The reason you start a business is to some day sell the business for a fortune. That's how substantial wealth is created. So let's pretend. What if you put your business, as is, up for sale today? What's it worth? What would be your asking price? Now let's face reality. Knowing what you know about the business, do you think a third-party buyer or some of your key managers would be willing to buy the business and if so, pay your asking price? Let's forget about other buyers for a minute. An even more revealing question is would you, the current owner, be willing to buy your company as it is right now for your asking price? Would you buy what you're selling?
Given everything you know, would buying your business be a wise investment decision? You, better than anyone on the planet, know your company's strengths and weaknesses and its potential opportunities and threats. You know what works and doesn't work in your business. You've lived the headaches and hassles. You know the good, the bad and the ugly. You know its beauty marks and warts. Again, are you buying what you're selling? What if you knew the current owner (you) would not be coming along with this business purchase? Would you still buy this business and pay anything near the asking price?
Just like home owners unrealistically think their "castle" is worth more because of all the memories, love, attention, and improvements they made over the years, an objective real estate buyer will evaluate your castle very differently. Yes, they will make an emotional decision but they will back up their investment decision with the logic of comparable home sales in the neighborhood. Your loving memories, bias and heart will be missing from their buying equation and pricing logic. Same thing for your business. A business buyer will have a healthy level of detachment from your business and use industry guidelines to price your business. Still think your business is worth your asking price?
Your answers from above will say a great deal about the readiness of your business to be sold. It will also reveal if you have created a business over the years or just a job for yourself and any future buyer. If you would not be willing to buy your business as it is for the asking price, why would others? Don't delude yourself, other buyers will perform significant due diligence and uncover the good, bad and ugly as well. These tigers and their advisers will devour your financial statements and rip into the very fiber of your business and the details of every report in such a way that will make your CPA look like a kitten. More importantly, they will have an objective and professional level of detachment. Without question, they will look at your asking price and compare that against industry-standard multiples (revenue or earnings) or even a third-party valuation. Those facts may shave tens or even hundreds of thousands, maybe millions, off any offer. Beyond the numbers, they will look at how well your company runs, especially without the owner being there. Ouch!! Another fact that may cut off huge percentages from the offer. After all, they want to buy a customer-serving, self-sustaining, cash-flowing, smoothly running asset, not YOUR JOB!
A company is never worth its full value to a buyer if you have to come along with it to make it run. Buyers want to see all your "success recipes" written down, not in your head. For starters, they will want to see an intelligent organization chart, job descriptions with roles, responsibilities and goals, a robust operations manual, and proven and written processes for every critical function of your business - sales, marketing, client service/operations, hiring, training, financial reporting, collections, etc. Again, any investor wants to buy a business, not you or your job.
As mentioned before in a prior blog, to eventually sell your company for a fortune, your ultimate goal is to become the least important person in your company. As owner, you can not afford to be at the center of every problem, every decision, every mess, and every transaction. If so, you will hold back the growth and development of the business and your employees. Your business, long term, cannot depend upon your presence, personality, problem solving or perspiration for its daily survival. If so, your business does not work for you - you work for your business. You have a job, you do not own a business! Stop being a prisoner to your business. Instead of having the business be dependent on you, have the business be dependent on the operations manual and simple systems you put in place.
If you would not buy your business today for your asking price, then go to work ON your business, not IN your business. Put on an architect's hat and start designing the business to function without you. Go about creating a business that is easy to run while you own it and worth a fortune when you go to sell it. Design a business you would love to buy. After all, you should be willing to buy want you're selling!
Daniel Murphy
The Growth Coach
Business Coaching Franchise System