The 9 changes that increased the value of my business the most
To say I was disappointed with the price tag that was put on my business when I first went to sell it is putting it mildly.
After years of sleepless nights and stressful days spent gritting my teeth and growing my business at all costs…
I found out it was basically worthless.
In that moment, I had a choice to make:
Sell it for a pitiful sum and do it all over again with another business.
Or dig in for one last sprint, where I’d do everything in my power to drive up the value of my business so I could walk away with what I thought it was worth.
The next two years were tough, but at the end of them, I’d transformed my business from the ground up and sold it for seven-figures.
Here are the nine changes I made that drove up the value of my business the most – and how you can implement them in your own business as part of your own exit strategy.
I mastered my mindset
Most entrepreneurs don’t even think about their exit strategy until they want out of their business.
I know I didn’t.
After years of working insane hours to go nowhere fast, I decided I wanted out.
I was done – until I realized that would mean walking away with nothing to show for all the blood, sweat, and tears I’d poured into my business over the years.
But I wasn’t in the right headspace to build a business I could sell at a premium with my hand hovering over the ejector seat button.
Luckily, I quickly realized that if I don’t change my mindset, I wasn’t going to be willing to put in the work that was going to be needed to drive up the value of my business.
Mindset isn't something most of us entrepreneurs even give a passing thought to – never mind actively work on.
After all, we're gritty individuals who have hacked and hustled our way to success. We leave working on mindset to the monks, hippies, and millennials.
But to increase what my business was worth I needed to fall in love with it again.
Debbie King put this concept into the perfect words in her recent book Loving Your Business, in which she talks about rekindling your relationship with your business – your people, your customers, your suppliers, and your products.
For me, that meant stepping back and taking a brutally honest look at my business and myself. And I realized that a lot of the frustration and despair I was experiencing originated with me.
So, I set to work not only on my business, but on myself.
I started doing things that would help cultivate a positive mindset.
Instead of drinking to ease my frustration and mask my pain, I started taking Muay Thai classes.
Instead of wolfing down burgers and fries at my desk, I stepped away from the screen and ate a healthy meal that boosted my energy.
I began meditating, doing yoga, and surrounding myself with people who ran purpose-driven businesses.
From this foundation, I was able to change my relationship with my business as well.
First, I started looking at it as a product – a project.
My goal was to transform something I’d bundled together over the years and was holding together with duct tape into a product a buyer would be willing to pay a premium for.
That fuelled me. That excited me. I was suddenly creating the best product I'd ever created.
And I began to realize that not only was my business growing more valuable, but I was growing too.
As business owners, we seek tangible results. Mindset might sound like something nebulous.
But if you don’t change your mindset, you’ll never last the journey you’ll need to take to transform your business.
You need to find a way to stop seeing being tied to your business as a prison sentence and start seeing it as an opportunity.
An opportunity to create something valuable. An opportunity to create a place people love to work.
And an opportunity to improve yourself.
I got clear on my values
Like so many entrepreneurs, I became so focused on growing my business at all costs that I lost touch with its original values.
Values – like mindset – can sound pretty wishy-washy to us entrepreneurs.
We want to create a valuable business, not sit around and talk about what’s important to us.
But the fact is that if you don’t have a set of clear values that guide the decisions you make for your business, then your business won’t be valuable.
I found this out the hard way when I looked around my business after I’d decided to sell and realized I was surrounded by people with different values and agendas at all levels of the organization.
The business was going in a dozen different directions at once – and not very far in any of them.
When I looked at the companies I admired, I noticed they all had enduring and authentic core values. They hired according to these values and looked for people who would share their sense of purpose.
Fixing your mindset helps reignite your sense of purpose with your business. Instilling values throughout your organization helps get everyone else in your business on board with this purpose – as well as help you root out the people who aren’t.
When I began my business exit journey, I had one foot out of the door. I knew my management team could see what was going on in my mind, and most of my staff had probably noticed as well.
When you're looking to sell your business, and your team knows, it makes things more complicated. I was close friends with many of my staff. We shared meals together, we partied together, our families even traveled together.
Me looking to leave made things uncertain for them. Plus, any buyer was sure to reduce their offer based on the fact that they couldn’t be sure whether the senior members of staff were loyal to me or the business.
I had to do two things: fix our toxic culture and create a purpose that endured beyond my tenure. Something that would excite a leadership team and encourage them to stay on after the business had been acquired.
Here’s how I did it:
I picked a handful of people who best represented what I wanted the business to stand for – the people I’d send to single-handedly set up a new branch of the business.
I then identified the key characteristics and traits that made these folks so remarkable and used this as the basis of our core company values.
By doing this, our values weren’t a set of buzzwords – they were the characteristics we already valued within the business. The things that if we did more of, we’d be in a great place. And if we stopped doing we’d be in trouble.
Here’s the thing no one tells you about creating values for your business:
Coming up with them is the easy part. Putting them into practice by letting them guide who you hire – and fire – is hard. Especially when that means firing friends because it becomes clear they’re not on board with your business’s purpose.
I hired a CFO
If you don’t have the right mindset and values, you’re not going to be able to implement lasting change in your business.
But once you do, you can start taking the practical steps that will start tangibly increasing the value of your business.
And if there’s a single thing I did that increased the value of my business the most it was hiring a CFO.
I’d always employed financial controllers and bookkeepers, and they'd done a fine job pulling together the monthly financials.
Then I got hit with a $250,000 tax bill and quickly realized that it was time to bring in some serious financial muscle.
This all happened at the height of our growth spurt, when cash flow was keeping me up every night. I would lay there doing mental arithmetic, desperately trying to come up with ideas that would encourage customers to pay on-time to claw us out of the red.
I found the answer in a part-time CFO.
He came on board and quickly worked with our auditors and the tax authorities to engineer a payment plan.
He also put more controls in place, and started working on preparing the business for exit by:
- Making sure customer and vendor contracts were in place.
- Starting a data room potential buyers could use to conduct due diligence.
- Reviewing budgets and controls.
- Finalizing outstanding audits.
- Making sure all agreements were signed on the dotted line.
One of the things that will drive up the value of your business the most is getting your house in order.
Having an experienced CFO on your leadership team – even on a part-time basis – will not only help you prepare for an exit, but also increase the confidence of a potential acquirer.
I become obsessed with systems
I'm a "screw it, just do it" kind of guy. When I spot a good opportunity, it’s in my nature to throw caution to the wind and go all-out to pursue it.
But don't bother me with the nitty-gritty – the systems, the processes, and the documentation nobody will ever read.
Well, that’s what I used to think when I was on a personal quest to build my own Virgin empire.
But you already know where that got me – stuck in a business that was worthless to anyone else, feeling trapped and miserable.
Here’s the thing:
A business is just a collection of systems. And the tighter your systems, the more of a well-oiled-machine your business becomes – and the more valuable it is to acquirers.
Which is why removing yourself from the day-to-day running of your business is one of the most effective things you can do to drive up the value of their business.
I personally used the Entrepreneurial Operating System (EOS) to transform my business.
EOS offered a simple approach to implementing an 'operating system' in my business, which was frankly a mess.
I used EOS to create a vision for the business, set goals, identify roles, and define systems. It was the genesis of both our leadership team and the processes that would support leaders and staff to run the business.
Here’s how it worked:
The leader of each division of the business had a clear goal, and they were empowered to install processes that they believed would most effectively achieve these goals.
Once these processes were in place, we would test and iterate on them until each department was a well-oiled-machine that would run on its own.
Creating these processes was the first step I took toward getting my business to run without me, which set the entire exit process in motion.
I built a leadership team
Before I had a leadership team in place, the offers I received for the business were all contingent on me staying on at the helm for another five years.
Because I was at the center of everything, buyers had no guarantee things wouldn’t fall apart without me running the show.
The only way to get what your business is worth – and not be trapped into having to stay on as your acquirer’s employee – is to build a leadership team who can not just run the business without you, but grow it.
I set about this by identifying top performers that aligned with the business’s values and dividing leadership responsibilities between them.
I also got them invested in the future of the company to ensure they’d want to stick around after the acquisition rather than jump ship when they got word of the sale.
With a leadership team and the right processes in place, you can remove yourself from the day-to-day running of your business and prove to potential buyers that it can run without you.
I focussed on recurring revenue
Investors love recurring revenue.
Fortunately, I'd always built businesses based on recurring revenue: document storage, software as a service, and enterprise support agreements.
The challenge I faced was making the cash flow associated with this revenue more regular.
The solution I landed on was getting customers to pay in advance. We offered discounts for early payment terms and collected payment for annual support agreements in advance.
This not only helped solve the cash flow issues that had been the bane of my life for years, but helped increase the value of my business at the same time.
I diversified our revenue streams
The incentives I put in place for customers to pay us in advance worked a charm.
With most of our customers, that is.
We ran into big issues when we found ourselves over-reliant on a single client that made up at least 50% of the business and seemed determined to make collecting payments like pulling teeth.
Come the end of the month, all our energy went into getting what we were owed from them. It was like going to battle every month.
I can't say I got this one sorted. Over time it actually became more difficult to collect from them, despite my best efforts at managing the relationship.
So instead, we worked to reduce our reliance on their business. We actively reduced the amount of work we did for them and focussed on onboarding new accounts.
Our target was to have no client making up more than 15% of the business, and to insist on payment in advance on a contract that stretched out three years.
Not only did this make all of our lives a lot easier – it made my business a lot more valuable in the eyes of potential investors, too.
I started measuring what matters
I hired an open-book coach early on in my business exit journey. They helped me implement a management system where every leader reported on the key metrics they were looking to influence on a weekly call.
We started by identifying the metrics we were going to measure, which weren't immediately obvious. We had to dig deep and identify both the financial and non-financial numbers that would help us anticipate where we needed to put our energy to keep moving toward our goal.
Those metrics included things like the number of boxes scheduled to come into the warehouse on a weekly basis and the volume of documents scanned – budgeted, forecast, and actual.
We knew that if the forecast dropped against the budget, we had to take action to meet our actual budget.
Every week, each leader would call out the number they were responsible for on our scheduled call. They owned that number.
That call ensured we knew what was coming as a team and could decide there and then how to deal with it.
And that practice alone helped us nip countless looming disasters in the bud and keep the business on course to succeed.
I invested in coaches, advisors, and mentors
You’ve got the best chance of getting to the top of Everest if you’re by the side of someone who’s been there before.
The same applies if you want to build a valuable business you can sell at a premium.
Finding a business coach or mentor who's been there and done that is the fastest and most reliable way to realize the same success in your own life.
And trust me – you’ll need advisors in your corner if you want to walk away from it with what your business is worth.
I learned the value of having a coach from top executives like Steve Jobs, Sheryl Sandberg, Sundar Pichai, and Eric Smit – all of whom credited various coaches for their success.
You need somebody in your corner saying “don't worry, I gotcha”.
To this day, when I'm working on performance, I pull in Brendon Burchard's team. When I'm working on launching a new course, I turn to Jeff Walker. And I get in touch with Frank Kern when I want help building my practice.
Investing in coaches throughout my career has paid itself back countless times over. It’s one of the most effective tools at your disposal as an entrepreneur, and one I highly recommend you take full advantage of.
These nine changes were the difference between walking away from my business with nothing to show for all my efforts and a seven-figure exit.
If you’re looking to get the biggest payout from your business exit, then be sure to:
- Master your mindset
- Get clear on your values
- Hire a CFO
- Become obsessed with systems
- Build a leadership team
- Focus on recurring revenue
- Diversify your revenue streams
- Measure what matters
- Invest in coaches, advisors, and mentors
And if you want someone by your side helping you implement each of these changes then get in touch today.
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