Exit Through the Door of Your Choosing

October 14, 2010
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It is only the farmer who faithfully plants seeds in the Spring, who reaps a harvest in the Autumn - B.C. Forbes

As a carpet cleaner you work hard, you play hard and you make good money, too! Life is good …for now. But deep down inside, are you worried about “growing old on the wand”? If not, you should be! Because, sadly, the vast majority of carpet cleaning businesses never sell, they just wither away.

Of course, prudent planning means that you should never depend only on the sale of your company to finance your comfortable retirement. However, since you have to burn the years anyway making a living, why not “double dip” by creating an appreciating asset out of your business?

Every decision business you make should be tempered by asking one simple question: “How much will this add to the value of my company?” So what will help your company sell for more?

Simple: add more profits to the bottom line, which means one of three things:
  • cut your overhead
  • get more efficient
  • raise your prices.
  • do all of the above (business buyers and their advisors want to see a record of steadily increasing profits instead of dramatic ups and downs over the years.)
Of course, at the end of the day no one will buy your business based only on its financial book value. Instead, the real reason a prospective buyer will pay you an obscene amount for your company is they want to “buy your life.”

So the question you should really be asking right now is, “How much would I (or any other sane person) pay to live my life?” I don’t care what your Initial Business Valuation Worksheet says: if you would not pay $1.4 million for your lifestyle, why would you expect a savvy business person to do so?

Remember, before you can sell anything to anyone, you must define what your “buyer profile” is. In other words, “What type of individual is going to buy my carpet cleaning business?” Let’s look at a few common criteria for your prospective buyer:

1. You Will Sell to an Already Successful Individual with Money

Well, duh! You wouldn’t want to sell to some loser with no money, would you? On this subject, I implore you: given the extremely fragile nature of any small service business, be very cautious about personally financing a large percentage of the sale of your company. Far too many desperate sellers have bitterly regretted providing owner financing when a year or two later their business buyer went belly up and they were left with nothing!

Of course, this “already successful” moniker likely means…

2. Your Buyer Won't be a Kid

Your prospective purchaser will probably be at least approaching middle age, and will cheerfully trade their money to shorten or even eliminate the learning and growth curve of starting a new business from scratch. In fact, your best prospects will probably be middle-aged corporate executive refugees who will bring a generous “golden handshake” severance package to the negotiating table. And yes, you will be happy to relive them of these funds as a down payment for your business!

3. You Will Not Sell Your Company to Another Carpet Cleaner

Why not? Let me count the ways! First, most carpet cleaners have no money (See Demographic No. 1). In addition, a really successful carpet cleaner doesn’t need to pay you a premium price for your existing business. He or she can likely get a much better ROI by investing in their already thriving company. Assuming none of your local competitors have the funds and/or desire to buy you out, you would have to find a carpet cleaner willing to sell their successful company and relocate to your area. This truly would be searching for the proverbial “needle in a haystack”!

4. You Will Sell to Someone Who Wants to Enjoy the Lifestyle

It isn’t only about the money. A successful small business should provide stability, freedom, a measure of prestige, a sense of family and a big sense of joint accomplishment as the owner along with their team achieves their shared vision. Now mix in your new buyer’s desire to have all of these along with a reasonably stress-free life and ask yourself one question: Does this sound like my business and my life? If not, it is time to get to work! Here are some basic business sale preparation ideas that implemented now will groom your company for a hugely profitable sale in the future …

Recruit/develop/keep really good people. Sure, it is possible to sell a lone wolf carpet cleaning business where you are the only employee. But if you expect the sale of your business to provide a significant portion of your retirement funds, it will require a larger company with employees. (Plus the middle-aged, financially successful buyer profile above probably means the new owner of your company won’t want to grow old pushing a cleaning head!)

As my mentor in the cleaning industry told me over 40 years ago, “Steve, all I am selling is people.” Quality, hard-working employees with a long track record with your company will make it much more attractive to any business buyer. Of course, once you have these people, you must…

Build a business infrastructure. Your business infrastructure is built out of systems (an organized way of accomplishing a given goal) that are formed by procedures (a step-by-step list of how-to-do-it). Yes, I know most carpet cleaners “git ‘er done,” but at what physical and emotional cost? Few business buyers want to spend big bucks for the high-stress, fighting-just-to-survive-the-day lifestyle of the typical carpet cleaner!

Get yourself out of the dead-end rut of everything revolving around you with organized, written procedures that make every task in your company, in the words of Michael Gerber, “doable by an individual with a low order of skill.”

Given that you aren’t going to sell out to another carpet cleaner, your prospective business buyer will also be one of these “individuals with a low order of skill.” So he or she will be attracted to a business that is systematized, with everything laid out in logical, interlocking systems created by step-by-step written procedures.

Of course, even the most expensive purchases are not bought based solely on logic – emotions always come into play eventually. So to help your prospective buyer fall in love with your company, you must…

Create a beautiful business. The business broker who sold my business almost 20 years ago put it very nicely: “Steve, when your prospect can see their name written on your office door, it is all over except for the negotiating.”

Buying any small service business is a risky and arduous journey that takes enormous commitment to see it through. So your buyer must not only want your company; he or she must lust to possess it. If the prospect has a take-it-or-leave-it attitude, they will be much more likely to bail out at the very first glitch in the sales process. (Trust me on this one. There are always obstacles to overcome in any business sale!)

Help your prospect fall in love by performing a beauty makeover on your company. Look at your business through the eyes of the buyer profiled above. Will he or she see a marvel of sparkling cleanliness, reliability and humming efficiency? Look, really look, at your service vehicles, machines and tools. Now examine your office, shop and garage areas: is everything logically organized, labeled and clean? Now check out your employees: are they cheerful, well-groomed, uniformed and proud to be working in your company? Now it is time to ask yourself one burning question…

When do I want to sell my business? Here is an interesting fact. Once you have built a solid business with great net profits, fantastic quality people and a written business infrastructure and beauty makeover that have transformed your operation into a sparkling model of efficiency, your goals may change. After all, now you will be making so much money and having so much fun you may decide to not sell your company!

If so, great! The great win-win in the steps above is that you create a company you may never want to leave! There is such a thing as “seller’s remorse,” after all, and you should be absolutely positive you want to sell before putting your company up for sale.

However, let’s say your long-range goals are to sell your business. So set a target date. Too many carpet cleaners wait till they are desperate to try and sell their company. Bad decision! Be sure to structure and market your business for sale before you are frantic to get out! Depending on where you are now, it may take three to five to build your business infrastructure and pretty up your company. So why not get started right away on building your infrastructure?

Even after you have created a “thing of beauty” out of your business, you must find a qualified buyer who will pay you cold, hard cash for your company! And that is exactly what we will discuss next month – how to market and sell your well-organized company and retire while you are still young enough to enjoy it!

Author’s Note: In September we discussed why and how to track the value of your company, including using a free Business Valuation Sheet. You can download it at http://tiny.cc/SFSevw. For a complete Beauty Makeover and Infrastructure Checklist, just go to http://tiny.cc/SFSbic

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