When it comes to selling a business, only 20% of the women who want to sell are successful. Even before the current economic situation, when our economy was brimming with private equity money looking for businesses to buy, why were so few women able to sell their companies? It’s important to understand the reasons, because like any business cycle, there will be a time in the future when acquisitions increase again. If you have been thinking of selling, you want to be ready.
1. We don’t know how to get our company ready for sale.
We already feel overwhelmed keeping up with the daily demands of our business and our families and selling our business sounds time-consuming and stressful. We don’t start the process, even though we would love to sell.
The best time to think about an exit strategy is when we start the business. But how many of us do that? The second-best time is now. There are concrete steps for increasing the value of your company so that you can successfully sell it for the best price when you’re ready. Even better – these are the same steps that make your business more profitable to you along the way. So even if you never sell, you create a valuable asset that works for you.
I’ll cover these steps in more detail in future posts, but here’s what every services business must do to increase the value of their company:
- If you charge by the hour for services convert them to prepaid packages sold as “products” or “solutions.”
- Find ways to generate recurring revenue – this is where clients pay monthly for memberships or packages.
- Systematize and specialize. Narrow your focus so you can own your niche.
- Track your sales and prospects pipeline carefully because this is how you can forecast.
- Create and monitor key metrics (in addition to financials), such as average customer acquisition cost, customer lifetime value, and customer retention.
- Make sure the business can run without you. Start now to create a management team who can replace you in the future.
2. We run our businesses as lifestyle companies, instead of managing them like assets.
We don’t reinvest most of the profits into the business for growth, don’t take a realistic salary, and sometimes spend more than necessary on “benefits” because we believe we deserve them. I get it. Running a successful business takes so much time and energy that we think the least it can do is provide us with money to spend the way we want. The downside is that when we don’t reinvest in the business, we’re not building the business into an asset that can take care of us.
Instead, we must keep taking care of the business. And while it’s great that as business owners we may be able to write off company cars and elaborate trips, keep in mind that driving down your bottom line to save money on taxes is not the best strategy when it comes to the valuation of your company. What is the best strategy? Treating your business like an investment or asset.
Here’s what they don’t tell you in business school: the most important thing about your business is the relationship you have with it. The relationship we have with our businesses drives every decision we make or don’t make, every success we have and every failure. It is responsible for how profitable the business is and how much time we spend in it.
Most of us don’t realize we have a relationship with our business, but we do, because relationships are simply the thoughts and feelings that we have toward something else. For many of us that own services businesses it’s a love/hate relationship. Treat your business like any other healthy relationship: prioritize it, appreciate it, nurture it and make sure there is a balance of give and take. You give it time and it gives you time. You give it money and it gives you money.
3. We are so personally involved in the day-to-day operations that the company can’t run without us.
Subconsciously, many of us think the success of our business is proof of our own self-worth. When someone on our staff makes a mistake, we think it’s a reflection of our own value and we feel embarrassed. We decide we must do everything ourselves or it won’t be done right. This leads to double-checking everything, handling sales calls personally, and making all the decisions. We drive ourselves to exhaustion because there’s never enough time. We don’t build capacity in our team because we’re not willing to let them make and learn from mistakes. Without realizing it, many business owners create a glorified job rather than a company.
A potential buyer won’t want to buy a company that runs like this unless the owner agrees to stay on for 3-5 years to handle the transition. This is called an “earn out” and is a very unappealing situation for a business owner. After all, who wants to be told what to do by the new owners when you are the one who started the company! But a buyer must protect themselves and if you can’t prove the company can run without you, part of the terms of the sale will be that you must stay for an earn out. Start planning now to make sure your business has a strong management team that requires minimal time from you as the owner. Make sure you give your staff responsibility and monitor the outcomes.
Ask yourself if any of these reasons apply to you. If so, take steps now so that your future self has the option to sell. Even if you don’t want to sell your business now, the time to get it ready to sell is before you want (or need) to sell it. In the process, you can build a valuable company that you just might want to keep because it runs so well without you.