“Why would anyone pay you $50,000 for the opportunity to work 90 hours a week at $5/hour?”
I asked a business owner that question after she said her business should be worth $50,000 to a potential buyer. She believed that, even though she had to work non-stop for less than minimum wage just to keep her business alive. She thought those results would be desirable to a buyer. She was wrong. A buyer isn’t going to see the image; a buyer is going to see the reality, and her reality didn’t look good .
You wonder: “Will I be able to sell my small business?” In this three-part series we discuss our Simple Approach” to answering that question. The key? Understanding “my results buy my business” and answering three simple questions. (Question 2, Question 3)
Question #1: Are Your Results Desirable?
Small Business Owners Work Hard
Hard work is part of what it means to be a small business owner. Sometimes it’s 18-hour days, 7 days a week. No apologies. No excuses. If you’re not willing to do the work forget about starting a business. Take pride in that work and in what you’ve built – but understand that the hard work doesn’t guarantee that you’ve created any value in the business – or that you will be able to sell it someday.
The business owner above assumed that her years of sacrifice automatically created value. She had a real business that included revenue, expenses, equipment, employees and a list of customers. She had all the parts, but the parts didn’t combine to create results that were going to attract a buyer.
What Do We Mean by Desirable?
No trick. We simply mean desirable. You need to have results that someone else will want. Results that are attractive. Results that make a buyer say, “I wish this was my business.”
Too often business owners have been led to believe there’s some secret value equation being worked behind the scenes. The business owner mentioned above did. She wanted to leave her business because the work was too hard, and the pay too low – but she still believed that someone would want to buy what she called her “lousy business.”
No one wants to buy your pain. If you want to be able to sell your business, your results must be desirable.
Two areas provide the punch when it comes to the desirability of your results.
Increase Your Seller’s Discretionary Earnings (SDE)
SDE is the financial benefit of being the full time, owner operator of your business. (If you don’t understand what SDE is, take the time to follow this link. It’s a critical concept.)
Do you produce SDE of $50,000, $90,000, or $250,000? More is better. More make’s your business easier to sell.
SDE is your key result. Raising your SDE is the single best way to improve your odds of selling your business. Nothing else comes close.
Improve Your Job
What does it mean to be the owner of your business? Will a buyer want to fill your shoes after learning what you do on an average day?
Do you have a good job? Do you have independence, flexibility, enjoyable work, benefits or any of the many other things that make a job “good” by objective standards? Or do you have to work 14 hours a day, in horrible conditions to produce a meager SDE?
You are the small business owner. We understand that sometimes you have to do unpleasant tasks. But if your job sucks, you have to understand that no one else will want to do it – let alone pay you for the opportunity to do it. The more attractive your job is, the more desirable your results are.
These Two Things
Look at your SDE and your Job. When you combine them do they create results that a buyer would want? Can someone look at these two results of your business and say, “I want that life”?
Take an unforgiving look at your business – are the results it produces desirable?
There Must be More to it than This?
Sure, there are 100 things that could be added to this list. You can make the list longer, more complicated and harder for small business owners to engage and understand. But why? Choose a Simple Approach instead. If you can improve these two measures, you will dramatically improve your ability to sell your business.