The time will come for everyone: one way or another, you’ll be ready to exit your business.
After devoting years, possibly decades, of blood, sweat and tears into building your company, you might be counting on a payoff. You might be depending on selling your business to fund your retirement. But what if you can’t sell?

The irony is that the more personally involved you are in your business, the harder it is to transfer operations to someone else. To maximize your company’s appeal, build a business that can run without you.

Running a business on autopilot demands systems, discipline and consistency. Those values are crucial to business success, and they’re often central features of franchise operations.

Consider the statistics on business survival. 80-90% of independent businesses fail in five years, whereas 80-90% of franchises are successful five years in.

What Do Franchises Have in Common?

They’ve had tremendous opportunity to make a lot mistakes and learn from them. If 100 franchise restaurants are pursuing improvement for five years, that’s 500 combined years of experience. Their strength is the combined experience and wisdom of legions of owners and managers, all wrapped up in a network which has honed the art of learning from trial and error, and perfected analyzing and communicating the results.

They harness the power of consistency. They have highly developed systems and processes ranging from employee handbooks to accounting templates. These enable them to operate profitably and reliably without the constant presence of ownership.

If you plan on exiting your business someday, it’s up to you to multiply its value by building it to operate profitably without your day-to-day engagement. By escaping the routine grind, you’ll free up time and energy to devote to concrete improvements. At the same time, you’ll build a business which is exponentially more attractive to buyers.

Lessons from the Franchise Arena

Franchises provide buyers with a handbook for success.

Your handbook for success has to include documented and repeatable systems for every element of your company, from sales and marketing to bookkeeping to inventory to shipping. Every task has to be systemized, every element has to be documented so employees can be trained accordingly. SOPs (Standard Operation Procedures) must clearly explain tasks, and employee manuals must clearly express responsibilities. Without these, consistent training is impossible.

Management must also conform to consistent, repeatable, trainable responsibilities and routines.

When these systems are successfully established, they’re nearly guaranteed to boost profits and increase efficiency. By documenting your strategies and procedures, you’ll reassure potential buyers that your success can be replicated.

Even if you don’t anticipate trying to sell for a few decades, these efforts will pay dividends.
When the owner is relieved of daily responsibilities and can focus on big-picture, process-oriented improvements, the possibility for real growth blossoms. Additionally, unexpected circumstances can confront any of us at any time, and having the option to sell your business keeps you flexible. Lastly, by the time many owners are ready to sell, they’re often too burned out to transform their business, so they’re forced to accept a lowball offer, or to shut their doors entirely.

Even if you’re convinced your business is one-of-a-kind, embracing a franchise mentality will boost its value and make your exit a financial success.

Deciding to sell a business is no small beans. It’s a decision a business owner labors over for months or even years before finally pursuing. Whether the owner built the company from the ground up or purchased it from another owner and grew and nurtured it over the years, there are a whole gamut of emotions that come into play. After all, you don’t pour blood, sweat and tears into something and persist through perilous times without becoming emotionally attached to that which you fought so hard for, right? These emotions come into play both in the motivation behind the sale of a business as well as throughout the process. It’s vitally important to anticipate varying emotions while at the same time remaining objective and focused to ensure the best outcome.

Psychology behind the sale

Whether an owner recognizes it or not, there are three primary factors that drive the sale of a business: timing, health and divorce.

Timing: You’ve heard the saying, “Quit while you’re ahead.” Well, that’s precisely what many owners do. Afraid they can’t surpass their best year ever, they decide to sell and end strong.

Health: As a human on this planet, each one of us is vulnerable to personal tragedy. Whether it’s the sickness or death of a spouse, family member, friend or co-worker, there are numerous earth-shattering moments that bring close the reality that life is indeed short. It’s often out of this awakening that business owners decide to sell and pursue other dreams or endeavors.

Divorce: Whether it’s motivated by the determination of a divorce decree or from a desire to start fresh, divorce is a major factor in the decision to sell a business.

Psychology throughout the sale process

According to a 2013 article in the Scientific American, titled “Negative Emotions are Key to Well-Being,” the author, Tori Rodriguez, states that:

In fact, anger and sadness are an important part of life, and new research shows that experiencing and accepting such emotions are vital to our mental health. Attempting to suppress thoughts can backfire and even diminish our sense of contentment. “Acknowledging the complexity of life may be an especially fruitful path to psychological well-being,” says psychologist Jonathan M. Adler of the Franklin W. Olin College of Engineering.

Allowing yourself to feel your emotions and to ride the waves they come in on is an important key to mental health and contentment and will serve you well long after your business has changed hands. Be it sadness, anger or a sense of loss, remind yourself that these feelings are all a part of saying goodbye to something you truly cared about. The challenge is maintaining objectivity in your decision-making in the midst of these feelings. Various professionals (accountants, attorneys, brokers) that assist you throughout this process will help you stay focused.

Having an exit strategy in place prior to the sale of your business will also help you to remain objective and keep your emotions in check. Will you stay on as a consultant and help the next owner through his or her transition or will you make a clean break and pursue another business endeavor altogether? Although a business sale can seem lengthy and all-consuming, nothing breeds anxiety like waking up one day and realizing you don’t have a plan. Spend some time discussing your post-sale plan with your spouse, a trusted friend or a professional you respect. Then move forward confidently into the next chapter of your big and beautiful life.

If you are thinking about buying or selling a business, we would be happy to connect with you. We can be reached at 612.331.8392 or by email at info@oibmn.com.

The Opportunity

In the mid 1980’s, an enterprising young farmer couple saw a need and capitalized on it. One of the many responsibilities on real estate agents’ plates is signage: putting signs in yards for listings and removing them after closings. This young couple started marketing this signage service for a fee and their business took off. Real estate agents were delighted to financially compensate this couple in order to offload this tedious task.

Sale #1

In a short span of time, their business was booming to the point where it was interfering with farming so this couple contacted Opportunities in Business about selling their startup. They sold the business to another farmer who went on to grow it by adding more realtor-oriented services such as storing signage, painting sign posts etc.

Sale #2

After a few years, this farmer and second owner decided to sell the business and contacted Opportunities in Business. With the help of OIB, he sold the business for 4x the original sale price. Realizing his passion for buying and selling businesses, the seller then joined the OIB team as an agent.

Sale #3

A few years after acquiring the business, this third owner was diagnosed with a serious medical condition and was no longer able to maintain it. He reached out to OIB and together we sold it for double what he bought it for.

Opportunities in Business had the privilege of selling this business a fourth time – this time for over 10x the original sales price. By this time, the business enjoyed over 65% of the market share statewide.

This is just one of many real life examples of how Opportunities in Business harnesses our experience in real estate to the tremendous benefit of each of our clients.

While Opportunities in Business usually just helps people sell businesses, we often tell the story of when we helped create one. It happened when Bob Griesgraber and Tom Green, owners of OIB, learned of a change taking place at the Minnesota Supreme Court.

Court Provides Documents to Law Firms

It was the early 1980’s, before the digital revolution, and like many enterprises the court system generated vast quantities of documents. Some of these papers documented important changes in the law at local, state, and federal levels each year.

Historically, the Minnesota Supreme Court administered this information. A team of three employees were in charge of organizing these documents, which they compiled in three-ring binders. The court itself relied on these records, and attorneys and law firms also needed to stay up-to-date on these changes in the law. When legal professionals needed access to the information, they requested copies and paid a fee for the service.

Court Divests from Business

Eventually, the court concluded it was inappropriate for the courts to engage in this for-profit activity, and proposed that the enterprise no longer continue under the auspices of the court.

Griesgraber and Green got wind of this effort to privatize this vital service, and recognized the value of it. Here was an existing system satisfying an existing need for an existing market.

Meanwhile, they knew of someone seeking a new business to run. A local accountant (full disclosure: the accountant for Opportunities in Business) had an underutilized office and an underutilized wife. The wife had the skill set to manage such a business, and they had asked OIB to be on the lookout for a business which would be a good fit.

Family Buys and Expands Business

The wife-and-husband team bought the “business” for less than $50,000. They improved the systems by refining the collection and codifying the information, assembling it into a handbook for lawyers. Annual subscriptions were offered to the legal community, which responded positively: within a short time most law firms in Minnesota subscribed. Then they expanded to other states.

OIB Helps Family Sell, Very Profitably

Within seven years they had grown to 13 states. Ready to downsize their stake in the business, they asked OIB to sell about 80% of the states’ copyrights interests. OIB found qualified buyers and made the deal, netting well over a million dollars. They also sold the accounting practice.

With OIB’s help, this talented team got into a fledgling business for a relatively small investment. In seven short years, they boosted the business value by a factor of over 20 times. When they were ready to step back from their project, OIB was on the job again, helping them capitalize on their investment.

CEOs have broad, big-picture responsibilities. While responsibilities will vary from firm to firm, CEOs typically rely on a number of division heads to manage the details while they take a wide, long-term view.

Why A Granular Approach to Sales is Important

While being a good manager and delegator is key, there’s a valid argument that CEOs need to take a more granular view of sales. McKinsey, a global management consulting firm, concludes that “CEOs who prioritize sales management outstrip their peers by as much as 80% in terms of revenue and profitability.”

80% — that’s quite a margin. What fuels this success?

Predict Revenue More Accurately

A CEO who takes a hands-on interest in monitoring the sales pipeline will be better positioned to predict revenue more accurately, and more effective at taking action to improve sales outcomes or revise expectations. Sustainable growth depends on both of these factors. Further, having firm numbers to reflect sales functions is crucial to attracting interest from venture capital.

What Sales Number Does a CEO Need to Track?

Every leader needs to resist falling down the rabbit hole of micro-managing, so what sales numbers does a CEO need to closely track?

Michael Sala, managing director at private equity firm LLR Partners, identified four sales pipeline metrics CEOs should monitor in a recent article.

His advice: Know the answer to these four questions:

• What’s our average deal size?
• What’s our average sales cycle?
• What’s our conversion rate?
• How many leads do we need in the sales pipeline?

What’s our average deal size?

Calculate the average deal size of your closed won deals over the last 12 months. Let’s say the average deal size is $50,000 and you intend to hit $2 million ACV. In July, the sales team would have to close 40 deals to hit the target.

What’s our average sales cycle?

Asses the time it takes to move from creating a qualified sales prospect to actually closing the deal. Check out data from your CRM and calculate the average from the last 12 months. Apply that number to what’s actually in your sales pipeline to anticipate what is likely to close in the year.

What’s our conversion rate?

Once again, rely on your CRM to assess your past conversion rate. If your rate is 10% and you want to close 100 deals, you need 1,000 opportunities in the pipeline.

How many leads do we need in the sales pipeline?

This one’s a bit trickier, because it varies across different lead-generation channels. Client referrals might have a high conversion rate, while leads generated by automated emails might be a fraction of the rate. So apply the conversion rates channel by channel—you ARE tracking how you got your leads, right?—to calculate how many leads you need to get the conversions you require.

Revenue Forecasts Based on Concrete Data

By having a handle on these metrics, you demonstrate to potential investors and buyers that your revenue forecasts are based on facts and past performance, not wishful thinking. Keep an eye on these figures, and you’ll know when the pipeline isn’t supporting projections, at which point you can step in to correct the situation.

When buyers have confidence your revenue is predictable, that translates into confidence in your business. When CEOs can state specific figures backed up by fact, they’re in a much stronger position than if they offer general ball-park figures.

Even if you’re not focused on attracting investors, it’s still a valuable strategy for scaling up your business. If you’ve got questions about buying or selling your business or how a granular approach to sales can help increase your business valuation, please give us a call!