The great majority of business owners rarely ask themselves the most important question when starting out…”Will I, eventually, be able to sell my business?”
Have you ever met a small business owner that was completely burnt out, and ready to throw in the towel? It happens more often than we’d like to admit. After years of passion-fueled effort, the small business owner gets themselves to a point where they no longer enjoy what they’re doing.
They no longer own the business…the business owns them.
Without keeping the end in mind, most small businesses will be doomed from the start. There is a startling statistic that 80% of small businesses are unsellable, and of those, only 5% get the amount they want for their business in the event of a sale.
Knowing these facts, what can the average small business owner do to increase the odds of being able to sell? Sadly, the majority of small business owners only ever focus on two things: revenue and profit.
Unfortunately, there is a lot more that potential acquirers will be looking at when they analyze your business for purchase.
The Sellability Score
Thankfully, there is one particular model, based on empirical data, that can guide you to twice as many offers and twice the amount.
John Warrilow, author of best selling book “Built To Sell”, found eight common themes with businesses that had historically sold for higher exit values, and created a scoring model for a business based on these eight themes.
Through a very systematic approach, small businesses are able to optimize these eight areas and make themselves incredibly attractive to prospective acquirers.
This scoring model is called the Sellability Score.
After completing a simple questionnaire, the Sellability Score will give you a score of 0 to 100 based on these eight “drivers” of company value.
Eight Key Drivers of business value
- Financial Performance. Your history of producing revenue and profit combined with the professionalism of your record keeping.
- Growth Potential. Your likelikehood to grow your business in the future and at what rate.
- Switzerland Structure. How dependent your business is on any one employee, customer or supplier.
- Valuation Teeter Totter. Whether your business is a cash suck or a cash spigot.
- Recurring Revenue. The proportion and quality of automatic, annuity-based revenue you collect each month.
- Monopoly Control. How well differentiated your business is from competitors in your industry.
- Customer Satisfaction. The likelihood that your customers will re-purchase and also refer you.
- Hub & Spoke. How your business would perform if you were unexpectedly unable to work for a period of three months.
We’re going to dive into each of these eight drivers in more depth over a series of posts. As you analyze your own business, keeping in mind the ultimate question — “How will I be able to sell my business?” — you’ll quickly find areas where you can optimize these drivers.
As licensed advisers of this model, we have become incredibly efficient at identifying those opportunities and walking businesses through the process.
There’s nothing that can relieve the stress and agony of the burnt out business owner like the knowledge that your business has maximum value, can run without you, and is truly a blessing instead of a burden.
If you, or a small business owner you know, would like to get your own Sellability Score, feel free to visit SmallBizMatters.org/score to take the questionnaire now.
We’ve got several programs in place to help you dissect the results and dive deep into improving the foundation of your business.