Would You Like to Become A Super Successful Business Owner?
One of my favorite sayings is by Louis Pasteur, “Chance favors the prepared mind.”
There is a certain amount of chance inherent to any endeavor. Luck is certainly something we will accept if it comes our way.
I would recommend that there are some things that you don’t want to leave to chance. Preparing for the transition of your business fits into this category.
What do you think the probability is that your business will transition unexpectedly at some point in the future?
I’ll answer that a bit later, but first let's talk about every business owner’s favorite topic: money.
If you were to decide to sell your business, there are several important pieces of knowledge that you should know:
1. How much is my business worth?
2. Is it a good market or a bad market for selling my business.
3. How does selling your business work?
4. What are the common obstacles that must be overcome when selling your business.
5. What can I expect in the due diligence process.
6. How do I calculate what my net proceeds will be after the sale.
7. How will I live my life once I no longer have the day-to-day responsibility of running the business.
8. Is there any gotchas, like staying for a period of time to help with the transition to the new owner.
These are a few basic questions. My goal today is to get you to start thinking about these things, because as we said at the beginning chance favors the prepared mind.
So, if chance favors the prepared mind, what does it do to the unprepared mind?
The worst case scenario is that you fail to sell your business at all. If you choose to ignore the information that I am giving you, then you put your self at risk.
Here is a number for you, 80% of small businesses with revenues less than $5 million never sell.
Add to this that the typical business owner had 90% of the personal assets tied up in their business.
Another thing to consider. If you are a business owner you are likely to be a Baby Boomer. Baby Boomers own 63% of the businesses in the United States.
So what does this mean?
It means that if you are a Baby Boomer Business Owner (BBBO) then you will be competing with a whole crowd of other BBBOs trying to sell their business at the same time as you.
This means that it will be a buyers market. With lots of supply, buyers will be able to be very picky.
If your business isn’t prepared for the competition, it may sell for a discounted price or even worse not at all.
You don’t want to be one of the unlucky ones who have spent their life budding a business only to find that is worthless right when they would like to sell it and use the money to retire.
Let’s peel back the onion a little bit on the very low percentage of businesses that actually sell. The biggest issue is that there are a large number of businesses that are run by one person (often referred to as solopreneurs). Essentially, these are jobs disguised as a business.
If this is you, then this information is not for you. No one wants to buy your job. The best advice I can give you is to understand your current reality. You will need to create assets before your retirement, do not expect that you are going to get a windfall from your business to pave the way.
The other option is to decide to scale your business built on a business model that will receive a high multiple and a lot of interest from people with the resources to purchase the business you built.
I use the term Value Creation Owners for those who are constantly striving to increase the value of their businesses. But, I am getting ahead of myself again.
Let's get back to how to determine what you business is worth.
Here is the simple answer: What someone is willing to pay for it.
Just commonsense right?
Placing a value on your business before you sell it can be way more complicated.
We all see reality a bit differently. So it shouldn’t be a surprise that different people, with different perspectives will come up with different ideas on what they think your business is worth.
If you choose to go on the Journey of Becoming a Value Creation Owner, we will take you through different levels of Mastery on this topic.
For a little mini-lesson on Mastery by Robert Greene (who actually wrote the book on it) check out this link: Mastery]
I am going to start out with a basic formula, later on we can go into this topic in much more detail.
EBITDA X Multiple = Value of Your Business
EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. This is the accounting term for what your business earns.
The market assigns businesses a multiple based on the perceived quality of the business versus competitors in the same market segment. Low quality businesses receive the lowest multiple, average companies receive the average multiple, and excellent companies receive the highest multiple.
There are a whole lot of factors that go into assigning a multiple for your company. It can be somewhat subjective, but there are many know factors that are used for performing an evaluation.
There are many different methods that can be used to value your business. Check out our white paper on business valuation methods if you would like to get more detail on how it is done and the different types of advisors that can give you a determination of fair value.
**WARNING!** You will most likely discover that finding out the value of your business can be pretty emotional. There is a widely known phenomenon to those who advise business owners known a the Value Gap. In a nutshell, the Value Gap is the difference between what a business owner thinks his business is worth and the price a sophisticated investor would be willing to pay.
This a good point to go back to how important dealing with reality is.
The number one reason that businesses don’t sell according to the business brokers and private equity groups who sell businesses is the Value Gap.
It is important for another big reason as well. If you are planning on proceeds from selling your business to help you finance your retirement, then you better have a pretty good picture of the proportion of your resources that your business represents.
One of the best paths to becoming Super Successful is to model the behavior of others who have exhibited the type of success your seek.
The theory is that if someone is capable of achieving success at an endeavor then another person can achieve a similar level of success by creating a mental model of how that success was achieved.
The best thing about modeling is that it can takes years off the time to master a particular skill or set of skills.
That is where the skills of a good mentor or coach become so important.
In essence, you follow the recipe that has worked for another person who has navigated a particular set of circumstances.
It is like baking the perfect chocolate cake. If you know what ingredients to use, the process for mixing the ingredients, and the particulars of how to bake the cake, then you should be able to come very close to the outcome achieved by a Master Baker.
Check out this video from Evan Carmichael:
The Four Stages of Competence
There are four stages to learning any new skill. Most people start at the level of Unconscious Incompetence, you don't know what you don't know. Before you start learning how to drive a car you think it is a piece of cake. You think this because you haven't been exposed to the skills that are required to actually operate a vehicle on your own.
Then, you get the book to study for your temps. Suddenly you become aware of what you don't know. You have reached the stage of conscious incompetence. This is good, if you were to delude yourself into this that you know everything you need to know then you wouldn't study for the test and you would likely fail.
Then, you pass you temps and you start as a student driver. You know what you need to do, but it isn't natural. You need to think about it. It doesn't feel natural, it takes effort. You have reached the stage of conscious competence. You know what to do, but it takes effort to do what you need to do.
After a lot of practice, you finally get to the point where driving feels natural. Most of you who have driven for may years have undoubtably had the experience of driving home and not remembering a thing along the way as you pull into the driveway. You have reached the stage of unconscious competence. You do what you need to do without even thinking of it.
The Advantage of Always Thinking Like a Beginner
The Japanese have a concept called Shoshin that is often used when studying Zen Buddism and the martial arts. Shoshin is a concept that translates to the “beginner’s mind.” It refers to having an attitude of openness, eagerness and lack of preconceptions when studying a subject, even when studying at an advanced level, just as a beginner in that subject would.
Having a beginner’s mind keeps you from getting tripped up by our own dogma. The realization that there is always more to learn leads us to a success journey rather than intermittent flashes of success.
You likely have some beliefs about your business that can create issues for you now, and in the future. You own dogma. You need to get past this if you want to reach the ranks of elite business owners.
For example, many business owners struggle with the idea that, "no one can do the job as well as me." This can create several issues in the present as reluctance to delegate can lead to overwork and performance of tasks that would be better left to others. This idea can also have long-term ramifications, since a business that is overly reliant on its owner is worth far less to someone interested in buying the business.
Many business owners have achieved success by working their asses off to create a thriving business. This is very commendable, however if you let this become a belief that your hard work is the only path to success, you are mistaken.
Truly successful business owners have successful teams around them.
A truly exceptional business is not built on the efforts of a single individual.
But, as Marshall Goldsmith has famously said, “ What got you here won’t get you there.”
That is why success is a journey, not a destination.
You see, the truly successful climb the mountain, only to find that that they can now see the next mountain. Once you know that it is there, you can’t help yourself. Some people see the next mountain and are happy to have progressed this far.
They like the view.
Others, those that truly achieve great things, see the next leg of their journey.
If you are happy with where you are and feel like there is no need for progress on your journey. Congratulations. What I offer is not for you. No hard feelings, I wish you luck.
If you can’t see the next mountain without the urge to take your journey to a higher level. Then, stick around, I think you will learn a great deal about where this journey can take you.
Time for a Reality Check
But, first let’s talk a bit about reality. Let’s be objective. Let’s be real.
As you strive for higher levels of performance, you need to have a hyper-developed sense of reality.
Easier said than done.
You see, we all have a skewed vision of reality. Our mind only sees our representation of reality, not reality itself. So, to get reach a better understanding of what is true, we need to find those we trust to help us understand when our perception of what we think we see is different than what we need to see.
Wow! This got pretty deep fast. You are probably not ready to go deeper into this now. Stick around and we will go deeper into this later. Learning to manage your perceptions is an important key to your success.
So, I’m guessing you are like most business owners I know. In essence, trading hours for dollars and it seems like the more hours you do, the smaller the payout.
It is an effective way to make a living, but it is not how the truly successful business owners do it.
Richard Branson owns interests in over 400 companies through the Virgin Group.
Let that sink in.
If he visited a company a day every single day of the year he would not be able to visit them all.
He knows the secret. He knows the secret sauce.
But, we will save that for later.
Common Reason For Business Ownership:
- Financial Freedom
- Control Over Their Time
- Taking Care of Their Family
- Giving Back to the Community
- Living Life According to Their Values
- Creating a Legacy
- Charitable Giving
- Passion for Life/Business/Family