Built to-sell
4 likes1,019 views
The document discusses how to transform a service business into a sellable company in 8 steps: 1) Create a standard service offering, 2) Document the process, 3) Improve cash flow, 4) Hire a sales team, 5) Stop other projects, 6) Launch an incentive plan, 7) Find a broker, and 8) Convert offers. The goal is to build a scalable, profitable business that can run without the owner and be sold for maximum value.
Built to-sell
- 1. What is Fluent Brain?
- 2. From BuiltToSell.com: “Do you want your business to grow and prosper without sacrificing the freedom to live the lifestyle you want? Do you want to build a company that you can cash out and sell one day so you can retire comfortably or go after your next big idea? In Built to Sell, we discover that these two ideas are not mutually exclusive. The idea that you have to work your fingers to the bone for years to build a sellable company is flawed. In fact, the opposite is true. If you want to sell your business for the maximum amount of money, it needs to be designed to thrive without you – so the next owner can continue to grow and profit from your hard work when you’re gone. www.BuiltToSell.com Inside Built to Sell, you’ll find out just that: how to create a fast growing, profitable, scalable business that will give you the flexibility and freedom you became an entrepreneur for in the first place. And how to leverage that automation and profitability into a big cash buy out when you’re ready to move on to your next endeavor.”
- 3. To transform a service firm into a sellable company, follow this 8-step process. Before you start the process, engage a good accountant with experience in helping entrepreneurs with succession planning. Do not wait until you have an offer to see an accountant. Click on any of the steps below to get more details. CREATE A STANDARD SERVICE OFFERING CREATE A POSITIVE CASH FLOW CYCLE HIRE A SALES TEAM STOP ACCEPTING OTHER PROJECTS LAUNCH A LONGTERM INCENTIVE PLAN FOR MANAGERS FIND A BROKER TELL YOUR MANAGEMENT TEAM CONVERT OFFER(S) TO A BINDING DEAL
- 4. WRITE A FIND A SERVICE YOUR CLIENTS DOCUMENT YOUR PROCESS FOR FIND VALUABLE THAT YOU CAN TEACH SOMEONE ELSE TO PERFORM i. ii. Brainstorm all of the services that you provide today. Plot them. iii. Eliminate services that clients need to buy only once. iv. Among the remaining, pick the one that is plotted closest to the top right corner of the diagram. This becomes your Standard Service Offering. v. Experiment with bundling services together. NAME YOUR STANDARD SERVICE OFFERING EXECUTING THIS TYPE OF PROJECT i. Define each step so that you can repeat the model in the same way each time. ii. Write an instruction manual. Instructions need to be specific enough for someone to follow independently by using examples and fill-inthe-blank templates. iii. Test the instruction manual by asking someone to deliver the service without your involvement. AND EACH STEP • • It will move you away from commditized service. You will be able to set the price and payment terms. SHORT DESCRIPTION OF THE FEATURES AND CORRESPONDING BENEFITS OF EACH STEP REVAMP ALL YOUR CUSTOMER COMMUNICATIONS TO DESCRIBE YOUR PROCESS
- 5. • It will give you the cash you need to operate without diluting yourself with other shareholders. • You might not be able to charge for the entire amount in advance. • Your company valuation will be higher when you sell it because they will not have to commit as much of their own capital to your company.
- 6. REMOVE YOURSELF FROM SELLING THE BEST SALESPEOPLE WILL BE FIND PEOPLE WHO ENJOY THOSE USED TO SELLING A PRODUCT SELLING FIRST AND THE PRODUCT SECOND • Avoid salespeople who come from professional services companies. HIRE AT LEAST 2 SALESPEOPLE • They are competitive and an acquirer will want to see that you have a product that can be sold by salespeople in general.
- 7. • You won't have to worry about cash flow because you're charging up front for your service. • Employees will test your resolve, and clients will ask for exceptions. Be strong and resist the temptation. • Create a two-year run of increasing business and financial performance: • Be patient and remember that it will increase the cash you get up front and minimize your reliance on an earn out. • Drive the model as far and fast as you can. • Avoid the temptation to get personally involved in selling or delivering your Standard Service Offering. When you get asked for help, diagnose the problem and fix your system so the problem doesn't recur. • The year when you make the switch will be bad financially on paper. The accountant will need to change the way he/she recognizes revenue by spreading it out over the life of the delivery period of your Standard Service Offering. • Most business owners get improved quality of living in those two years. You might like it so much that you decide to run it like that in perpetuity. If you still want to sell your business, continue on to the next step.
- 8. • You need to prove that: • • You have a management team who can run the business after you're gone; The management team is locked into staying with your company after acquisition. • Create a long-term incentive plan for your key managers. • Each year, take an amount equivalent to their annual bonus and put it aside in a long-term incentive account earmarked for each manager you want to retain. • Allow the manager to withdraw one third of the pool each year after a three-year period.
- 9. • • Find a boutique mergers & acquisitions firm with experience in your industry. Ask other entrepreneurs you know who have sold their firm for recommendation. Create The Book. It describes your business and its performance to date along with a business plan for the future. • Find a business broker Make sure your broker appreciates what you have done to transform your business. Your broker will typically charge a percentage of the proceeds of the deal in the form of a success fee.
- 10. • Emphasize that, by being acquired, your managers will be more likely to hit the personal bonus targets. • Offer key employees a simple success bonus if a deal goes through: • Offer to pay it in two installments - one 60 days after the close, and the other at some point in the future.
- 11. • Your advisor will be trying to sell the benefits of offers to you because they get paid if the deal goes through and they want to remind you of the hard work they have done to justify their fee. Do not be swayed by it, study the offer. • Ask for an amount of money up front (+ another chunk tied to performance targets). • An earn out is a way for an acquirer to minimize their risk in buying your company. • Walk when things get nasty. • The due diligence period is about 60-90 days • The Letter of Intent is usually not a binding offer - deals often fall through in the due diligence period. Present things in the best possible light but do not lie or hide the facts. • After due diligence, the Letter of Intent might be discounted. If the new discounted offer meets your target cash up front, then agree. If the discounted offer falls below the threshold, walk away no matter how much the acquirer promises to help you hit your earn out. • Closing meeting. This is where formalities are handled (signing documents). It is typically held at the acquirer's law firm.
- 12. Visual Facilitation supercharges your thinking, brainstorming, and problem-solving. Visualization brings clarity and order to your thought processes, allowing you to explore and keep track of complex and non-linear ideas. The entire process is captured in a document deliverable that you can refer to in the future, and use to help others understand your ideas. matt@FluentBrain.com / 514 831-6414 / FluentBrain.com