Tuesday, August 29, 2006

Build Your Business to Sell: Element #2

Business Sale: Element #2

One last note about yesterday’s Element #1,

SYSTEMS

Save
You
Stress,
Time,
Energy, &
Money

I had heard that before, and was listening to David Frey this morning and he used that acronym. If you won’t believe it because I say it, maybe you’ll believe David Frey.

Ok. Now we are on to the Second Element of Selling Your Business, which is your receivables base. This one is a little more black and white, so it won’t sound like I’m preaching quite as much.

You’ve read the phrase “selling for a premium” no telling how many times by now. Well that’s how I sell. If you want to cut someone a deal, go right ahead. But I/we work too hard for that. I want top dollar for my biz. And I’m putting our business in a position to justify that. I’ve got my systems in place, so I’ve really opened up our potential buyers market. I’ve shown that they can come in and make money. Now I’ve got to show them that they will have some immediate income and some security when they take over. That’s where our receivables base comes in.

You should probably put this on paper, and it may hurt a little.

If you cannot make one more sale of any type, how much money do you have coming in?

And if it’s not on a legal contract, don’t bother adding it. Cash deals, forget it. The only thing that counts here is what is on a binding contract.

This is where package size and duration come in. I’m going to go back to the studio owners from the other day. They sold packages of up to 20 session, all paid in full, up front. If they stop selling tomorrow, today was the last day they created revenue. On the other hand, I’ll use our company, FitSystems, again, we have 12 month legally binding agreements, automatic withdrawals, and our billing company reports to the credit bureaus and performs collections. If we stop selling personal training tomorrow, I can tell you how much revenue we are due up to 365 days from now. There is always a small delinquency (ours is around 3%), but that’s part of in house financing. We have methods of counteracting delinquency, but that’s for another day.

Back to my comparison. Let’s just say that both businesses gross 300K a year. They do all pre-payed packages, we do all 12 month agreements (we don’t but it makes a simpler comparison). Would you pay more for the business that does 300K with $0 receivable, or 300K with $180K receivable on the books over the next 12 months?

Pretty clear isn’t it?

The hairy part of the whole concept is how to put a price on the receivables. I’ll save that for another day, and try to tackle it from every angle. For now, look at it like this: You can get $.90 on the dollar or $.55 on the dollar for your receivables – either way, the more receivables you have the higher your sales price.

It doesn’t matter if you plan on retiring at 65 or 35 (yup), it is never too early to prepare your business to sell. Without that preparation, you are going to be disappointed with your sales price. And prepping a business to sell usually can’t be done overnight. You have to start now.

I will be putting more information on our website www.fitnessconsultinggroup.com this week.

Nick Berry

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