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Value Creation Blog

3 Things You Need To Do Before Selling Your Business

Posted by Josh Patrick

3_Things_You_Need_To_Do_Before_Selling_Your_Business.pngFor lots of business owners like you the Holy Grail of having a successful business is being able to sell it to a 3rd party when it becomes time for you to retire. Before you even think about getting ready to sell your business you’re going to have get your business in a position where a buyer is going to want it.

You might think a buyer is going to want your business, warts and all. You might even be able to find someone to buy it. I would be very surprised that if you haven’t fixed these three things you’re going to have a hard time finding a buyer who is interested in your business at a price you want to sell it at.

Start with becoming operationally irrelevant.

This is where I want you to start. It’s what you’re going to need to do if you really want to have a buyer buy your business.

I’m going to bet that at least on some level you’re too involved in the day-to-day operations of your business. Yea, I know, you’re going to tell me that you’re not involved in your business.

What about that big sale you’re trying to land….are you involved in that? How about the new product you’re about to launch, are you involved in planning the launch? Or, how about hiring that new manager, are you part of the hiring team?

If any of that is true, then you’re not a passive owner. You might have let some things go, but not enough. If you want to make a buyer salivate over your business you’re just going to have to find a way to get yourself completely and yes, I do mean completely out of the way.

Have you created a business with a recurring revenue model?

For lots of businesses this is the most challenging part of creating a business that is salable. If you own a construction company, there is no way you have a recurring revenue stream. Your business is only as good as your last bid.

This doesn’t mean you can’t transfer your business for money, it just means that it’s going to be very difficult to find a buyer who will give you the majority of your purchase price in cash.

If you have a distribution company with regular customers that buy every week, you’re on your way towards a recurring revenue stream, but you can be sure you’re buyer will hold back a lot of money until they make sure your accounts transfer to them.

There is a way you can create a business with a true recurring revenue stream. That way is by having a sales system in place where new buyers contact you on a regular basis. To do this you’ll have to have a marketing system in place that attracts customers to your company. Otherwise, you’ll either have to take less money or find ways to have contracts in place that can give a buyer the confidence that the sales you have today will be the sales they’ll have tomorrow.

Make sure someone else can take over your business and understand what makes it work.

This means you’re going have to have to systematize your business. For many business owners I know having to do this is like running your fingernails down a chalkboard. It’s just an activity that’s unpleasant and one you don’t want to do.

Here’s a way you can think about systemizing with little work on your part. You can have those who are doing the job write job manuals for how they do their job. These manuals don’t have to be the great American novel. They only have to be checklists that someone could look at and understand the steps that need to be taken to successfully do the job.

Now, let’s look at your job. This is something you’re going to have to do. Unless you’ve completely delegated your job away (see becoming a passive owner above) you’re going to have to do checklists for your job also. It might be unpleasant for you to do this, but it’s a little less onerous because you’re only doing your job.

Test to make sure these three things actually work without you there.

Here’s the hard part. Once you’ve done the three things above I want you to disappear from your business for at least a month. I don’t want you to call and I don’t want you to email or text anyone at your company.

I do want you to leave your phone number so if there is an emergency someone can get ahold of you.

There are two things you’ll learn when you do this. The first is if you’re really ready to leave your business and don’t get bored out of your mind. The second is if your business can really run without you and run well.

If the answer to both is yes, then you’re ready to sell your business. If not, you have some work today.

 

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Topics: passive ownership

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