a little deeper into how to prepare your business for sale {just in case the day comes you are ready!} click here for my Selling Out in One Year checklists and workbooks. Don't be scared by the 19 pages… this is all the steps we took over the last year to sell our business for amazing profits!
