Want to learn how to sell your business and make your business more attractive to prospective buyers?
This 11-step framework will help you make your business more sellable.
How To Sell Your Business Video Training:
Today you’re going to learn about common problems and mistakes business owners make while running their business.
These problems actually prevent it from being sellable.
Or at the very least, it’ll make it very unattractive to future buyers.
And we’ll talk about some quick fixes you can implement as well, let’s get started.
1. The 11 Step Framework: How To Sell Your Business
As we’re going through the list right now I want you to think about 1 very important mindset.
Because it actually colors the whole success of the sale of your business.
Yes, I know your business is your baby.
But you’re now going to work on making your asset attractive to another person.
This doesn’t mean that it’s no longer going to be a valuable business or that it’ll stop serving your needs as you’re the current owner.
But this is just like you would make a sale to any customer.
Treat This Like Any Other Sale
You want to set up your business in a way that’s very attractive to a potential buyer as well.
- Lower the friction
- Fixing the needs in the business
You want to make sure that your value proposition is a no-brainer to the prospective buyer.
So think about that mindset as we’re going through this.
It’s all about the buyer.
The really great news is that even though you’re focusing on setting up your business so it’s attractive to another buyer.
There’s actually a high probability that you’re going to actually increase your revenue in the short term.
Because you’re fixing weaknesses in your business.
So remember the buyer mindset as you’re going through this 11 step framework how to sell your business.
2. Add Recurring Revenue To Your Business
1 thing that is very attractive to a potential buyer is recurring revenue happening on a daily basis.
The buyer doesn’t want to come into their new business and:
- Build out a whole team
- Start from zero every single day
What a buyer is going to really like is some form of subscription business or repeat clients.
How nice would it be if your payment processer processes $3,000 in transactions before 6 a.m. every day?
That takes a lot of pressure off the business.
Make Your Business A No-Brainer To Buy
Now this doesn’t mean you don’t have to operate your business in terms of:
- Your team
- Bringing in more opportunities
- Increasing the revenue
But just keeping the wolves at bay knowing you have cash flow covered for the day before you even open your doors in the morning.
That’s very attractive to a prospective buyer.
So right now, if you do not have recurring revenue in your business you should implement that.
How can you transition your one-off clients into a subscription plan?
Can you do some sort of membership site?
A subscription box?
How can you productize your service in a way where it’s a clear value to the customer?
But again, just find a way to have recurring payments come in.
This is a VERY attractive thing that you want to have in your business for a potential buyer.
3. A Fully Trained Team
The next area you want to focus on while learning how to sell your business is your team.
You want to make sure you have the right people in the right roles.
A buyer doesn’t want to come into a business with a poorly trained team.
They don’t want to discover tons of missing positions.
This would lead to a lot of stress from not being able to do the day to day of the business.
Of course the buyer wants to come in and optimize the team.
But at the same time, they want a team that’s already in place executing at a high level.
They don’t want to have to come in and do a lot of work building out and training a new team from scratch.
Your Team Is A Valuable Asset
This is especially true because they don’t know the business themselves.
They are the new owner.
Can you see how this is a major friction point that would prevent a sale to a potential buyer?
Instead, what if you come in and tell the buyer that you have a team that:
- Knows exactly what they are doing
- Has been with the company for 5 years
You have clear training manuals, a net promotor score of 92% in terms of customer happiness.
All of these things are positive indications to the potential buyer that your team is doing a great job.
So think about having training manuals and the right team members in place.
That’s very attractive for a potential buyer.
4. Zero (Or Low) Owner Involvement
This is the next thing you’ll want to pay attention to when learning how to sell your business.
It’ll make it very attractive to a potential buyer.
You want to have low-to-zero owner involvement in the day to day operations of the business.
Think about this from the buyer’s perspective.
Again, we’re always thinking about the buyer.
Why would they want to put forth money and buy an asset that requires them to work 90 hours a week?
Aren’t they essentially putting forward money to buy a job?
That’s really not that attractive to a large pool of potential buyers.
Maybe you’ll find a few who don’t mind working in the business.
But it lowers the size of your buyer pool.
Ultimately when you’re selling a business, you’ll have multiple bids on the business because it’s so attractive.
We’re just trying to find ways to make the business extremely attractive to multiple buyers, ideally.
But at least 1 potential buyer.
So what can you do to setup your business where you’re not actually delivering the products or services?
Or you’re significantly reducing the way you deliver them.
You’re not the person in charge of all the sales channels.
You can do this by hiring a salesperson or automating the business.
You Can Automate Your Marketing:
- Sales funnels
- Email marketing campaigns
- Paid acquisition channels
This way the new owner isn’t sitting there dialing for dollars.
Again, you want to be thinking about what the buyer would want.
They probably want to do as little work as possible for the maximum amount of returns on their investment.
So again, that mindset is extremely important.
Are there things you can delete entirely?
Or can you delegate or re-engineer the business where you’re not the person responsible for doing the day-to-day?
This is a very attractive thing.
It would be much better if the owner only works on the business 5-7 hours.
Instead of 90 hours in it.
Or better yet, they work zero hours where the business runs itself.
Think about that from a buyer’s perspective.
5. Clear Systems & SOPs
The next area that’ll make your business attractive for potential buyers.
Is having clear systems, or Standard Operating Procedures (SOPs) written out and documented in your business.
This is why franchise businesses are so popular.
Because they have a proven system of how things are run.
It removes a lot of stress from figuring this out in your startup business.
How can you create these in your business?
If there’s information that’s only inside the head of 1 key hire, it’s not written out.
You want to make sure that’s all documented.
Ideally, all the different departments are going to be documenting how they do their tasks.
You could record this in video, create graphics, or write it out.
This is important in every area and department of your business.
A List Of SOPs You Can Create:
- How is the financial team doing their books every day?
- What is the marketing team doing to run their ad campaigns?
- How are you delivering your goods and services?
- Do you have a customer service file with standard templates?
- Are your log ins saved in a particular safe place?
- Do you have a list of all the things you do on a day to day basis to serve a customer?
- Do you have a refund policy SOP?
There’re a million different things, but you want to make sure it’s all documented.
How attractive would this organization be to a potential buyer?
You have everything documented for them.
All they have to do is follow the playbook to run the business.
It reduces their risk because they now know what they are doing to run it!
If only 1 hire has all the information in their head, can you see how this is risky?
Having well-documented SOPs reduces the friction point in the buyer’s mind.
So document everything.
6. High SDE & Free Cashflow
So another thing that’s very attractive to a potential buyer is the amount of Sellers Discretionary Earnings (SDE) you’re making.
Or as Warren Buffett likes to say, “Free cash flow that you’re taking in”.
It’s a fancy way of saying how much money are you making in terms of profit?
As the owner, what do you get to take home?
A lot of businesses keep their owner salary and distributions extremely low.
They’re constantly going to re-invest this money back into the business.
And that’s fine.
That’s 1 way of doing it.
But understand that constantly not paying yourself is going to be less attractive to a certain subset of buyers.
The new owner wants to know that they’re going to get a fair amount of money back from their investment.
So the more you can do to:
- Increase SDE
- Lower your overhead
The more attractive it’s going to be for a particular owner.
Unfortunately, there’s some tax implications.
The more you pay yourself.
The more you have to pay Uncle Sam.
Reinvest Or Pay Yourself?
So there’s obviously an advantage of consistently reinvesting back in the business.
And then maybe taking a larger salary later on.
But again, just understand that if you do that, it’s going to be less attractive to certain buyers.
- You may have a top line of 10-figures
- You’re in a growing market
- You have a great margins
But what if the owner is only making $500?
Because they’re reinvesting back into the business.
There are people who will look at this from an EBITDA perspective.
And see that the owner is not making a lot of money.
They’ll say, “This business isn’t very profitable, next.”
And they’re just not going to buy your business.
Okay, so think about it.
This is 1 thing you should do while thinking about how to sell your business.
You want to ask yourself: How can I increase my SDE?
Or as Warren Buffett likes to say, your free cash flow,
The more you can increase that on paper in a real and consistent way, the more attractive it’s going to be for a potential buyer.
7. Clean Financials & Books
Alright, this one is very important.
So many deals have fallen through because this was not set up the right way.
You absolutely need to have clean financials and clean bookkeeping in your business.
Everything needs to be organized and line itemed down from the inflow and the outflow.
Think about it from a buyer’s perspective.
Let’s say you’re selling your business for $5 million.
And it’s based off of $2 million of seller’s discretionary earnings.
You say that you’re making $2 million per year.
They look at your books and they can’t tell if you’re making $2 million a year or 2 pennies per year.
It’s very disorganized.
It’s unclear what is coming in and coming out.
That feels very risky for a buyer.
This doesn’t even matter if you’re being honest.
99.999% of people are honest about this.
It’s hard to prove out that you’re actually being honest.
So you’ve got to make sure you:
- Have a bookkeeper
- You’re using a software like QuickBooks
Your books are being reconciled every week or month.
Have them go through it and make sure it’s very organized, labelled, and crystal clear.
It’s a beautiful thing for trust in terms of the prospective buyer.
Short term, it’s a great way to increase your SDE.
And the revenue inside your business as well.
How To Sell Your Business & Increase Your Income
You’re going to find all kinds of wasted spend that shouldn’t be there.
You might have forgot that you signed up for a software 14 months ago.
You’re paying $100 per month and you never use it.
Well, that’s $1,200 per year that you just added to your SDE.
The other cool thing about QuickBooks is you can get:
- Balance sheets
- Income statements
- All these great reports
Especially on a month by month or quarterly basis as well.
This is great financial reporting so you can see the health of your business.
Potential buyers love to see that stuff as well.
So keep your books clean, straighten them out.
Hire a professional to do this.
They are dirt cheap in comparison to the value they give back.
8. Analytics & Data Tracking
This is the next thing you want to write down when you learn how to sell your business.
You’ll want to have your analytics and your data tracking set up really well.
Think about it from a buyer’s perspective.
They want to see what they’re buying.
What are the traffic trends in this particular business?
They’ll want to know the conversion rates of the different channels.
What traffic sources convert on the offers?
They want to be able to analyze and see all of that.
You might say in your memorandum that you’re getting all your traffic from Facebook ads.
But how would they know that?
This is why you should have analytics setup.
Or some sort of tracking software that actually documents and proves it.
The proof right there is very attractive to a potential buyer.
It helps them analyze the opportunity.
How To Sell Your Business & Increase Revenue
It’ll even help you in the short term as a the current owner of the business.
There’s a high probability you’ll increase revenue as well.
You’re going to see all kinds of things that you didn’t see in your business.
1 funnel might be converting better than your other funnels.
Now you have analytics to prove it.
Have the following setup properly:
- Google Analytics
- Conversion Pixels
- UTM Codes In Email Marketing
If you’re doing affiliate marketing, make sure all the attributions are set up properly.
Make sure your query strings are set up on your website.
I don’t want to get too technical for this article.
But it’s important you have that tracking in place.
It’ll help you in the short term.
And in the long term it’s very attractive to a potential buyer.
9. How To Sell Your Business With Consistent Revenue
Another thing that’s really attractive to a potential buyer is consistency in revenue.
Think about this from a buyer’s perspective.
Why would they want to buy a business where it seems like revenues are completely out of control?
It doesn’t feel stable or consistent.
1 month it can be $150k.
The next month it might drop down to $21,000.
After that, $37k.
The next month is $14 trillion.
Whatever it is, just up and down like crazy.
How To Sell Your Business With Less Buyer Risk
There isn’t that consistency factor and it’ll feel riskier for that particular buyer.
1 of the best things you can do in terms of making your business more attractive is to stabilize that revenue.
- Why are you having those down months?
- What can you do to clean them up?
On paper, if your revenue is inconsistent, it’ll scare a lot of potential buyers away.
The final tip when it comes to revenue consistency is year over year growth.
What if in April of 2020 you did $87,000 and next April, you only did $47,000?
That’s a huge loss in April in terms of what you did the year before.
That’s inherently going to feel risky.
Potential buyers want to see revenue that is consistent or growing.
If they see large swings year over year growth wise, it’s going to feel risky.
I always tracked my business comparing each April to each April.
Each May to each May.
And for me it was an internal driver as well.
In the short term, it actually helped me grow and increase the revenue in my business.
I told myself there is no way I’m going backwards from the previous April.
We’re either going to match it or go above it.
And of course, it made it more attractive to potential buyers as well.
- Consistency in revenue
- Year over year growth
Those are really important things you want to have in place.
10. Clear & Low Risk Opportunities For Growth
This is a great thing any owner is going to find attractive when you sell your business.
You want to make sure there are very clear opportunities for growth that are pretty low risk to them.
Consistent cashflow is an important thing.
But if they’re going to put their capital on the line, they want to grow the business.
They want to make it even more valuable.
Having low risk opportunities for growth makes it an even better investment for them.
From an execution risk standpoint, your business may be complicated in terms of operations and build.
And they have to do 97 things to do anything.
It’s not an attractive enough opportunity.
I’ll give you a perfect example.
Let’s say your website is completely custom coded.
Your CRM is custom code. Everything in your software is unique to you.
What would it take to:
- Add an affiliate program
- Build a new marketing funnel
It might cost $125,000 to implement.
Can you see why it’s important to do things in a simple fashion?
Not 47 steps to implement XYZ.
This can be done using 3rd party software or builds.
It’ll create an infrastructure that’s scalable and easy for the next person to build out opportunities.
So remember that, too much complexity is going to scare potential value investor buyers away.
11. Opportunities For Return On Capital
The final tip you’re going to learn today is thinking about your buyer’s opportunities for return on capital.
Your buyer is an investor.
They have multiple places they could choose to put their capital forward.
Many of these places will bring them a particular return on investment.
They want to see areas in your business where they can really scale if they put $1 in and get $1.50, $2, or $3 back.
They want to see clear ways to return their capital.
And get extraordinary returns in comparison to the other palaces they could put their money.
For example, the S&P 500 will return somewhere between 5% and 8% per year.
Not only is this liquid, but it’s basically passive.
They don’t have to do anything.
And theoretically, there is less risk involved as well.
What could incentivize them to put their money into your business if they can get 8% in the S&P 500?
So you want to show them how they can get a larger return in their business.
What if they can put $20,000 in and get $35,000 back?
That’s a nice value proposition.
There are so many leverage opportunities for them to put their money into your business and grow it.
Show it to them so they see what it can do for their investment going forward.
How To Sell Your Business Summary
So there we have it.
A number of different ways that you can make your business more sellable.
Start working on these.
They’re going to help your bottom line today as you implement them in your business.
It’s going to make your asset significantly more attractive to potential buyers.
Thank you so much for reading this article on how to sell your business.
My name is Steve Nixon.
I write these articles on entrepreneurship and investing as my way of giving back.
I want to help other entrepreneurs and investors succeed.
If you enjoyed this content, check out the Strategy Samurai YouTube channel.
And read our other articles for more topics like this.
Thanks so much again and have a wonderful day.