The voice on the phone sounded eager for some help.
“I heard that you people can help a guy like me do what it takes to sell his business and get a good deal,” he said. “I’m wondering what you can do for me.”
“Sure thing,” I said. “Tell me a little bit about yourself and what you do.”
His name was Burt, and he owned a roofing company. He heard about my firm through a business confidence survey that I sent to business owners throughout our community.
Burt was ready to retire, and he wanted to sell his business as soon as possible so that he could get going on whatever was next in life. As he described his situation, though, it seemed that he had operated the company for years so that it provided him and his family with a decent living but was more like a glorified job than a business. I needed more information and offered to do a financial overview for him.
“Well, let me tell you, I can’t be filling out thirty pages of questions,” Burt said. “I can’t find enough hours in the day as it is.”
“I’ll walk you through it when you come in,” I said. “I’ll send you a short questionnaire, just a few pages, to see where you stand. We can do more later if you want.” We made an appointment for him to come in with his wife the next Tuesday. “We’ll talk about what your life is going to look like after you retire,” I told him, “and we’ll see if we have a realistic picture of what the company could be worth.”
I called him back after the weekend to see whether he was making headway on the questionnaire and to confirm the next day’s appointment. “Didn’t you get my email?” he asked. I hadn’t. “I can’t come in. I’m just so busy, too much to do. I wish I could get away, but I can’t.”
It is a common theme. People get too busy to think deeply or plan effectively. This gentleman was too busy dealing with the daily demands of his roofing customers to take the time to make his business transferable. He wanted to retire, but he was too busy to get a clear picture of what he might need to do to make that happen. He didn’t even have an hour and a half to talk about a strategy to build a business that somebody else might want to buy. How then did he expect to ever sell it?
In exit planning, your prime objective is to maximize the value of your business. That means you must work on the business, not just in it, and fine tune it so that it becomes the kind of profitable enterprise that could command a great sales price. The emphasis, however, is on building and growing, with selling as only an option. In fact, as you see your profits growing through effective exit planning, you may decide to keep your business rather than put it on the market.
The better you tend to your business, the more you can build your income—and ultimately businesses are valued by how much income they can generate. The value of a business typically will be a multiple of what is known as its EBITDA, which stands for “earnings before interest, tax, depreciation and amortization.” In other words: how much is your business making?
The best and most valuable businesses are those that are currently generating the most money for their owners and producing an income that could be transferred to new owners. That is what piques the interest of buyers.
Think about it from the point of view of an outsider who is considering whether or not to purchase your business. Prospective buyers will want to see that you are earning a great income and have the time to get away and enjoy life. They want to see that you are standing confidently at the helm of a well-run operation, guiding it to ever-better profits. If instead you are basically laboring away at a job, and your life is a swirl of hard work, the prospective buyers will value your business accordingly. Why would they want your headaches? They don’t want your job; they want your business.
TAKING CARE OF YOUR BABY
Your business is your baby, and you want to take good care of it so that it grows up strong to take good care of you someday. Even if you would like to run your business forever and don’t intend to sell it, you should operate it as if you intend to. Build your business so that instead of enslaving you it sets you free, providing you with the resources to advance your dreams and the time to pursue them. Others will take notice of your good fortune when you present it properly, and some would be pleased to purchase the enterprise that made it possible for you. The better you run it, the more interest you will attract, and the more your business will be worth.