You start a business and most likely you are excited. You have a great idea and you can’t wait to get going. At this moment the last thing you are thinking about is selling your business.
However, as your business gets established, the idea of positioning it for sale (even if you have no intention of selling) is always a good idea.You may indeed run your business for the rest of your life, or life make take an unexpected turn and you will need or want to sell. Either way, creating a business that is always positioned to sell is just a smart way to run a business. Let me explain.
Is Your Business All About You?
When I decided to sell my first business I went to lunch with my broker and described my business. I was really into personal branding back then and so I had formed my business in my image, injecting myself everywhere in it. Now, when it came time to sell, this was a liability. A buyer wants a profitable system for making money and if that system relies too heavily on the owner then you will likely be penalized with a lower valuation. I spent the next 12 months extracting my image from the business and ended up selling for the price I wanted. I could have saved myself a lot of effort by thinking about this when I started the business.
It is somewhat of a balancing act. If you are starting a business from scratch then it is often all you. You do everything and the business is likely an extension of your personality. But as you grow and add employees you can build systems and the business can become less dependent on you. But if you are the one closing all the deals, your face is on the web site, you write the blog and newsletter then be careful. Your customers may be more attached to you than your product or service. Any savvy business buyer will be wary of that.
A Profit Making System
You want to create a profit making system that is at least somewhat independent of you. There are two great books that every small business owner should read on this subject. From the 1990’s the classic The E-Myth Revisited by Michael Gerber and the recent bestseller, The 4-Hour Workweek by Timothy Ferriss. These books emphasize the importance of creating systems and extracting the owner out of the day-to-day operations. Most importantly, if you are making decent money but are working 80 hours a week in order to create that income then your business is worth substantially less than someone who can create the same income in 20 hours a week. What is most valuable is a business that is highly profitable and is independent of the owner.
As entrepreneurs we can fall in love with our business. They are our baby and we want to leave our imprint everywhere. This is understandable and may even be the right strategy in the short term; but as you grow your business you should always be aware of the impact of these actions. Even if we decide not to sell it is healthy to create a business that doesn’t need the owner’s input on everything. By doing this not only will you create a more valuable business, but you will likely enjoy your work more.