If you’re like most business owners, you can’t foresee a day in which you’ll be ready to leave your business behind. Your business is your baby; it’s your life.
But what happens when things change?
Listen to Sam Polimeni offer sage advice on how to correctly prepare your business for sale.
Episode 8 transcript available to download below…
INTRO: Sam Polimeni shows motivated business owners how to make their business less relied on them and worth more. When he gets on his side box, people listen. Now, here’s Sam! (applause)
Sam: Hi, this is Sam Polimeni and this is Sam’s Soap box. Today, I want to talk to you about what are the top five things you would do to get your business ready for sale. I not only get small business owners come to me all the time saying, “Sam, I’m not ready to sell my business yet.” My advice to them is always the same, you should build your business to sell it, whether you want to or not. You should have this intention from day one, in my opinion. Start with the end in mind.
And I find the biggest challenge with a lot of small business owners, they only start thinking of selling their business when they get to the point that they’re tired, when they’ve had enough of their business and they just want to get out. And that’s probably the worst time to sell your business.
You know, if a business owner is tired, usually, the performance of their business reflects this and they’re not going to get anywhere near the best price that they can for their business. You know, the easiest business to sell is a good business so your goal should be to create a good business, a good profitable strong business.
The best buyer to sell your business to is what I call a corporate buyer. They’re always looking for good businesses. A corporation has an Acquisitions Manager and all they do is they look for businesses that are good and profitable. They want to buy because most corporations grow by acquisitions. So they are always looking for good small businesses to acquire.
I find a lot of my clients, depending what type of business it is, once they get their turnover to around ten million dollars, you’ll find that these guys from the corporation start coming out and talking to you. So your goal is get ready for them by having a well run and great profitable business.
The first key thing that you need to do—I’ll start up with what my key five steps are—step one is you have to make sure that you look and act like your potential purchaser, that you have a three-way cash flow and budget and run your business along corporate lines. The more you look like them, the more they will pay. So you have to have your business set up with an Advisory Board, have your management team, have your targets and KPIs in making your team accountable to achieve the business plan. The more you look like them, the more your business will be worth.
The second key point is you must have a five-year plan. There has to be plenty of upside to your business whether they buy it or not. I mean, I had a client come in the other day. He said he wanted to sell his business. He had enough. And I said, “Great! Why are you after?” They replied two or three million dollars, I asked ‘Guys, what do you think it’s worth?’
So we went and did a valuation on the business and the business was only worth $500,000. So I said, “If we want to sell a business for two or three million dollars, this is what it’s needs to look like. These are the kind of targets and numbers that you need to achieve.” So we then started to have a plan in place for us to get the business to the point that it was worth that much money.
You know, we did the same with one of our other clients a few years ago. He wanted to sell his business. He got to the point, we sat down and created a five-year plan and focused on tripling the business over a five-year period. He did and he got five times what he was previously offered for the business. And that’s why you need a plan that shows the scale and upside of the business. They don’t want a business that’s tired; they want a business that’s going to go somewhere.
The third key point is you develop an operational and marketing system that doesn’t rely on you, the owner. And you’ve got substantial contractual income as well. The less the business relies on the owner, the more the business is worth. So the key there is to make sure you’ve a got whole bunch of systems in your business and you’ve taken things out of your head to get the business to run better.
The fourth key step that you must do is you have to have a management team that can execute the business deliverables without you, right? And the more you do that, the more you have that team in place, the more valuable your business.
I’ve seen corporations pay, 25, 50% more just because that management team is in place. And let’s say you’re going to get your premium for the business because that’s what corporations are looking for, they’re looking for businesses that have a good business model, a good management team, good contracts, and the business doesn’t rely on the owner with plenty of upside in terms of growing the business. That’s what the top businesses are. So the better business you create the more valuable your business will be.
And the final step is you have to have a team of advisers that can position you and the business to accentuate those top five items we talked about to maximize your sale and exit prize and more importantly, exit terms, right? This will cost you money because to get a team of professionals together to work for you to achieve that can cost plenty, however, if you put together the right team, you’ll get a return many times over your investment. But what you want to be careful, if you go cheap here, it could cost you millions.
Get out there and go build a fantastic business and sell it for millions. This is Sam and I’ll talk to you again next time. Bye! (applause)
OUTRO: That was another episode of Sam’s side box. If you’d like Sam to help you drive your business into a multimillion dollar company that’s far less relied on you, then call in (03) 9355 0500 or visit www.spsol.com.au or www.sampolimeni.com.