2 Things You NEED in Order to Exit
There are two types of businesses: ones that are sellable assets and those that are not.
The goal of every business should be to build itself into a sellable asset, even if the business has no plans to actually sell. This is because as an entrepreneur, you got into business for yourself to be a business owner and not just to be self-employed.
Satisfying the requirements of being a sellable business will necessarily force you to become a business owner and not self-employed.
Being a business owner will give you more freedom and options with your business as opposed to falling into the self-employed rat race where you personally need to keep working in order to generate income. This can lead to burnout and unhappiness, so it’s much better to build a business that serves you versus you serving your business.
As a business owner, what do you need to do to build a sellable business?
There are two necessary conditions: clean and complete financials and independent operations.
Clean and Complete Financials
Having clean and complete financials means having accurate and up-to-date bookkeeping and financial reporting, specifically P/L and Balance Sheet.
Your books and financial statements prove to potential buyers that you have a valuable business. Your balance sheet on the other hand shows buyers what assets and liabilities they will be taking over if they acquired the business.
Businesses are commonly valued at a multiple of their net profit for the last 12 months. Without the proper financial records, a buyer won’t be able to verify the profit of a business and ultimately assess its value.
Buyers will also require your balance sheet to move forward with the acquisition. The balance sheet will show prospective buyers your business’s liabilities or debts, which is very important since they will be taking over them if they proceed with the transaction.
It’s ok if your business has some debt — you just need to be transparent with the buyer through your balance sheet.
If you want to sell your business for seven figures or more, you’ll likely need at least 1-2 years of financial records.
Even if you don’t plan on selling, having clarity on your business financials is incredibly important.Insight into your business financials are especially important for eCommerce businesses. This is due to the added complexity of COGS and having multiple SKUs that you are selling.
There are some eCommerce business owners who may have hired a bookkeeper that does not completely understand eCommerce. They think they are doing their books and statements correctly but when our company reviews them (via our Finance Audit) to prepare their businesses for sale, the reality is that they are incorrect and incomplete.
Of course, we can and are happy to assist in getting the business cleaned up so it can be sold. But, this costs the business owner time and money and delays their exit.
Further, financial records will tell you what your true profit is each month and will be able to help you identify important trends. For example, you may notice that your advertising spend has increased yet your advertising revenue has not, or that certain SKUs are hardly (or not) profitable after you factor in their advertising spend. Your financials will not tell you the reasons why but will alert you to items that you should explore further.
Having clean and complete financials is also a necessary condition if you want to take on financing or sell a portion of your business. Being on top of them gives you and your business more and better options for the future. This is why it is best to get on top of your business financials beforehand as opposed to waiting until the last minute.
Further, you don’t know what and when opportunities will present themselves. For example, my exit a few years ago happened very unexpectedly and suddenly. Thankfully, I had the necessary financials in place to be able to enter into the acquisition talks with my buyer. If I had not, then the sale conversations would have been delayed and could have cost me the opportunity to exit because the buyer had an aggressive timeline for their acquisition.
Even if your books and financials are a mess, the time to get started is now. Send us a message and we are happy to assist to get your business cleaned up so you can be prepared for whatever opportunities may be presented to you.
If you want to have a business that is a sellable asset, the business can not be dependent on you – the business owner – to run.
How could another owner take over your business and continue running it successfully if your business operations and delivery is highly dependent on you for it to run? You need to make yourself as irrelevant as possible to the business in order to make it sellable. That means getting good processes and people in place to run the business for you.
The entirety of your business does not need to have strong processes or SOPs in place, but you do need your core delivery processes documented so someone else could take them over.
For an eCommerce business, these processes could include placing orders with your suppliers, product delivery, your strategy for product selection, your launch strategy on Amazon, and/or your Facebook Ads strategy for marketing.
Whatever the processes are, they will need to be able to be taken over and managed by the new owner. For example, you do not want to be personally picking and packing orders to go out for delivery or you do not want to rely on a family member. This may seem obvious, but we work with many businesses that use family for their product fulfillment. It is unlikely that the family members will have the same relationship with the new owner so it’s much better (and often cheaper) to move your fulfilment to a 3PL.
Don’t overthink these processes and SOPs – they don’t need to be perfect.
Start by recording some videos walking through the core processes of your business. From there, you can pass them to a VA to turn into documents.
Again, the documentation doesn’t need to be perfect. It just needs to be enough that someone outside of your business could come in and be able to perform the various tasks needed.
If the thought of getting your business processes, operations, and supply chain in order is stressing you out then shoot us a message and we are happy to help. We can run an audit of your current operations and lay out the game plan for you to turn whatever mess you are running into a sellable asset asap. Our team can even jump in and take over implementing the processes for you, too.After the process documentation, you need people in place to execute on those processes.
You want to make your business as turnkey for your prospective buyers as possible. Having a team in place to keep running your business after the sale can be very important to buyers.
If you aren’t experienced or confident in your hiring, feel free to borrow the hiring funnel that I’ve used to hire over 100 people over the years.
If that, still, is intimidating for you or you just want to move faster, we are happy to help. We can identify what roles you need to hire in order to unplug yourself from your business and even go and find, hire, and train them in to run the business for you. O
Our goal is to really add as much value as possible to you and your business and help you create a business that gives you the freedom and options.
So what are you waiting for? Go get your financials and operations in order so you have a business that is a sellable asset and gives you options for your future.