Building Wealth with a Sellable Business
By Nina Kaufman, Esq.“You build personal wealth with a multi-million-dollar exit,” says Terena Bell, who sold her translation company, In Every Language, just over a year ago. “If you don’t build your business to sell,” she cautions, “you can end up closing your doors, with nothing to show for it.” No wealth there. That happened to several of her entrepreneurial friends.
Service business owners are often passionate about starting and growing … yet less focused on ultimately selling their companies. Without a sense of the “end game,” though, they may make things more difficult for themselves in the long run.
The Sellable Company Mindset
For some business owners, building to sell wasn’t part of the original DNA. “When we first started our company, we didn’t intend to sell. We didn’t even have an exit strategy in place,” says Nellie Akalp, CEO of CorpNet.com, a business filing and compliance company. “But after eight years [her earlier company, MyCorporation.com] was approached by Intuit for a partnership. We soon noticed an opportunity for that partnership to turn into an acquisition-type of deal.” Which it did, for $20M.
Bell attributes her focus on a saleable business—partly—to a generational shift. She started In Every Language while still in her mid-20s. “I think that Gen X, Gen Y, and Millennials may bring a different sensibility to their business,” she says. “We’re not looking at the next 30, 40, or 50 years of our life believing ‘I want to do this forever.’” Unlike earlier generations where people stayed put in a job or family business for one’s entire career, Bell says, “I never went into this saying ‘I’ll do this for the rest of my life.’”
Neil Kristianson knew from the start that he didn’t want to remodel homes forever, but when the 2008 recession hit, “it really took all the fun out of the business,” he says. “We knew we had a good name/brand for our high-end remodeling company and that it was worth something. But we had to start all over after laying off 7 out of 8 employees. That strengthened our desire to sell. Just walking away was never an option.”
Others wanted a business legacy. For 15 years, Barbara Findlay Schenck owned an advertising agency in Bend, Oregon, with her husband. They built to sell because “we wanted to create jobs for others and value that would outlast our ownership,” she says.
The Impact of Closing
Schenck, who is now a business strategist and author of Selling Your Business for Dummies, laments that too many entrepreneurs build and close rather than build and sell their service businesses. “You’re leaving a whole, final round of value unharvested!” she exclaims.
That’s a particular problem for women. According to some sources, women are five times as likely to close their doors as their exit strategy—leaving money on the table when they need it most. Why? Wherever they live in the world, women live longer—up to 6 years longer–than men, reports the World Health Organization. They need that money to take care of themselves (and leaving aside those who already head their households and/or are primary breadwinner).
There’s financial impact of caretaking, especially for the “Sandwich Generation.” They are spending millions of dollars on their children—who may be staying at home longer and whose job prospects are mixed–and providing for parents who are living longer. And, according to Investopedia, they are doing so when they also need to be planning and saving for their own retirement. More telling, more than two-thirds of those caregivers are women who, reports Caregiver.org, may spend up to 50% more time than male caregivers.
As Schenck points out, “most businesses close because they’re blind-sided by what they didn’t anticipate—like health conditions, divorce, partner issues, necessary relocation, boredom, the need to free up cash to put your child through college. Business owners say they’ll get ready and deal with this later … but ‘later’ comes too soon. If the business isn’t sale-ready, it closes. And with that, the final round of value goes.”
Getting Into Sale-Ready Shape
Like exercise, you don’t step foot in the gym expecting to become Ms. Olympia overnight. It takes a shift in mindset. In training. In your operations. The most important thing you can do is start to shift your business so it can function without you. A simple concept—but not always easy to implement.
“A business that sells has systems that can survive without its owner,” says Schenck. “That way, key clients feel good that they will be taken care of if and when you leave.” Bell adds, “For many service businesses, the owner is the spine. Yank out the spine, and the whole body collapses. Instead, be the muscle, and have your systems be the spine. The new company can always put their muscle to work so the growth continues.” That’s what gives a company its value.
Whether or not you’re eager to sell now, there are great benefits to getting your business in sale-ready shape.
| Keys to Getting Your Company in Sale-Ready Shape
Here are some of the top tips successful business owners have used to get their business in sale-ready shape:
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First, you can capitalize on market changes. Bell had been approached with acquisition offers as early as Year 2. Because she had been building the company to run without her, she had the option to hold out for more money. If she didn’t get what she wanted, she was happy to keep running the business … unlike other colleagues, who were ready to retire and desperate to unload the business (which they did for far less). Bell also kept her eye on important macro-indicators in the M&A economy, and micro-indicators in the translation industry. When she saw the market was about to crest, In Every Language was in great shape to sell.
More importantly, it frees up your time. As Kristianson notes, “Near the end, we were working fewer and fewer hours because of the systems we put in place. It allowed us to start our next ventures while still running the company.” Schenck agrees. She likens getting a business ready for sale to getting a car detailed. “Once it looks and feels great it’s not only easier to sell, it’s also more enjoyable to own,” she says. “That’s one big reason to get a business into sale-ready shape.”
Nina Kaufman, Esq. is an SBA award-winning attorney whose firm provides legal and business counsel to help service businesses build grow, and sell. Nina is passionate about assisting business owners in creating fast-growing companies that run themselves—allowing maximum freedom for the owner. Nina also a Speaker, Consultant, and host of the popular Business Breakthrough podcast (on iTunes at http://ow.ly/LVFip).
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