In this episode, we delve into the essential elements that determine the sellability of your business.

Join host Lani Dickinson, as she uncovers the critical factors that buyers evaluate when considering a purchase. From ensuring your business generates sufficient cash flow to establishing a self-sustaining team, we explore actionable strategies that can enhance your exit value.

Discover why a predictable sales system, documented processes, and a strong brand story are vital for attracting buyers and achieving a successful exit. Don't miss this opportunity to learn how to position your business for maximum potential!

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>> Lani Dickinson: The business has to be making enough money to be

worth buying. That might seem like a

no brainer as I say it, but part of the reason

many businesses don't sell is there's not enough

money to pay the new

owner much more than a salary. But also

they have to make debt payments. So there's gotta be enough

cash flow and profit coming out of the business to make the

debt payments and give the new buyer

the cash flow lifestyle that they are looking for and

also grow the business.

Hey Exit Focus Founder, welcome to the Stealth Freedom to

Exit podcast where we dive into the real questions,

the real answers, the strategies, the

mindset, the roadmap. Basically the changes

that self led founders need to make now

before they find out it's too late and they have an asset that

is not sellable. Which is true for four

out of five businesses that get listed. They are not

sellable. Only one in five actually sells.

So in this podcast we talk

about how do we get you

operational independence, a real exit

strategy that will work and will make you happy

and how do you get radical life changing results.

I'm Lani Dickinson, your Freedom Sherpa on this

journey and we are all about helping you

get what I say are two versions of Exit.

One time and location freedom, the other an

actual sale at the end for the maximum multiple that

is possible for your business. Here's the cool thing, the

actions are the same no matter which version of exit you want.

So with that let's dive into the whole list of things that are gonna

drive your exit value for you and also get you time and location

freedom.

The first thing is that we have to realize is

buyers today are not looking for a job. Many of the

boomers who are ready to sell their businesses, they grew up in a

different time where hard work was sort

of a badge of honor and it built the world as we know

it today. But buyers today are not looking for a

job they have to work in. They are looking for

cash flows and return on investment.

And frankly there are several people out there

training buyers on how to buy your

business with no money out of pocket.

And because most businesses aren't built in a

way that make them sellable or sustainable,

they are also teaching them how to keep you in the business for

another two to five years, running the business but now

as an employee and they're making the payments off of

your existing cash flow. So it's really important

to dial in and hear what are the drivers

of that exit value and what are the changes you need to make

now, so that you're not caught in that

situation, first, the business has to be

making enough money to be worth buying.

That might seem like a, no brainer, as I say

it, but part of the reason many businesses don't sell

is there's not enough money to

pay the new owner much more than a

salary. And I already said they don't want to work in the

business. But also they have to make debt payments. So

there's gotta be enough cash flow and profit coming

out of the business to make the debt payments and

give the new buyer the cash flow lifestyle that they

are looking for and also grow the business. In a

person to person transaction, that would be about a

minimum of a million dollars in EBITDA

or seller discretionary earnings. And in an

institutional transaction where

another company or private equity is buying the business,

that's going to be at around $10 million. So as you're

thinking about, is my business sellable? Depending

upon who you're looking to buy your business, we got to

hit either a million dollars or $10 million. The

very next thing, which is kind of in a tie for

earnings is is the business self

run without the owner? That means is there a

team that is developed enough to run the

business and stay after

the selling transaction? This is

key. I've already talked about all the reasons why the next thing

is not just making at least a million dollars or

$10 million, but profitable with very

high margins. And in future episodes I will

talk about why that matters in depth. But

basically people are looking for return on their

investment. And when you think about it, we can invest our money

in the stock market and get about 7% return.

And most small businesses are making about a 5%

return. So why would would somebody buy your business if they could

make more in the stock market? So we will deep dive that in

a future episode. The next thing that is critically

important is a predictable, repeatable

sales system. Meaning we turn on the

lever and saless come in and we can show that

that's very predictable and repeatable. And the thing

that makes that even a higher quality item is if

we have documented how we have optimized

each phase of that. And the next thing that

takes it up a notch is do we have monthly recurring

revenue? That's very high quality. We'll dive into that

in a future episode as well. But monthly recurring

revenue will get a minimum of $2 for

every dollar you have in monthly recurring revenue. So this

is a hot topic in the small business

entrepreneurial space, but it has definite

impact to Your ultimate exit multiple.

The thing that most small business owners and

entrepreneurs hate is sops. They hate

writing them. But we have to have system

and process that show how this business is run,

front end and backend. We have to have our key

systems documented and again optimized.

And we also have to have what we call OKR

or KPI objective key results and

key performance indicators. Otherwise, how do we know if we're

getting better or we're getting worse? We want toa be able to track data

on these systems, these key systems, and

what takes that up a notch in the exit multiple is if

key leaders in your organization have their

compensation tied to the outcome of those

okrs and those KPI's. So we'll deep dive that in

another episode. Another thing that shows a very

strong business that's worth buying and worth paying a

fare multiple for is a communication

cadence and the discipline to have a

monthly review where we deep dive all of the numbers.

So numbers are important and we say what are we going

to deep dive and make better? And then

having a quarterly project where every quarter we

take one little segment and we fully optimize

that and we start closest to cash. So if we

can document that we have that discipline,

that's gonna drive our exit value even higher. The next

thing that a buyer is going to be looking for is your

history of focused and intentional year over

year growth coupled with the growth

plan for after the sale and how their

investment can actually make that growth go

faster or be larger. So a real

emphasis on growth. Remember, they're buying cash

flow and they're buying return on their money. So really

they're not looking to buy plateaued businesses.

The next thing that they're gonna look at in the valuation

is concentrations. That's concentrations of

customers. So do you have one, two or three

main customers or do you have 10 customer types or 20

or more? And then the same with your suppliers? Covid

taught us we don't really wantna be dependent on one or two

suppliers. We've probably already learned that lesson. But

it also impacts your exit multiple. But it's not enough just

to have a diversified customer base. We also wanna have really

happy customers. And so how are they judging

really happy customers? Well, they're looking for, do

you have a formalized way that you get and

implement feedback? And the most popular way

is through a net promoter scoring system. We will talk

about that in later episodes. But do you have happy

repeat buyers that make referrals and

grow your business by word of mouth? And then how do you

systematically take their feedback and improve the

business. Another thing that is important to note is they

really generally don't want the real estate. Real estate does not

appreciate in the same way as growth, in

the business, number one. And number two, they're not looking

for the opportunity to just randomly buy machines. So your

capital needs to be up to date. If not,

that's gonna be a discount on the exit

multiple. Now all of this comes down to

the numbers. How well are you managing to the

financials? There's a statistic out there from the Small Business

association that says something like

only 35% of business owners get

their financials in less than 5% even look at

them. Now those might be off by a few

percentage based on my memory, but at the end of the day,

what that says is most of us aren't doing anything with our

financials. And so it's important. You got to get

a bookkeeper. At the minimum, depending upon where you are in business,

you may need a cpa. And if you want toa sell your business in the

next three to five years, you absolutely want to

transition to having a cpa. And we

want audited financials and at the of the sale, you

might evennna provide a seller quality of

earnings report. And we wanna be very transparent

about all of those costs that we're sticking

in the business that our CPA has told us.

Yes, we can tax deduct those things, but they aren't

completely necessary for the ongoing running of the business. So

those are called seller discretionary earnings. We really

wanna get them out. And if that's not possible

just because the reason we do that is to minimize our tax

burden. Right? We wanna be very transparent about that so that it

doesn't create another discount in our

selling transaction discussions. The other thing is we

want to be eliminating as many costs as we can without

slowing down growth and then being able to show

that we pay for experts rather than

generalists. This is a whole topic in another

podcast. the other thing that they'renna look at is what is our

competitive advantage? Do you have ip? Do you have

trademarks? Do you have license? Do you have a

process that nobody else has? Is there some kind of unique

access that you have? What's your brand story? What's your

big why? What were the struggles? This all reveals the company's

DNA. Is this dog gonna hunt? Is this horse gonna win

the race? This is what the brand story reveals to the

buyer. Our past generally

informs the future. So it's important if you were in

business in 2020 and

2008 to be able to show what was

the trough of those years and then how long did it take you

to come out of that trough? So the peak to trough story, your

brand story is incredibly important. There's an

online marketer, his name is Billy Jean, and he

put what's called an order bump on a checkout. And

that's really not important, but it was something people had to pay money

for. So it was $9.95 order

bump. And he stated on the bump

in the video at the checkout, all the places,

this is literally for nothing.

Ninelars 95 cent gets you nothing. He restated it many

times. His brand is so powerful, by the end of

30 days, he had made $5,000 on

that. People just believe, you know, o this is Billie Jean. He's

gonna put out a quality product. And so they bought this

thing. So what is your brand story and the strength

of your brand? So this is kind of the main

list of things that we will talk about in depth

in future episodes. We will interview people who've gone through

the process. We'll interview experts on each of these topics

and at the end of the day, help set you up

in a way that you are positioned for

either version of exit, whether that's time and location freedom, or

to sell your business for as much as you possibly

can. When you'ready to completely exit and

exit for more.