In Silicon Valley, “exiting” means a company you started / invested in went public or was bought by another company. It’s a time of celebration, reward, & anticipation of the next big project. When you are selling your company, it’s often different. For some, it’s an escape. For others, it’s the achievement of a long-anticipated goal. Are you prepared for it?
Is your company ready to sell?
The process of getting a company ready to sell is really about getting it running smoothly. It’s easy to think of it from the “E-Myth” perspective & focus on “systematizing” your business, but there’s more to it. Put yourself in the shoes of a buyer during due diligence.
They’re looking for proof. Signals that provide assurance.
They want to see data that indicates how your company performs. If you have good, verifiable data, you don’t need to make big claims. Let the data talk. For example: You can probably predict gross revenue over the next 90 days with a fair amount of accuracy simply by gut feel, but can you show data that supports your prediction? How you do this will vary, but many use some form of leads-per-month and conversion rate.
Sidebar: One conversion rate calculation is the number of leads who buy during a period divided by the number of leads you gained during that same period. If you get 1000 leads a month & sell to 520 of them that month, your conversion rate for that month is 52%. Sales cycle length & other factors can complicate rate calculations. Keep it simple.
Selling your company requires leading indicators
Measurable business performance can be difficult to extract solely from financials, which produces trailing indicators. Income history over time is good to have, but it’s a trailing indicator. A trailing indicator is one that documents how the company did last week, last month, last quarter, last year, etc. What about the future?
Buyers want to see leading indicators. Data that accurately predicts future performance.
A leading indicator uses verifiable data to reasonably predict how the company will perform next week, next quarter, etc. Restaurant reservations are a leading indicator: You can predict on average that 78 people will show up for dinner if you have 100 dinner reservations for next week.
Lead counts (inbound phone calls, website opt-ins, etc) function both as a trailing & leading indicator. Imagine you got 100 new leads a day on average over the last two years. Let’s say your close rate on sales hasn’t changed during that period. If your average sales cycle is 60 days long, you should be able to predict income quite accurately for the next 60 days. Why? Because the lead count is steady and so is your close (conversion) rate. While this ignores changes in prices & costs, it reasonably predicts future gross income.
Why are you selling your company?
When someone approaches you about selling your company, it’s often done without provocation. You haven’t listed the business for sale. You haven’t indicated that you’re ready to retire. “I’m not ready“, you might think.
They see opportunity. Sometimes they see synergy with their existing business. Maybe they want to buy more customers. Their reasons are theirs. What are yours?
When you ask owners in this situation what they really want, they’re often unsure. There’s nothing wrong with that. You don’t always know what the next step beyond business owner is because you haven’t thought hard about it. You’ve been focused on running the company, growing it, & taking care of customers. It’s OK if you haven’t put serious thought into what a sale really means – even if you always knew you’d sell someday.
“A big check” is too simplistic an answer for some, because the business is a big piece of who they are. Some want a role in the company after the sale. Many don’t. Some care what happens to the company, the customers & their team. Some don’t.
Owners often have a number in mind that they would take. The first number I hear is rarely based on hard numbers, desired ROI / payback period, etc. Remember that a buyer is purchasing assets (most likely) as well as an income, whether they’re an individual or a company.
When it comes to selling your company, your “why” is as important as theirs. Think about it and get your business ready.