Have you ever thought to sell your business and start anew? It’s challenging to know how to sell your business at a good price and deal. Studies have shown that business owners have a success rate of 5% in selling their businesses! It’s not just about the exit; you need to have a good strategy.
In this episode, Steph Sharp joins us to talk about how exits start with knowing how your business works. An attractive business can operate and thrive without its owner. Steph also shares exit strategies and common pitfalls you might encounter while you try to sell your business.
If you want to learn how to exit your business, then this episode is for you!
Here are three reasons why you should listen to the full episode:
- Understand the ways you can make your business transferable and scalable.
- Learn how to make your business attractive through the right pricing, business model, terms, and documentation.
- Discover the different ways you can exit and sell your business.
Resources
- Rich Dad's Cashflow Quadrant by Robert T. Kiyosaki
- The 7 Habits of Highly Effective People by Stephen R. Covey
- Built To Last by Jim Collins
- Follow Steph’s work on Millionaire Exits and Facebook.
- You can also reach Steph through her email Steph@MillionaireExits.com.
Episode Highlights
Knowing Your Business Inside and Out
- Steph shares her story of starting with small businesses, investment banking and capital markets, and eventually negotiations.
- There are five types of businesses: charity, hobby, job, basic business, and transferable business.
- Understanding your type of business makes it easier to know what exit strategies to employ.
- For example, most basic businesses are profitable. However, people cannot come in and do your work.
- Scalability and transferability are important aspects of exiting a business. Hear Steph’s in-depth discussion in the full episode!
There Is Always A Way Out
- We don’t need to be trapped in a business for life. There is always an opportunity to create a way out.
- Step back and ask yourself: why do people buy a business?
- Most people don’t buy a business because it can make money. People buy a business because they believe it can make money.
- Knowing this, you need to show how your business drives profits.
- Make sure that your effective systems can be repeated and transferred to another.
What Are You Transferring?
- Legal documents and paperwork are not the end-all and be-all to sell a business.
- Transferring a business is about making sure it does not fall apart after getting sold.
- The research shows that business owners finance as much as 80% of their businesses.
Financing, Earnout, and Capital Markets
- Earnouts occur when owners get paid for their exit over time. This deal can create the problem of a buyer backing out a year into the contract.
- When you sell your business to people who don’t know how to run it, you may eventually have to come back to take over again.
- Seller financing is also a popular option for selling businesses.
- Capital markets are often in the hunt for good business deals.
- Listen to the full episode to get a clearer understanding of how to market your business.
Common Pitfalls of Business Exits
- Steph shares that one of the biggest mistakes when you sell your business is not having an adequate financial record.
- Proper business documentation is also necessary. This document should be the operating manual which details costs, clients, and the like.
- When owners think of selling their business, they're often at a point where the business is deteriorating.
- You need to make sure your business is attractive to potential buyers.
- Typically, a business is worth about a third to half of what the owner thinks.
Profit Is Not Cash Flow
- Remember that profit is affected by depreciation and other non-cash variables.
- On the other hand, cash flow is how the buyer will pay off the loan for buying the business.
- You need to be able to answer how many years they will be paying for the loan before they start earning money.
Disconnect Between Owner and Business
- A lot of owners think they have employees, coaches, or contractors who will buy their business. This is not the case.
- People will often choose to start their business rather than buying one.
- This is also applicable to employees: how do you make sure your employees stay and don’t start their own thing?
- Rather than just sell your business, you also need to think about how you want your lifestyle to change after the exit.
Exit Strategies
- Business owners often don’t have exit plans for their business.
- Exit strategies are crucial for emergencies. If you are the focal point, what happens when something happens to you?
- Ultimately, you need to craft a business that can continue to work and thrive without you.
- One exit strategy is going public. This causes a significant boost to your business value.
- Tune in to the full episode to hear more about exit strategies!
Expected Timeline of An Exit
- Steph shares that you can expect 3-4 months to pinpoint what you’re selling exactly.
- Spend some time structuring your selling process.
- Get attention and attract buyers quickly.
- Steph’s 100% sell rate is due to the attention to correct pricing, terms and expectations, and good business documentation.
What the Data Shows
- Financial statements often break down costs for labour, fuel, operation, and others.
- You need to make sure your statements can show how the business operates clearly.
- Too much information and detail can clutter your documentation and financial statements.
- When selling, you need to be able to pinpoint patterns and trends.
It’s Not the End, It’s A Transformation
- People often put off selling due to the fear of letting go of something integral to their identity.
- Look at exits as an opportunity for new growth, business, and life instead!
5 Powerful Quotes
“We have no condemned people. There’s always a way out — we just have to create it. . . It used to be that we could get trapped. But with the internet, with technology today, there are so many ways out now.”
“If you’re not ready for that exit, if you don’t have a business that’s- if you don’t know how you’re going to transfer that out. . . You’ll wake up in three and a half years and you’ll look around and you go, ‘Oh my gosh, look at all these businesses for sale. How am I gonna sell mine?’”
“Sometimes it’s simply a matter of sitting down with them and clarifying what their business model really is. What drives the profitability, how do they actually do the pricing? Just because it’s in someone’s head, doesn’t mean it’s going to take you months to get it out of their head.”
“People, when they start thinking about selling, it’s often they’ve thought about it, and they leave it too long.”
“People get told they should go down a certain pathway — like franchising, like an IPO, whatever. And it doesn’t suit them personally; it’s not aligned with who they are and how they want to spend their business life.”
About Steph
Steph Sharp has been involved in $20 billion deals and worked with over 400 clients in every industry. Her experience spans professional and health services, utilities, ferry operations, technology, retail food processing, and finance.
Steph’s finance career specialized, particularly in exit transactions. She has worked with Goldman Sachs Bank of America, CNBC, corporations, individuals, private equity funds, and venture capitalists. Over the last 20 years, she has trained hundreds of entrepreneurs, business owners, and professionals worldwide to successfully exit their businesses.
Interested in Steph’s work? You can follow her on Millionaire Exits and Facebook.
You can reach Steph through her email Steph@MillionaireExits.com.
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