The inside advantage to selling your life’s work for maximum value.
A famous story tells of an African farmer who gave up his farm to look for a diamond mine, so that he could become fabulously wealthy. He sold his farm and wandered off into the vast African continent for 15 years until finally, broke, alone, sick, tired and exhausted he threw himself into the sea, and drowned!
Meanwhile on his farm, the new farmer was out watering his mule in a stream that cut across his land. He noticed a rock that threw off light in all directions – which was found to be a diamond. They returned to the stream to find another, and discovered that the farm was covered with acres of diamonds!
The farmer had gone off seeking diamonds elsewhere, without looking under his own feet.
It is the same for your business. Your business is a field of diamonds that you can capitalise on when you sell your life's work.
Why sell your business? Maybe:
1. The fun has faded
2. You have lost a major client, supplier or team member
3. You have hit a patch of ill health
4. The market collapses
5. You have an immediate need for cash for a equipment upgrade or to pay a partner out
6. New legislation means you have to reconsider your options
7. Litigation
8. There is no family successor
9. You want to spend more time with your family or go on an extended holiday
10. A better opportunity has come along
Most business owners will only sell a business once in a lifetime. Without previous experience it can be difficult, complicated and emotionally a very stressful experience. It is also a major financial decision and can be a costly one unless all areas are considered.
Preparing for sale
So what do you need to do? Be prepared before you list your business for sale. Just like diamond mining, a bit of digging and preparation can substantially increase the value you generate.
A comprehensive plan for selling your business will give you the highest probability for gaining maximum sale value. With as little as 3 months to 2 years preparation, you will significantly generate a more profitable exit from the business.
First, you need to think like a buyer.
They want to know ‘what’s the financial and strategic benefit to me to buy this business?’ Basically – what's in it for them?
When buyers look at a business, they place a dollar value on things such as profitability, business risks and the profit & growth potential. By looking at these factors and creating a solid plan to address them prior to listing your business for sale, you can dramatically increase the sale price of your business.
The following model shows how you can increase the value of the sale of your business 2 to 9 times.
The Proactive Business Sale Model
To work through this example, the goodwill component of a current business has a net profit after tax (NPAT) of $100,000.
Activity Impacted Value
1. Current business not prepared for sale $200,000
2. Introduction of structured marketing, people, operations, & financial systems for better team and clients, strong systems & greater profit (+50% NPAT) $300,000
3. Reduce risks through agreements with team, clients & suppliers & stronger diversified client base with better products/services (+33% NPAT) $400,000
4. Strong history of profit growth (+25% NPAT) $500,000
So being motivated for a higher sale price is a key, but more so I believe is a critical question to ask is when selling, ‘what does life look like after the sale?’
Then if we confront that issue, we find you’ll be willing to put time & effort into preparing the business for sale. Possibilities will open up, for e.g. for some, the pursuit of having a long holiday in the short term, honorary charitable work, developing another opportunity. There really is an extensive checklist available.
Preparing for Sale Action Steps
1. Review your business model. Determine when you want to exit the business and implement strategies to increase sustainable profits, reduce risks, & build a platform for growth potential in order to boost ultimate sale value.
2. Create a personal plan. No longer working in your business requires some careful thought and planning). So talk to a professional about life after the sale of your business to include. For example develop another opportunity, a long term holiday, charity work etc.
3. Assess your sale price. Have an independent valuation prepared whilst also being aware of the current market value of comparable businesses so you don't under or overvalue your business. Then see how this lines up with your personal financial goals.
4. Checklist of potential buyers. Assess potential buyers for your business from a wide pool of potential buyers including your competitors, customers, employees or alliance partners. Start building relationships with them and create public awareness of yoru business well before the possible sale date to maximise your buyer pool. Find out their reasons for wanting to buy your business as this will help create negotiating leverage.
5. Develop your documentation. Develop your sale information memorandum outlining your business & its potential to a buyer. Additionally develop all legal documentation including for example 1. Confidentiality agreements 2. Heads of agreement 3. Due diligence checklists 4. Share sale agreements 5. Shareholding and employment contracts 6. Trademark transfer to name but a few of the more relevant.
6. Create a marketing plan. Develop a strong marketing program to a potential buyers pool to attract and develop multiple buyers which will build competitive tension and improve your sale value.
7. Develop a strong negotiation. Negotiations are emotional at the best of times – but when they are about the value of your life's work it is harder to be impartial. Remain detached during negotiations or have someone negotiate on your behalf in order to retain the upper hand.
8. Get good advice. From my personal & professional 25 years of experience, using independent, experienced professional advisors, accountants, lawyers or business sales consultants who have taken a number of owners through the sale process is invaluable. The best advisors understand your industry so find a specialist who understands and values what makes a successful professional practice sale. Look at these professional fees as an investment not a cost.
In essence, how much your business is worth is inextricably linked to “who will buy my business?”……
The bottom line is if you prepare your business for sale, you will gain a greater sale price, a quicker sale, as well as increasing your personal profits during the preparation phase. Isn't this the true mining of the diamonds at your feet?
Monday, February 9, 2009
Thursday, January 15, 2009
Predictor of the Future
You don't need a crystal ball to determine the success of your business
I was talking with a new client the other day on the Central Coast, who had just been trying to work out what was going to happen in their business as a result of the economic downturn. I suggested "if you really want to predict how successful your business is going to be, just look at how you treat your customers."
In my experience, if you treat your customers well, provide services they need in a timely, cost-effective and friendly fashion you are likely to generate repeat business. It is this repeat business and client loyalty that has a major impact on business growth & profitability.
If your business strategy and its execution results in a high proportion of loyal clients who are also strong advocates or promoters of your business, then you can confidently predict a highly successful future for your business.
Looking for a low cost strategy that boosts your profits by up to 100%?
Sometime ago Bain & Co., a management consulting firm, revealed that a 5% increase in customer loyalty could yield an increase in profits of 25% to 100% and that companies with the highest level of loyalty grew revenue at a rate of twice that of their competitors.
Repeat business is obviously financially good for business, but how can you accurately predict how loyal your customers are to you? To do this for my clients I use what I call The Advocate Index (TAI).
To calculate the TAI, we start by conducting in-depth phone focus groups with clients of our clients, to gain feedback as to how they are going and also to understand what are their priorities.
During this process we ask a key question that provides us with the most valuable feedback of the focus group: “Would you give an unqualified endorsement (or recommendation) of this company to a business colleague or friend?”
With this question we ask for a rating of 0 to 10, where a score of zero indicates the respondent is not likely to recommend the company and a score of 10 indicates it is extremely likely.
Clients generally fall into one of three groups on this question.
There are 3 types of clients in your future ...
Advocates
These are people who are loyal enthusiasts who not only love dealing with the company but will urge their friends to do likewise. They are advocates and will generally give a score of 9 out 10 on the scale. They are your enthusiastic supporters.
Passives
These are the people who are satisfied but not overly enthusiastic who show subtle loyalty, yet could easily switch to a competitor if the right price came along or they built stronger relationships with your competitor. These people we call passives and generally will give a score of 7 or 8 on the scale.
Critics
The final group are called critics. These are people who are unhappy and are often feeling trapped in their relationship with the company and are what I call ‘C’ clients or ‘cash cows’ or ‘D’ clients for detractors. They generally give a score of 0 to 6.
Bill Gates said "Your most unhappy customers are your greatest source of learning". Listen to what they have to say and take their feedback on board.
The TAI is simply the difference between the percentage of people who give a score of 9-10 (advocates) and the percentage who score 6 and below (critics).
But what does that mean for your business? In our experience there is a strong correlation between those companies with a high TAI score and those with high profitability and high company value.
So, firstly, consider having independently asked 10 sample clients who will give good constructive feedback to the above questions and determine your current rating, then consider the following plan.
How to boost the number of your Advocates
If you suspect your TAI may not be as high as it could be, you need to seriously consider introducing client service standards, relationship marketing for referrals, client management systems and build the number and quality of your strategic alliance partners to help you boost the number of advocates for your company.
Introducing customer service strategies involves 3 specific actions:
1. Decide to take action to build and adhere to strong client service standards.
2. Deliver with superb service, strong relationship marketing for clients and strategic alliance partners.
3. Develop these processes through a simple structured client & alliance management program and reinforcement with your team of client service standards to ensure regular & reliable consistent high level service.
Building a team culture around continuous improvement in developing the client experience provides great internal focus and purpose for your entire company.
Incidentally another intrinsic benefit of having advocates is advocates tend to give more energy to your team, bring more fun and as a result you’re more likely to do your best work for them.
So consider taking stock of your TAI measurement index each 6 to 12 months to evaluate how far down the path to success you are.
By monitoring your TAI score you can see if your business is getting better or worse in the minds of your clients and what impact introducing customer service strategies are having on improving your score.
In the words of Mahatma Gandi:
In these difficult economic times this low cost high return strategy is indispensable to give you a competitive advantage. To predict and make your future successful you don't need a psychic – just pay close attention to monitoring your client satisfaction.
I was talking with a new client the other day on the Central Coast, who had just been trying to work out what was going to happen in their business as a result of the economic downturn. I suggested "if you really want to predict how successful your business is going to be, just look at how you treat your customers."
In my experience, if you treat your customers well, provide services they need in a timely, cost-effective and friendly fashion you are likely to generate repeat business. It is this repeat business and client loyalty that has a major impact on business growth & profitability.
If your business strategy and its execution results in a high proportion of loyal clients who are also strong advocates or promoters of your business, then you can confidently predict a highly successful future for your business.
Looking for a low cost strategy that boosts your profits by up to 100%?
Sometime ago Bain & Co., a management consulting firm, revealed that a 5% increase in customer loyalty could yield an increase in profits of 25% to 100% and that companies with the highest level of loyalty grew revenue at a rate of twice that of their competitors.
Repeat business is obviously financially good for business, but how can you accurately predict how loyal your customers are to you? To do this for my clients I use what I call The Advocate Index (TAI).
To calculate the TAI, we start by conducting in-depth phone focus groups with clients of our clients, to gain feedback as to how they are going and also to understand what are their priorities.
During this process we ask a key question that provides us with the most valuable feedback of the focus group: “Would you give an unqualified endorsement (or recommendation) of this company to a business colleague or friend?”
With this question we ask for a rating of 0 to 10, where a score of zero indicates the respondent is not likely to recommend the company and a score of 10 indicates it is extremely likely.
Clients generally fall into one of three groups on this question.
There are 3 types of clients in your future ...
Advocates
These are people who are loyal enthusiasts who not only love dealing with the company but will urge their friends to do likewise. They are advocates and will generally give a score of 9 out 10 on the scale. They are your enthusiastic supporters.
Passives
These are the people who are satisfied but not overly enthusiastic who show subtle loyalty, yet could easily switch to a competitor if the right price came along or they built stronger relationships with your competitor. These people we call passives and generally will give a score of 7 or 8 on the scale.
Critics
The final group are called critics. These are people who are unhappy and are often feeling trapped in their relationship with the company and are what I call ‘C’ clients or ‘cash cows’ or ‘D’ clients for detractors. They generally give a score of 0 to 6.
Bill Gates said "Your most unhappy customers are your greatest source of learning". Listen to what they have to say and take their feedback on board.
The TAI is simply the difference between the percentage of people who give a score of 9-10 (advocates) and the percentage who score 6 and below (critics).
But what does that mean for your business? In our experience there is a strong correlation between those companies with a high TAI score and those with high profitability and high company value.
So, firstly, consider having independently asked 10 sample clients who will give good constructive feedback to the above questions and determine your current rating, then consider the following plan.
How to boost the number of your Advocates
If you suspect your TAI may not be as high as it could be, you need to seriously consider introducing client service standards, relationship marketing for referrals, client management systems and build the number and quality of your strategic alliance partners to help you boost the number of advocates for your company.
Introducing customer service strategies involves 3 specific actions:
1. Decide to take action to build and adhere to strong client service standards.
2. Deliver with superb service, strong relationship marketing for clients and strategic alliance partners.
3. Develop these processes through a simple structured client & alliance management program and reinforcement with your team of client service standards to ensure regular & reliable consistent high level service.
Building a team culture around continuous improvement in developing the client experience provides great internal focus and purpose for your entire company.
Incidentally another intrinsic benefit of having advocates is advocates tend to give more energy to your team, bring more fun and as a result you’re more likely to do your best work for them.
So consider taking stock of your TAI measurement index each 6 to 12 months to evaluate how far down the path to success you are.
By monitoring your TAI score you can see if your business is getting better or worse in the minds of your clients and what impact introducing customer service strategies are having on improving your score.
In the words of Mahatma Gandi:
A customer is the most important visitor on our premises; he is not dependent on
us. We are dependent on him. He is not an interruption in our work. He is the
purpose of it. He is not an outsider in our business. He is part of it. We are
not doing him a favour by serving him. He is doing us a favour by giving us an
opportunity to do so.
In these difficult economic times this low cost high return strategy is indispensable to give you a competitive advantage. To predict and make your future successful you don't need a psychic – just pay close attention to monitoring your client satisfaction.
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