Build Your Business To Sell It

Updated: Jul 23, 2020

Why should you build your business as though you're going to sell it?

Main points of the video:

  • 00:00 - Why you should build to sell before you ever need to?

  • 2:35 - What if you’re not going to sell or don’t want to sell?

  • 3:00 - What are the main points every business needs to work on to someday sell their business?

  • 4:50 - What most business owners think about their business situation and the need to be ready to sell...

  • 11:00 - What if you HAVE to sell your business? - And you're not ready...


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Why should any business focus on building their business to sell it?

Well, you know as you remember my story is that you know what even got us motivated to go this road close because you know in 2003 I got stage 4 cancer and through the five years of getting myself treated at Mayo and I realized that my exposure to petrochemicals is maybe what caused my cancer.

So in 2008 when I got done with Mayo I I was in a situation where I either had to sell my auto dealership or you know continue to run it and possibly not be there for my kids and or my family.

So, I chose to sell, which was unfortunately not a good time to sell it...but there was that circumstance again that health, the circumstance, that forced me to sell at a time and on terms that I didn't want to sell and you know that that raised a red flag in my mind.

But I didn't you know it was just to me it was just a circumstance well then what was it four years ago my brother up in the UP you know he called me up and he had terminal cancer.

He asked me to help him or actually take over and sell his business so there was another situation when I started putting those two together.

About eighty percent of small businesses actually are not sellable on the timeline in terms of the small business owners choosing because they do not pass the due diligence test.

I realized that there were an awful lot of probably an awful lot of people like my brother and myself who probably had to end up selling their business on time on timeline and terms and of a price that was not of their choosing so then when we started doing some research we found out that about eighty percent of small businesses actually are not sellable on the timeline in terms of the small business owners choosing because they do not pass the due diligence test so that's how we created this program.

Everybody transitions their business eventually but it doesn't mean that necessarily everybody's going to sell their business in the next year or in the next two or three years but by building your business as if you were going to sell it tomorrow - you’re creating a business that is worth may not even just decide you don't want to sell it.

We knew that there were you know those there that at least five areas that you had to be you had to focus in order to make your business so that if you had to sell it tomorrow it would be attractive enough to an outside buyer to give you the terms and the price that you wanted now you know frankly I mean everybody transitions their business eventually but it doesn't mean that necessarily everybody's going to sell their business in the next year or in the next two or three years but by building your business as if you were going to sell it tomorrow - you’re creating a business that is worth may not even just decide you want to sell it.

If you're saying "I want to sell my company someday...and I don't want to sell at a discount, I want to sell it for premium value." These are the things you should work on to make it sellable to nearly everyone:

  • Because all of a sudden you've got the things in place you've got a mission and guiding principle statement that empowers and engages and motivates employees and customers.

  • You've got you've got a system in place that helps you to build and retain the superstars the five percenters of the 20% that generate 80%.

  • You’ve got a marketing system in place that focuses on the target audience and focuses on the uniqueness that sets you apart that you have in your business and you've got a message that resonates and set you apart from the marketplace.

  • You've got positive cash flow which that's far the number one thing we see right besides the mission guiding principles is that people don't have consistent processes in place to have positive cash flow day in and day, out week in and week out.

  • And then systematizing the key processes so those are the really the five main areas that we focus on.

When you take that mindset that you're going to build your business as if you were going to sell it tomorrow - if it's in two years you're going to sell it in twenty years doesn't make any've got a business that is attractive enough that anybody would want to buy it and can buy it.

What they expect if your so go back to your scenario you know like we had talked about this before like what did you expect you expected to have this for another 20 years?

I wasn't I wasn't thinking about building it to sell it tomorrow and then and then when I had to take over running my brother's business and getting that sold that same flag started going off.


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What's the mindset like the mindset is like well but you know kind of like all of our mindsets for a lot of things is like well by the time I get there it'll be ready?

Right yeah I didn't I didn't give a proactive thought I mean I was running my business well but of course 2008 was a I mean that was the the pits for the auto industry anyway you know the economy was bad but yeah I figured you know I was in my you know I was just 50 at the time I figured I had 20-25 years you know my business had be paid off I'd have my kids in the business I wasn't I wasn't thinking about building it to sell it tomorrow and then and then when I had to take over running my brother's business and getting that sold that same flag started going off.

I realized here again I mean he's running a business like most small business owner to do we take our purse it isn't just the salary that we take out of it I mean we've got our cars in there we've got her insurance in there and that's what you do that's the benefit of owning a small business is it funds your lifestyle.

Well that also makes it not quite as attractive if you had to sell it tomorrow so it's you know those things kind of I realized in my head there are most business owners that I had talked to over the years do the same thing.

They're not thinking about the selling the business in fact you and I we’ve talked to a lot of businesses that call us it's like they've got one foot in the in the grave and one foot on a banana peel right that you know hey I want to sell them in three months there’s nothing we can do I mean there's some things we can help with but we're not business brokers we're not you know this is not something that you can just turn on

This is a process that you know takes time to implement each of these five or you know six key areas to make sure that your business is running on autopilot and will thrive regardless of the circumstances whether it’s illness, whether it's divorce, whether it's death, whether it's disability, you know circumstances like this COVID that's going on I mean we can only imagine how many businesses are not going to reopen because they were not built from the inside out as if they were going to sell it tomorrow.

They're not thinking about it and not thinking about it until they have that time it's too late to sell the business.

So what would so if you're sitting in a business right now you're saying I want to sell at some point but I don't want it to be a fire sale price?

Whether it would be the beginning stages of what you should do well what do you think the biggest like we have our and we want to stay as we are not brokers we are we're creating a niche where we are helping businesses way before they sell two years or two decades to build their business value and so and it's not just marketing based, it's not just cash flow basis, not just accounting base it's the specific areas but what you have one in your mind of which one would be the biggest one to focus on?

Well you and I have had this conversation and you know I know you agree with me now but it took a while right but it's the mission and guiding principles I mean everybody we've ever talked to we skipped that part in the beginning of our careers with this you know and I think about Paul you know we went right for the marketing and kind of the cash flow but in the end we had to keep coming back to the mission and guiding principles and getting those aligned.

Because if it’s like beginning with the end and if that isn't right everything else is so much harder but when you've got that right you can conquer the world you know in some in some cases that might be all somebody needs to do but it's not gonna take them 100% there.

But it's certainly going to take them a lot farther along then the next thing is the cash flow because if you don't have positive cash flow if you don't have cash in the bank then you no longer have the courage to take risks, to be able to say no to the things you should say no to, and the courage and ability to say yes to the things you should say yes to.

You know that that’s probably the area that you and I have seen is you know from a practical standpoint most of the businesses they don't have they don't even realize how important cash is being profitable doesn't mean you're gonna stay in business.

You can be unprofitable have huge cash flow and stay in business I mean Amazon is that perfect example right I mean 20-some years and they lost money year after year after year.

But they're a cash cow whereas on the other hand if you're profitable to have negative cash flow you're just not going to stay in business very long and they all go hand in hand.

You know they do work together, what did Paul tell us I mean Paul said you know the biggest benefit of working with us was that it changed the way he made decisions. It change the way he looked at his business and thought about his business and now you know when those opportunities arise he can much better determine which opportunity is going to help him get to where he wants to get and that again starts with the mission and guiding principles and he's focusing on cash flow - he's making sure the cash flow is always positive.

So back to like when you were selling your business and when you're had to sell your brother’s business what can you expect if you you aren't ready to sell I mean what how how torturous is this I guess if you’re really not ready to sell your business?

You know my brother's case you know he told me what he wanted and well I didn't know his business per se. You know I know enough of our business to be able to value something at least a kind of a rule of thumb type of thing.

And I and I knew that it was it wasn't near anywhere near that kind of money and it turned out it it wasn't because we did get in evaluation. But I think and I did tell my brother, I said you know give me 18 months - three years preferably we can get the kind of money you want. Well there are things we have to change about the way you do business because again I mean you let's say I don't know what he was taking I I don't remember what he was taking on this out but there's a hefty salary but also he took was taken almost that same amount out in perks and that's his right as a small business owner.

Well, those things they affect the value of the business. They make it not as attractive to just anybody. Your pool of buyers becomes much thinner when you don't build your business as if you were going to sell it tomorrow. Not only is your pool of buyers bigger because institutional buyers now could be very interested in your business when everything is in sync and everything is going you know everybody is rowing in the same boat rowing in the same direction, it's a very attractive business regardless of whether they’re they knew this kind of business or not.

That's the importance of these five key elements of a building your business to sell it when those five things are in sync and they don't want to be perfect but they have to be in alignment now if you had to sell it this year it's sale-able right now you know you could call a broker and it's sale-able I would venture to say again if 80% of all small businesses are not sale-able on the timeline in terms that the owner wants you call a broker that that broker has got a tough job you know it's just harder to your pool of buyers is so much smaller and you're now I don't say you're in a fire sale but you're not in a good position you're not going to get everything you want.

And you know here's the other thing right we know this from the research this is right from the exit planning Institute or is it like around 60% of all business owners need the revenue from their business in order to continue with their quality of life and their lifestyle after they sell their business.

That was you know my keys as well you know I I mean it was a it was a little bit of a shock for me and it was a you know it was a shock for my brother I mean he was he was dead by the time I did sell.

It went fairly fast but you know if he would have had to have relied on that to fund his lifestyle - he it wouldn't have been enough especially not at his age because he was in his early 50s.

As you know, we're all living until you know late 70's to 90 years old and it's business owners that have their wealth tied up in their business.

They don't have other assets and rightly so they probably shouldn’t because they can have a much better return on their own business. Because of that then you have to treat it like an asset that if you had to sell like anything else be ready to sell.

Yes, make it always ready just like you know we were in the real estate business together you know that house had to be ready to sell at any time you know and you're right, I mean, a business is still the best investment for anybody to make you know a small business is the way to go there's so many advantages to it but if you're not building it properly from the inside out and it's not that hard but if you're starting like you said if you're starting with one foot in the grave and one foot on the banana peel it's gonna take a while it's gonna probably take at least 18 months to get everything back to where it should be and it kind of depends on the owner and the employees.

That's why again if we say it has to start with probably rewriting the mission statement and aligning with that those two or three guiding principles that affect the way you make decisions and then which one do you work on next well that's part of our process of sitting down with people listening let's look at where the most pressing point is and we’ll work on that.

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