Build a business that could be sold in the future, even if you have no desire to sell it now.
The best businesses are built to sell.
Only about one in 100 businesses sell each year. This book is designed to give you action plans to sell your business.
Tip: don’t generalize, specialize. If you focus on one or two things well you’ll do much better.
Tip: Make sure that no one client has majority control over you. Make sure that one client doesn’t make up more than 15% of your revenue.
Your job is to build a business that is independent of the founder.
You need to develop products and a systematized process to deliver those products, not a service-based business. If a company is acquiring a service-based business, usually there is an “earn out” – a period of time where the owner or founder must stay on and hit performance goals before getting all the money. That’s not preferable.
Typically, when you develop a product, you bill upfront. When you bill for a service you put in net 30 or net 60 terms. The goal is to get to sell a product and charge upfront, even if you’re developing a service. This creates a positive cash flow cycle with no lag in receiving payment.
Develop an onboarding process.
Don’t be afraid to say no to projects. Turning down projects that are not in your specialty is good for business.
You need to develop a sales engine that delivers predictable recurring revenue.
Hire two sales people, not one. Sales people are competitive and will respond to another competing against them.
Start hiring a team.
Hire managers to run the business without you. Build a management team and compensate them with long-term incentives to build their loyalty.
Tip: find an advisor/business brokers for whom you are neither their smallest nor largest client.
Tip: avoid advisors who only get one offer. You’ll need competitive offers from multiple companies.
Change the verbiage from client to customer. When you go from a service-based business to a scalable product-based business, you need to make the change. And change “firm” to “business.”
Tip: think big. Write your exit plan.
Follow these steps to build a business that will sell:
- Isolate a product that has the potential to scale. Teachable, valuable, repeatable. Eliminate those that are one time purchases.
- Consumables (toothpaste)
- Sunk money consumables (disposable Razors)
- Subscriptions (magazines)
- Sunk money renewable subs (case management software)
- Auto renewal subs (iron mountain)
- Contracts (wireless phones)
Document your process regarding your product or service. This will require time and patience. Expect to develop many drafts.
Name your product or service, which differentiate you from other competitors. Come up with a great name to make it unique, so you can set the price as well. Write the features and benefits in a short description. Revamp your marketing to describe your process and the uniform way.
If you are still the rainmaker, any potential business buyers will have you stay on for a long earn out.
You need to eliminate yourself from the sales cycle. Your job as an entrepreneur is to hire people to sell your products or services. That leaves more time to sell your business.
You can earn a few hundred thousand dollars by selling your products or services, but exponential amount if you sell your business.
Avoid salespeople that sold services. Find product-based people. And try to hire at least two sales people at once to get it competitive.
Eliminate 90% of what you sell to make it easier for sales team to focus on what to sell. They can master one market research and develop a single pitch. Don’t tailor your service to your clients.
Develop long-term incentivizes for managers on productivity goals.
Hire a broker to help sell your business.
Tell your management team and incentivize them as a thank you for their loyalty. Develop a moat around your product or service, that other employees and competitors can’t repeat.