Exit Rich

The 6 P Method to Sell Your Business for Huge Profit

Michelle Seiler Tucker, Sharon Lechter

• Publisher: An Inc. Original
• Year: 2021
• Print ISBN: 9781732510289
• eBook ISBN: 9781732510296
• Topic: Business
• Subtopic: Business General
• Index: Business

Too many entrepreneurs push off planning for the sale of their business until the last moment. But for a business to sell for what it's really worth—or even more—owners need to prepare for the sale from the very start.

In Exit Rich, author and mergers and acquisitions authority Michelle Seiler Tucker joins forces with Sharon Lechter, finance expert and author of Rich Dad Poor Dad, to create a must-have guide for all business owners—whether they're gearing up to sell a business now or just getting started building out their company into something to sell for a profit in the future.

Seiler Tucker's twofold approach to selling your business for maximum profit combines two of the most powerful elements of her mergers and acquisitions toolkit: the "ST GPS Exit Model" to help business owners set goals for the sale before their business hit the market, and the "6 P Method" to help them objectively evaluate their business's worth, before their potential buyers do. Combined, these tools provide invaluable insight into the process of preparing a business for sale, finding the right buyers, and staging the sale itself.

Throughout the book, Sharon Lechter's wisdom peppers each chapter in the "Mentoring Corner" section, providing forward-thinking entrepreneurs with the perspective that they need to take control of their business's future and exit rich.

This book is a rich resource for any business owner looking to:

• Objectively evaluate their business before a sale

• Improve their chances of finding the right buyer

• Sell their business for maximum profit

PART 1

PLANNING YOUR EXIT

GOLDEN NUGGET

The ST GPS Exit Model^®: How to Create Your Exit When You Begin

“I can’t change the direction of the wind, but I can adjust my sails to always reach my destination.”

—Jimmy Dean

Let’s face it: Rarely does someone go into business with the end game in mind. Think back to when you started or bought your business. You were probably beyond the moon excited to be your own boss, able to create your own financial freedom and to have more quality time to spend with your family. However, those dreams became overshadowed rather quickly by the overwhelming demands of building and running your business—or, worse yet, your business running you!

The biggest issue I see with business owners is that they don’t plan their exit, or end game, when they launch their business. Even when they do plan on selling their company eventually, they usually haven’t determined their desired sales price or range. Sadly, most entrepreneurs and franchise owners don’t think of selling until they’re forced to due to boredom, poor performance, or a catastrophic event. These, unsurprisingly, are usually the worst times to sell. The best time to sell is when your business is doing well and trending up.

BUILD YOUR PERFECT SALE WITH THE ST GPS EXIT MODEL^®

At Seiler Tucker, we specialize in working with business owners early in their entrepreneurial journey so they can identify the perfect time to exit their business. To do so, we use the ST GPS Exit Model. This is a step-by-step process that should be the blueprint of how the business is built from the day you buy or start your company. This model will help you create the framework or context for building, scaling, and selling your company, and this context will help you keep your effort and energies focused on your desired end game.

THE ST GPS EXIT MODEL

1.Determine your destination (desired sales price).

2.Know your current location (the value of your company).

3.Identify who your buyers will be.

4.Know your time frame.

5.Determine your WHY.

GPS EXIT STEP 1: DETERMINE YOUR DESTINATION

The first thing you need to do is establish a goal by determining the amount you want to sell your business for. This is when you need to think about what sales price will make you happy while staying true to the actual value of the company. Almost every business owner comes to us with a price in mind that they want to sell their business for; however, that price is usually based on hopes and dreams. It’s typically based on the amount they need to get out of debt or to use for the next chapter of their lives. Unfortunately, most sellers don’t determine their destination. Instead, they navigate their business without a road map, driving aimlessly in circles, hitting bumps, landing in ditches, and going up and down the financial hills until many of them simply run out of gas, hit rock bottom, and get flipped upside down in debt.

We have seen business owners lead their company for years and end up running it into the ground due to mistakes or bad decisions along the way (either their own mistakes or mistakes outside of their control). When this occurs, the business becomes difficult or impossible to sell, and it certainly won’t sell for the price that the seller needs to move forward or to get out of debt related to the business.

Years ago, I met with the owners of a manufacturing company who wanted to sell their business. These owners said they wanted to sell their company for $5 million. I said, “Okay, how did you come up with that number?” They told me that’s how much they had in inventory, furniture, fixtures, and equipment, and that’s what they needed to pay off their debt. I explained to them that the price of the business has nothing to do with what they owe. Instead, it’s determined by the cash flow from the business. In other words, the profitability must support a price of $5 million for the business to be worth $5 million.

Our firm performed an evaluation and discovered that this business was making about $500,000 a year. Their wish price of $5 million equated to ten times the amount of the value they were bringing in. Industry standards and comps would support a price three to four times the amount of their EBITDA (earnings before interest, taxes, depreciation, and amortization), but not ten. We were obviously worlds apart on price. We based our valuation on industry standards, comps, and the Buyer’s Sanity Check, whereas the owner had based their price on what they needed to pay off their debt and have some money left over. However, they didn’t yet know about the ST GPS Exit Model discussed here.

The true sales price of a business is not based on what its owners need to pay off their debt or live on; it’s based on how many cylinders a company operates on and how profitable it is. At the end of the day, cash flow must support the asking price and meet the buyer’s needs. These owners ended up not selling, because they could not afford to sell and pay off their debt; even worse, they ended up filing for bankruptcy.

Unfortunately, there are numerous stories like this one. The buyer will not base their offer number on what you owe or what you need to live on; they simply base their offer on what they feel your business is worth and how soon they can obtain an ROI if they purchase your company. This is why the most important step in the beginning stages of your business is knowing what your desired end game is and what your future sale should look like. If you don’t do this in the beginning, you could lose your business and family assets in the process. However, doing it will also give you a road map to follow as you grow your business. For example, if you want to sell your company for $20 million, you must build a $20 million company. This can sound simple, but it takes a tremendous amount of work. You’ll need to know what a $20 million company looks like. You need to know their gross revenues, their EBITDA, what their management team does, and how their company functions.

GPS EXIT STEP 2: KNOW YOUR CURRENT VALUE

It’s imperative to know your destination. You will never drive to your business’s destination without knowing where you started from—your current valuation. We call this a valuation checkup. You must work with an expert M&A advisor or business broker on an annual basis to look under the hood of your business, determine your current value, and inspect your value drivers (known as the ST 6 P’s® which we will cover in part 2). After the inspection, you must tune up what’s necessary to drive on the path to your final destination.

Most business owners do not get their business valued until they are thinking about selling it. This is typically where the rubber meets the road and the M&A advisor or business broker usually has to inform the owner that their baby is not as pretty as they thought and that it won’t sell for their desired sales price, because it’s not performing at maximum value, its valuation of assets are unrealistic, and the cash flow does not support their dream price.

It baffles us how people will get their car inspected and get an annual health checkup, but they completely ignore the health of their business until they are ready to sell. In most cases, our business is our most prized possession. It’s our nest egg, our retirement plan, but it’s also the most neglected asset we have. Because of this, we need to check on it throughout its lifetime—not just at selling time. We don’t have many business owners who come to us for an annual valuation. Most come to us only when they are ready to sell. Unfortunately, that may be too late; their business is not usually sellable, for a multitude of reasons.

To know the current health of your business, you’ll need to engage with an experienced professional. We encourage you to do so from the infancy stage of your business. This professional can perform valuations, inspections, and tune-ups to build a well-oiled machine that buyers are willing to pay top dollar for when the time comes for you to sell.

GPS EXIT STEP 3: KNOW WHO YOUR BUYERS WILL BE

When entrepreneurs start or buy a business, they typically do their due diligence and determine who their ideal customer is. Smart owners will do market research to determine their clients’ demographics, such as their age, gender, income, and buying habits. They create a sales model with products and services that fill a void, servicing a niche with their target audience in mind. The owners will do it themselves or hire a marketing firm to create specific media campaigns to reach and inspire their ideal buyers to purchase their goods and services.

Business owners invest their money, energy, and resources to target their ideal customer and entice them to purchase their goods. So why would they not invest as much in targeting the ideal buyers that will one day purchase their most prized possession, their business, and then build the business to suit those buyers’ specific buying criteria? Business owners would have such an advantage if they simply planned their exit from the very beginning. To do this, you’ll need to know what buyers are looking for and build your business to suit their specific buying criteria. The formula is easier than most sellers realize. Simply follow the steps in determining who your best client for selling your business is, and build your business to suit that investor’s ...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• Foreword by Kevin Harrington, founder of As Seen on TV
• Preface: Exit Rich
• Acknowledgments
• Introduction: Exit Rich, Smart, and on Your Terms
• Part 1: Planning your Exit
• Part 2: The ST 6 P Method®
• Part 3: Selling your Business
• Conclusion: Build to Sell
• Appendix
• Bonus Nugget 1: The Road Map to Selling Your Business
• Bonus Nugget 2: The Top Ten Mistakes Business Owners Make When Trying to Sell Their Business
• Bonus Nugget 3: The Top Twenty Questions to Ask When Choosing an M&A Advisor or Business Broker
• About the Authors