It’s a hard thing to come to terms with; selling your business or company so that it can thrive in the hands of another person. Entrepreneurs know better than ever that businesses aren’t meant to stay the same for long. Growth, opportunity, and other factors impact the direction of where the business goes. And sometimes, selling the business is the part of its journey in which you step back.
John Warrillow, the creator of the Value Builder System and best-selling author, joins us on this episode of Making Bank to talk about the challenges of coming to terms with selling your business, how to determine when to sell your business, and other tips to grab a once in a lifetime opportunity.
Letting go of Your Business
One of the biggest things that entrepreneurs suffer from is letting go of their business. Josh knows this firsthand. If you walk up to an entrepreneur and ask if they’re going to sell their business, chances are their answer will be something along the lines of being yes probably in a few years. Then a few years go by, and you ask that same entrepreneur if they are going to sell their business and their answer is the same; they want to change a couple of things.
“I think we’re internal optimists as entrepreneurs, right? And we’re always thinking about the next product, the next customer, etc. And what that means is that we often ride it over the top, meaning we often sell way past our best before date.” Josh says that sometimes when you’re running a company, you want to make it the best you can. Once you reach a certain goal, you might set another one to reach.
This becomes a dangerous game, because as time goes on, sometimes those new goals aren’t meant. This means that there isn’t any growth happening. There’s only so much one person can do with a business, which is why it’s important to know what your company is worth and when it’s worth selling.
This doesn’t mean go and sell your business to the first person that shows interest. Josh suggests running through a structured process that examines multiple competing offers. “That’s essential to make sure you punch above your weight. If you just fall into the arms of one buyer, it’s a recipe for them re-trading which is lowering the price.”
There is a process in which you can play one offer off of another so that you can get multiple people bidding and making higher and higher deals. There are different types of buyers for different types of businesses, from private equity that are looking to roll up companies in a similar industry to strategic buyers with a bigger picture in mind.
One-Shot to Make One Business Great
Entrepreneurs are human, they’re going to make errors along the way and it’s not a smooth path towards success. But Josh wants to remind people that building a successful business is a once-in-a-lifetime thing, and if you can avoid trivial mistakes, you should.
“You only ever get one opportunity to sell your company. Maybe you build a couple of companies over a lifetime, but it’s a very unique circumstance and you may only get one shot to get it right.” There are some simple errors that you can avoid making by just taking a step back and thinking through things before taking action.
One example of this is when buyers ask the question, “what do you want for your company?” Josh says it’s easy to throw a high number out there, and that limits options or scares the buyers away. But it’s also easy to put a realistic number to the value of your company, in which you’re putting a cap on the value where people won’t pay a penny more for it.
When you’re asked that question, it’s best not to answer. You have to sort of share their price with you. It has to be a mutual value that you settle on so that you’re not overselling it to them, and so they don’t undersell you. Josh says, “Don’t give a number. I think what you want to do is respond to the inquiry…say ‘look, I’m a reasonable guy. I’d entertain any reasonable offer you thought was fair.”
During the process of selling your business, you shouldn’t be taking it all on by yourself. Of course, being involved in the process is important, but you wouldn’t go and sell your house without a realtor or try to do it all on your own. By hiring a professional, you can go through a competitive process to try and sell your company, with multiple deals and offers if they’re doing it right.
Remember, though, that selling your business isn’t all about the big numbers – rather it’s about you. “Oftentimes the most successful exits are one that has what we call pull factors, which are in other words things that you want to go and do. A book you want to write…whatever it is that sort of gets your juices flowing. If you sell your business to go do something you’re excited about, there’s no shame in that. It’s a great outcome.”