Saturday, August 26, 2006

Build Your Business to Sell: Element #1

There are a couple of things wrong with the sale I was referring to yesterday.

I have to look first at what this business will do when she walks out the door. I know right now that I’m not going to replace her myself. I may need someone to fill her role as a laborer, but her ownership role is gone, and her management role will never be completely filled. No one can replace the owner. She’s gone, her clients are going with her, her assessments are gone, her bookkeeping is gone, her management is gone. Take all of that out and what’s left? Her business was completely dependent upon her. Like I said yesterday, what am I going to do, hire her back?

In order to demand a premium sale price, you have to offer a business that will continue to make money when you are gone. It cannot rely on your presence, knowledge, or insight to make money. Otherwise, who is qualified to buy it? And of that tiny group, who still wants it? I’m one of the few people in our region qualified to purchase this particular studio, but I don’t want it because I’m not interested in buying a job. Let me give you a great example. Three months ago I met this internet wizard. He arguably has more talent with internet technology than anyone I’ve ever met in ANY field. Let’s call him the LeBron James of the internet. The guy is making some pretty good money with his website business, really kicking a$$. And I just started asking him one day if he wanted to sell his business to me. We went back and forth about what it might be worth, and I stumped him when I said “LeBron, what’s it worth to ME?” Think about it, LeBron might have been making 6 figures at that time, and I couldn’t have made $100 as an owner of his business. That’s drastic. Since then, LeBron and I have done some coaching, he has started to shore up his business model, and inside of six months, if he does what we’ve outlined, I foresee him being able to sell his business for a fat six figure check.

What’s equally as important, his list of perspective buyers will multiply 10 times over.

You see, the simpler the takeover, the more you qualify potential buyers. Here’s the flip side of the coin. The personal training company Pat and I own (FitSystems), is as automated as a service business can get. If I don’t show up for work, the show goes on. If Pat doesn’t show up, the show goes on. And so on down the line. We do not depend upon any role or individual. Of course, if we disappear the business doesn’t operate at 100% efficiency. That’s just the nature of the beast. If our systems and personnel will continue to operate at 90%+, then I can afford to spread myself out and work on more businesses that I can have at that level. (Let’s see…… 1 FitSystems @ 98% efficiency (w/ Pat and I onsite)……………. or 5 FitSystems @ 90%? (no Pat no Nick onsite))

If Pat and I don’t go to work, our numbers will drop slightly, but we will make money. It’s a perpetual machine. No one person’s absence breaks our back. What that means is that basically anyone who can handle business basics is qualified to buy us out. You DON’T have to be able to sell, you DON’T have to be able to train, you DON’T have to be at work to make sure the business goes on and money is made. Our systems are ironclad. You could buy our business, and with a couple of adaptations, be an offsite owner. And FitSystems would make you money.

I will say that you can never be 100% hands off. Let’s not be foolish. Even in a silent partner/investor type situation. You have to check in on everything regularly. I would prefer to check in on 20 businesses once a month than to micromanage one business everyday.

But that’s just me, right?

This was much longer than I intended, (I wasn’t planning on talking about LeBron Hill Jr.). I’m going to hit on the other integral element of selling your business – your receivables base – in the next post.

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