Why No One Will Ever Want to Buy Your Business

 

Business Failures Receives Wrongful Blame

Too often I get calls from business owners who have reached the end of the rope in their business. They say “Matt, I have had it with my business. I’m ready to sell.” After asking them a few questions about their business, I usually get a response like “If only I could generate more sales, things would be different.” Or I might find out that annual sales are down. More times than none I tell them “increasing your sales won’t fix your business “.

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ccording to the Small Business Administration (SBA), 20% of businesses fail in their first year and 50% fail by the fifth year. Even though you may be familiar with these statistics, what you may not know is lack of sales and economics is not one of the usual culprits. According to CB Insights, a data analytics company, 82% of all business failures, is issues of cash flow. Other major reasons for business failure are poor management/planning, and pricing/cost issues.

It’s not your fault. If you’re like most business owners, you started your business because you were chasing a passion or developing an idea. Before you knew it, you had a business requiring your attention and time. Now you must deal with adequate cash flow to meet current expenses and fund growth.

It’s not too late. Let me give you a few examples of how to not only save your business, but to help it thrive in today’s world.

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"Matt, I have had it with my business. I’m ready to sell.”

 

Know What Numbers to Focus On

There are a lot of financial and non-financial measurements you can use in your business.

Most business owners can tell you if they are making a profit and if there is money in the bank account. While these are important to know, most business owners do not have a firm grasp of the important numbers they need to know and how to use those numbers to grow their business.

Having a general understanding of a few critical numbers can be a valuable performance tool and aid you in improving the value and performance of the business. Critical numbers such as projected cash flow, working capital baseline requirements, and being able to identify the sources of gross revenue can alert you to problems and opportunities impacting your business. Once you know what affects these numbers, you will gain an understanding of how you can affect change in your business and have a positive impact on growth.

When I met Mary, she wanted to sell her business but didn’t know what it was worth. Mary had no problem getting new customers. They were the market leader in their geographic market. When asked some basic questions, she could tell you how much money the business had made this year, how much cash was in the bank, and the bills were paid. The business appeared in good shape, in her mind, but she couldn’t tell me why the business was stagnant. After asking her a few specific questions, she realized she was not looking at the business from the correct perspective. What she needed was the ability to look at the business as someone from the outside. She needed to be more aware of what the business was doing. Specifically, how it was positioned in the industry, a way to monitor key elements, and a plan for future growth. In just our first session, Mary was armed with knowing the proper metrics, what affected them, and how to change them. She could now make a positive impact on her business. Having this knowledge, she was able to increase the bottom line by an additional $53,000 and added an additional $237,000 of gross revenue in less than one year. Mary was so shocked that she could create such a change in a short time that she decided not to sell the business. She was looking forward to the future of her business and set a goal of reaching a value of $2 million in the next three years. Three years have come and gone. With my help Mary exceeded her goal - the business is now worth $2.3 million. Just over a 27% increase in value.

Mary has expressed how much fun the past three years have been and is now ready to sell her business.

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If we had sold John's business without making any changes, we estimate it would have sold for $800,000. With the changes, it sold for $4.3 million.

 

Fire Yourself

Henry Ford, the great industrialist proved he did not need to know everything, he just needed to hire the right people. As small business owners, we do not always want, or know when to, let go of certain duties or jobs. We do not always see the need for change.

This causes you, the business owner, to get in the way of your own business. Without realizing it, you prevent the business from being able to implement sustainable change.

When you have a business that is not reliant on the owner or another key person, the business value and pool of potential buyers increases. Sometimes we need to step aside and look at the business from a different perspective. What would the business look like if you were not there? Who would you need to hire and what would be their responsibilities? What systems would need to be documented?

When I met John, his business was generating close to $2 million in gross revenue. That was the problem. The business had experienced zero sales growth for the last three years. John was frustrated, because he considered himself a good salesperson. In my conversation with John, I discovered he was the only salesperson and did much of the quoting. In addition, he had people on staff that could also do sales and quoting. Once John understood he was the business and he was what was holding it back, he made a few changes. We helped John identify which members of his staff had the skills to generate sales. With this information and our help, he reorganized the business tree, reassigned duties, evaluated pricing and product offering, and documented systems. With these changes in place, he was able to focus his attention on the business. In eight weeks, he was on track to break $2 million dollars in gross revenue. In the first full year after implementing the changes, the business generated $3 million in gross revenue. In the second year, the business finished just under $4 million. By the time John sold his business, he was doing just over $6 million in gross sales and he had shifted all sales and quoting to his sales team. Without making any changes, we estimate John’s business would have sold for about $800,000. With the changes and allowing enough time for the changes to be reflected in the financials, it sold for $4.3 million. Even one small change by removing John as the sole sales member increased the value of the business by $400,000 to $1.2 million.

Changes to the organizational tree, reassigning duties, reviewing pricing and product offering, and documenting systems, allowed John to direct his skills, talents, and knowledge where they were better utilized. Sales were no longer dependent on John and his capacity as an individual. Sales began to increase, and he had a business he could cash out of at any time simply due to the business’s, his, and his employee’s capability of implementing sustainable change.

 

The Doctor Will See You Now

The numbers show you the health of your business from a financial perspective. But, what is the health of your business from a nonfinancial perspective? How strong are the people, systems, implementation, strategy, leadership, innovation, marketing, and technology in your business?

Being able to identify the overall health of the business, helps you to identify the top areas of weakness and strength. Having this knowledge, is the first step in creating a strategic plan to achieve your goals and objectives, regardless of if your goal is to grow or sell your business. Second step is identifying your vision for the business at a given date. When, and only when, you have completed these two steps, can you begin the process of creating a strategic plan.

Juanita started her business almost seven years prior. Due to a storm, her business was forced to temporarily shut its doors. She was facing the fact she might have to close the business. Juanita is a fighter and is not going to give up without a fight. Juanita contacted me to help her make sense of the situation she and the business were facing. She didn’t know how to evaluate the health of her business. She heard about SWOT (strengths, weaknesses, opportunities, threats) analysis, but that alone was not helping. She needed a way to take what the SWOT analysis revealed and build upon it. Even magnify the results. Using Dakota Business Group’s five-step process she was able to clear the fog and help her identify a solution. A solution that allowed her to develop a strategic plan to not only recover but thrive. In a matter of three months, Juanita was back to where she was before the storm. In six months, she was on a definite path to growth. In the first full year after the storm, Juanita realized a 9.3% increase in gross revenue and in the second full year she realized a 23% increase in gross revenue. In that same time, she added two additional staff members. Armed with a process to identify the overall health of her business, Juanita has the ability to create a strategic plan. Perhaps even more importantly, it’s fast and easy for her to make changes to that plan. Knowing the health of her business has allowed her to survive a pandemic that has shut down many businesses. Knowing the overall health of her business allowed her to develop and market the phone-in and on-line ordering aspect of her business.

Knowing the health of your business, is the first step in developing strategies to improve and achieve more from your business. There are many ways to identifying the health of your business. By developing a process and completing the Growth and Profit Solutions diagnostic, Juanita identified the health of her business. With this knowledge, and our help, she was able to develop a strategic plan to help and protect the business.

 

Conclusion

Continuous improvement! Regardless of the business, industry, or individuals, all businesses must strive for continuous improvement or change to thrive.

Although there is no guarantee that you will achieve the same results as discussed above, if you do nothing else, complete the 10-minute Growth and Profit Solutions diagnostic. Upon completion, you will be able to identify the top three weakest areas and the top three strongest areas of your business. Armed with this information, you can begin to uncover hidden cash flow, find lost profits, and implement sustainable change.

 

Contact me today to schedule a time we might have a cup of coffee or an iced tea. We will spend 30 minutes discussing HOW you can start your journey to uncover hidden cash flow, find lost profits, and sustainable change.

If you found something useful in this post, let me know by leaving a comment via our contact form. I’m genuinely curious and will reply to every comment.

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