Want to sell your business soon?

I became a Certified International Business Coach because I loved the idea of sharing the tools I find with other CEOs as I do in this monthly Edmond Business column. Right now, I fly all over North America helping firms of all sizes scale up their companies toward a strategic exit strategy. 

After all, William S. Burroughs said, “When you stop growing, you start dying,” which is certainly applicable to business.

Whether the sale of your business is on the horizon this year or three years from now… it’s always a good time to know what your company is worth to a buyer, and what steps you can take to increase that value. The longer you give yourself to properly prep for the sale, the better.

After all, my mentor John Ratliff likes to say, “Your business is only as valuable as one buyer is willing to pay on one specific day.” If you’re not prepared to meet the opportunity, it could pass you by.

Planning to exit?

Knowing when and how to sell your business is the most critical decision a business owner will make in their lifetime. Some of the wisdom below can take your company exit from a standard industry multiple of 3x to a strategic exit at 10-20x!

Phase One

The first steps are always to “get your house in order” – both financially and operationally. 

Once the financials are cleaned up, easy to read, and you know your trends, my clients lean on a coach. Together, we start to make “Power of One” improvements by seeing in real time how the power of 1% higher prices or sales volume can greatly impact your bottom line. We pull out that fine-toothed comb to brush through any 1% decreases we can find in credit card statements, automatic payment processing, COGs, and overheads. 

I like to start by taking a look at the last 4 years of financials on Cashflow Story. As the business owner, you should be able to see your business trends, and know all 7 levers to pull to increase your cashflow and net profit.

1. Increase Volume
2. Increase Price
3. Decrease Cost of Goods Sold (COGs)
4. Decrease Overhead
5. Shorten Cash Conversion Cycle of Accounts Receivable to get paid faster
6. Ensure your Accounts Payable policies are processing on-time, not too early
7. Work on your WIP and Inventory, if applicable to your industry

It’s at this phase I like to ask the CEO a key question: “If you sold your business tomorrow to a Private Equity fund who is rolling it into a platform company, what’s the FIRST THING you think they’d cut, change, or do differently than you’re doing today?”

Phase Two

Once your company has crystal clear finances, and you’ve run them through the Power of One exercise to increase cashflow and net profit, we are now ready to take the next step. We brainstorm with the top leadership team the Cash Conversion Cycle from end to end. 

In these meetings, we’re finding faster and more efficient ways to get to the consumer yes; get the new customer invoice out the door; faster product completion for final payments; search for recurring revenue sources; and ensure our payment methods for clients are like pressing the ‘Easy’ button. Everyone takes an action item from the meeting, and it’s astounding how fast you see the savings add up.

You’re going to wonder why you just started doing this in your 1-3 year prep to sell the business! A great reason to start today by simply asking yourself:

• How could your organization shorten cash conversion cycle times?
• How can you eliminate mistakes and waste within the business?
• How can you improve your business model, cashflow, or P&L?
• What ways can you brainstorm to improve your Sales Cycle?
• What ideas does your team have to improve your Make, Production, &/or Inventory Cycle?
• How can your Delivery Cycle be improved?
• In what ways can your team advance the efficiency of your Billing and Payment cycle?

Of course, buyers would be delighted to see a chart of steady revenue growth over time, specifically showing consistency in gross margin and net profit improvements… but it’s not all about the financial phases one and two.

Phase Three

Buyers also want to know the business can operate without you once the sale is made, so they’ll be seeking operational efficiencies, standard operating procedures, clear training techniques, and solid teams that can support ongoing services and products once you’re gone.

You need to be training up those around you over the years to duplicate yourself well before an exit strategy emerges. If you’re the bottleneck of the institution, it makes it hard for you to take a vacation, let alone exit the business while it continues to run smoothly five years from now without you, right?!

As a business coach, I help clients with crystal clear checklists on what operationally raises the value of your business to a buyer. 

Buyers are looking for:

• Leadership team based on track proven track record, relevant experience, and commitment to continuous learning.
• Business model based on recurring revenue, competitive advantage, and growing market/customer base.
• Values and execution habits based on clearly stated purpose, vision, and values with a One Page Strategic Plan.
• Industry leadership and competitive experience on the leadership team who will stay with the buyer during a transition.
• Exit plan based on potential acquirers and solid research on valuation multiples for your industry.
• House in order based on capitalization table documented, good record-keeping, orderly financial statements that can be read by others smoothly. No personal finances intermingled with the business finances.
• Consistency based on predictable and consistent results, plus revenue and profit growth each quarter. 
• Protected assets based on patents, trademarks, copyrights; or recognizable thought leadership within your chosen industry; or unique selling proposition for your services or product line that stands out among the crowd.

Phase Four

If you can checkmark YES or at least a 7 out of 10 on all of the above checklists, you’re ready to proceed to the next phase, which is proactively planning the exit itself. As strategic coaches, we never want to see owners taken advantage of – leaving tens of millions on the table – because they didn’t know the right questions to ask, or the right partners to utilize in the process.

As an entrepreneur, this may be your first and only business. As you prep to sell in the coming one to three years, you may find yourself up against sophisticated buyers who have done dozens if not hundreds of acquisitions – whereas this is often “your first rodeo” so to speak (no Oklahoma pun intended).

Not wanting to get ripped off by big M&A firms specializing in your industry who are often more beholden to the buyers than the sellers, you need to align yourself with the right support system for the M&A process. This is where a Business Coach and their Global M&A support team can be of great benefit, so you don’t have to walk this journey alone.

I connect all my coaching clients with elite, global merger and acquisition reps who have international experience in their specific niche industry. Be sure you interview more than just your current banker for help in this field. It’s one of the most important partnerships you’re forming. Whether you sell swiftly in 6-12 weeks or you take a more standard approach at 6-12 months, you don’t want to regret who is representing you day in and day out in the marketplace, fighting to get you top dollar for your hard-fought business.

Phase Five

When selecting an M&A advisor to go to bat for you and work the sales process, these are the questions they might ask in order to better understand your value to the market.

1. How integral are you in the day-to-day operations? Is the entrepreneur redundant?
2. Is there a regularly scheduled time for strategic planning by the leadership team?
3. Is your customer base diversified and able to weather changing trends in market, industry, verticals, or competition?
4. Do you have consistent revenue from the same customer group growing in a predictable way?
5. Is your profitability and gross margin increasing as a percentage of revenue, as revenue increases?
6. Are there documented systems in place and does the team follow those systems consistently?
7. Do you set and track clear company and department S.M.A.R.T. goals, OKRs, KPI Metrics, or Rocks?
8. Are those key statistics communicated to and visible to everyone in the company?
9. Do you have long-term contracts with clients or auto-renewal subscriptions for your services?
10. Do you sell a consumable product with repeat buyers on a steady purchase cycle?

You will want to ensure you’ve done your homework on what current industry multiple is being applied to other companies selling in your niche this year. Google is your friend here. Industry associations and peer groups may also have this current data if you ask.

Phase Six

Last but not least, I want you to go on a journey with me for Phase Six. Tune in next month to learn how you could have a Rembrandt in the Attic that skyrockets your company’s industry sales multiple from 3x to 24x!

If you simply cannot wait until next month’s edition of my column, email me to get a white paper on what to avoid when exiting stacy@stacyeads.com. Happy to share my expertise with other like-minded entrepreneurs if you’re interested in a quick 30-minute Zoom, just reach out.