What is your most important business goal?
If you’re like most owners, you have a profit goal you want to hit. You may also have a top-line revenue number that’s important to you.
While those goals are important, there is another objective that may have an even bigger payoff: building a sellable business.
Btw: if you’re thinking “I'm not interested in selling, Richard”, stop right now, as that, my dear reader, is irrelevant!
Building a sellable business should be your most important goal, regardless of when (if ever) you plan to push the eject button.
Before explaining why that's the case, let me start by explaining what I mean by sellable.
Sellable: a definition
The dictionary definition of sellability is how easy or difficult it is to sell something.
For this article, I’m going to define sellability as “being able to sell your business to whom you want, for the price you want, at the time you want, without an earnout”. (Btw: I’m going to use “sellability” and “a sellable business” interchangeably throughout).
Read on to discover the eight reasons why sellability should be one of your most important goals.
Sellability means freedom
One of the fundamental tenants of sellability is how well your company would perform if you were unable to work for a while. As long as your business is dependent on you personally, there’s not much to sell.
Making your company less dependent on you by building a management team and creating just-add-water systems for employees to follow means you have the ability to spend time away from your business. (Watch my free webinar on how to build a company that can thrive without you here)
Think of the world of possibilities that would open up for you if you could choose not to go into the office tomorrow….
And if you do decide to go into the office, you want to enjoy it…
Sellability means more fun
Running a business is fun when you are able to spend your days on strategic thinking and big-picture ideas.
Unfortunately, most business owners spend the majority of their day on the minutia: the government forms, the employee performance reviews, bank reconciliations, customer issues, auditing expenses.
The boring details of company ownership suck the enjoyment out of owning a business—and it is exactly these tasks you need to get into someone else’s job description if you’re ever going to sell.
And with the fun comes financial peace-of-mind…
Sellability is financial freedom
Each month or quarter you open your investment or pension statement to see how your portfolio is doing. Not because you want to sell your portfolio, but because you want to know where you stand on the journey to financial freedom.
Creating a sellable business gives you peace of mind, knowing that you’re building something that—just like your stock portfolio—has value you could choose to make liquid one day.
And like constructing a portfolio, you want to ensure your business has longevity...
Sellability means being built to last
When you sell your car, buyers check for rust, damage to the bodywork, and the tread on the tyres. They open the bonnet to look at the engine. They start the car and take it for a test drive, push every button, flick every lever.
It’s the same when you sell your business: buyers run detailed checks before parting with their money.
They’ll be asking: Can the business run without you? Do you have good people in key roles? Is your business model scalable? Do you have an effective and repeatable sales process?
Those are the same attributes for a business that’s built to last. So if you’re trying to build a business as a legacy for future generations, making it sellable will give it longevity.
Speaking of legacy …
Sellability is a gift
Imagine your first-born graduates from university and, as a gift, you give her your prized 1966 Porsche 911. Your heavily indebted child takes it on the road, but after a few miles, the engine starts smoking. The mechanic takes one look under the hood and declares the engine needs a rebuild.
You thought you were giving your child an incredible asset, but instead, it’s an expensive liability she can’t afford to keep, nor can she sell it without feeling guilty.
You may be planning to pass your business on to your kids or let your young managers buy into your company over time. These are both admirable exit options, but if your business is too dependent on you, and it hasn’t been tuned to run without you, you may be passing along a jalopy.
Like your car, you don’t want your business to let you down when you need it most…
Sellability gives you control of your destiny
Over the years I’ve met business owners who’ve been blind-sided by one of the Six Dreaded D’s- Death, Disagreement, Divorce, Disease, Disability, or Disaster.
Any of these can force an unwanted sale of your business. Worse, you won't get to choose the timing of when you leave your business. And, usually, that means unfavourable terms and a lower valuation.
But having a sellable business means you won't lose out should one of the Dreaded D's strike. You (or your family should you die) will be able to attract a buyer and exit quickly for a good price. (Or it can keep running without you!).
Obviously, the same is true even if a Dreaded D doesn’t strike - you can choose to exit quickly for a good price should the mood take you! And here’s why…
Sellability allows you to exit when you want
There are some things in life that take time, no matter how much you want to rush them - remember the old adage of when’s the best time to plant a tree?
Making your business sellable is the same - it often requires significant changes; and a prospective buyer is going to want to see how your business has performed for the three years after you have made the changes required to make your business sellable.
Therefore, if you want to sell in five years, you need to start making your business sellable now so the changes have time to gestate.
And when those changes are embedded, the final benefit is …
Sellability means a more valuable business
We’ve assessed the sellability of more than 80, 000 companies using our proprietary Value Builder Score tool. From that analysis we know that the average score is 58 out of 100 and sells for a 3.55 multiple of EBITDA. (Click here for a definition of EBITDA and how to calculate it)
Sellable businesses (which we define as having a score of over 80) sell for 6.1 times EBITDA. That’s a 71% increase in value. Those businesses that score 90+, get a 7-times multiple - DOUBLE the average business.
Time to wrap up…
A Pithy Summary
A business that’s built to sell is more fun to run, gives you more freedom (time and financial), is built to last, is a true gift, is worth more, and puts you in control of your destiny.
That’s why you should be building your business to sell, even if you’ve no intention of ever selling it.
Finally, how sellable is your business?
Are you curious about how sellable your company is and what you would need to tweak to sell it when you’re ready?
Then it’s time to get your Value Builder Score via the questionnaire on our website. It takes about thirteen minutes and your responses are kept confidential. You can complete the questionnaire here: Get Your Value Builder Score Now
Once you know your score, you can use it to keep track of your progress toward building a sellable business - your most important business goal.
PS: Building a sellable business should be one of your most important goals, but if you don’t or can’t measure how you’re doing, you’re setting yourself up to fail. Get your value builder score now (it’s free and confidential) to see how sellable your business is today and what you need to do to give it “Sellability”: Get Your Value Builder Score Now