Every week as SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wednesday on Twitter from 8-9pm ET. This is excerpted from my recent interview with John Warrillow @JohnWarrillow. John is the author of Built to Sell: Creating a Business That Can Thrive Without You. Built to Sell was voted one of Inc. magazine’s “Best Books for Business Owners” in 2010. The book encourages business owners to build their business to sell from the start. For Thanksgiving, I’m pleased to bring you this Q&A with my colleague John, who wrote one of the best business books I’ve read in a long time. http://www.builttosell.com/
Smallbizlady: How far in advance should a business owner start to prepare his or her business to be sold?
John Warrillow: I think business owners should build their business to sell from day one. That way, they’ll have all of their options open: run the business forever without the stress of dealing with the details, install a manager and become a shareholder, or–if the price is right–sell it.
Smallbizlady: What is the most difficult part of creating a sellable company?
John Warrillow: Pulling the owner out of the center of the business. To be sellable, the company has to be able to run without the owner.
Smallbizlady: What’s the trick to pulling yourself out of the day-to-day?
John Warrillow: As ironic as it may sound, I think the secret is selling fewer things to more people. You need diversity among your customer base so your business is not overly reliant on one customer, and you need other people to do the work, which means narrowing your product and service list to a point where others can be trained to deliver.
Smallbizlady: Won’t selling fewer things reduce the size of a business and therefore its value?
John Warrillow: Not necessarily. Once you have a narrow list of products and services that don’t change from one week to the next, you can hire a sales team–or empower the one you already have–to replace you as the rainmaker. Salespeople thrive on repetition, so they struggle when business owners keep changing the product or service or agreeing to customize a solution for an individual customer. There’s an example in the book of an ad agency owner who sells everything from websites to radio ads, and he is struggling to clear $100,000 on $1,000,000 in revenue. He narrows his offering to just logos and scales up to a $5,000,000 business with more than $1,000,000 in profit. He was able to grow because he was no longer doing all the selling.
Smallbizlady: What’s the secret to getting the highest price for your business?
John Warrillow: Recurring revenue. When acquirers look into buying a business, they need to know how the company will continue to generate sales and profits after the business owner has sold the company. The best way to guarantee future revenue is through long-term contracts that include a change of ownership provision. The second best way is a recurring revenue model–like a subscription–where customers buy regularly and owners can demonstrate an annuity stream to an acquirer based on their renewal rate. There’s a list of the top six forms of recurring revenue ranked from least to most attractive in the eyes of an acquirer in the back of my book Built To Sell.
Smallbizlady: What’s the biggest mistake you see business owners make when it comes to their exit?
John Warrillow: Waiting too long. Most business owners add a lot of value in the first five years of running their company, when energy, drive, creativity and gumption are all valued at a premium. Once the business is up and running, the owner often gets bored, and the business stalls. Selling a business can give you the ultimate currency: time. Ironically, business owners often use up too much of it running a business beyond the point at which they are enjoying it.
Smallbizlady: What’s the biggest advantage to business owners make the decision that they want to sell their business?
John Warrillow: A business owner who has a company that is “built to sell” has the best range of options available: run the business without the stress of dealing with the details, install a manager and become a shareholder, or–if the price is right–sell it.
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Melinda F. Emerson, known to many as SmallBizLady is one of America’s leading small business experts. As a seasoned entrepreneur, professional speaker, and small business coach, she develops audio, video and written content to fulfill her mission to end small business failure. As CEO of MFE Consulting LLC, Melinda educates entrepreneurs and Fortune 500 companies on subjects including small business start-up, business development and social media marketing. Forbes Magazine recently named her one of the Top 20 women for entrepreneurs to follow on Twitter. She hosts #SmallBizChat Wednesdays on Twitter 8-9pm ET for emerging entrepreneurs. She also publishes a resource blog www.succeedasyourownboss.com Melinda is also the author of the national bestseller Become Your Own Boss in 12 months; A Month-by-Month Guide to a Business That Works. (Adams Media 2010)
I agree with Mr. Warrilow’s theory that every business should be built with the intention to sell later. If a business is not salable from the beginning, from the writing of the business plan, it will most likely not be viable in its market. And entrepreneurs have to keep in mind that as their business grows, so will they as persons. The passion may wane, the birth of a child, a death of a family member and sickness may change priorities and lead to the desire to pass it on to either a new buyer or a family member or an associate, so yes, from the beginning it would be to the advantage of said entrepreneur to build a business that is sell-friendly.
I have rtencely sold websites for clients and have a long list of buyers. I may be able to help you.Eric J. Gall239-738-6227