How To Be Ready For The 8 Most Frequently Asked Questions When Selling Your Business

One of the most intimidating aspects of selling your business can be facing the barrage of questions during the various management presentations you’ll be doing for potential acquirers. Be prepared to be grilled on all facets of your operations.  Of course every meeting will be different, but here are some questions you can expect to be asked when you’re in the hot seat:

1. Why do you want to sell your business?

It’s a slippery question because if your business truly does have a bright future—and you want the buyer to believe that’s the case—the obvious question is:  “Why do you want to sell it, and do would you want to sell it now?”

2. What is your cost per new customer acquired?

The potential acquirer wants to find out if you have a predictable, economical and scalable formula for finding new customers.

3. What is your market penetration rate?

The acquirer, with an eye to future growth, is trying to understand how big the potential market is for your product or service and what part of the field remains to be harvested.

4. Who are the critical members of your team?

The acquirer wants to understand the breadth and depth of your team and determine specifically which members need to be motivated and retained post-purchase.

5. Who buys what you sell?

Strategic buyers will be searching for any possible synergies between what you sell and what they sell. The more you know about your customer demographics, the better the buyer will be able to assess the strategic fit. If your customers are other businesses, a buyer will want to know what functional role (e.g., training manager, VP of sales and marketing) buys your product or service.

6. How do you make what you sell?

This question is asked in an effort to size up the uniqueness of your formula for creating your product or service. Potential buyers want to know if you have any proprietary systems that would be hard for a competitor to replicate. For various reasons, they will also want to understand if the creation of your product or service is dependent on any one person.

7. What makes your product truly unique?

A buyer is trying to understand how big the moat is around your business and what kind of protection it offers from competitors who may decide to compete with you in the future. What have you done to safeguard yourself against the competition?

8. Can you describe your back-office setup?

Most buyers will try to understand how easily they can integrate your back office into their operation. They’ll want to know what bookkeeping and billing software you use, how customers pay, and how you pay suppliers.

Of course this is not an exhaustive list, but it’s a good start when you’re preparing to represent your company to your potential buyers.

Please leave any comments in the box below!!

How would your business score in the sellability stakes?  take this 14min quize to find out – Sellability Score

Follow me on Twitter : @vabizcoach

James Lawson is a Business Transformation Coach and author located in Fairfax, Northern Virginia. He works with and helps business owners TRANSFORM their businesses from where they are to where they ultimately want to be.

7 POWERFUL RATIOS TO START TRACKING NOW!

Doctors in the developing world measure their progress not by the aggregate number of children who die in childbirth but by the infant mortality rate, a ratio of the number of births to deaths.

Similarly, baseball’s leadoff batters measure their “on-base percentage” – the number of times they get on base as a percentage of the number of times they get the chance to try.

Acquirers also like tracking ratios and the more ratios you can provide a potential buyer, the more comfortable they will get with the idea of buying your business.

Better than the blunt measuring stick of an aggregate number, a ratio expresses the relationship between two numbers, which gives them their power.

If you’re planning to sell your company one day, here’s a list of seven ratios to start tracking in your business now:

1. Employees per square foot

By calculating the number of square feet of office space you rent and dividing it by the number of employees you have, you can judge how efficiently you have designed your space. Commercial real estate agents use a general rule of 175–250 square feet of usable office space per employee.

2. Ratio of promoters and detractors

Fred Reichheld and his colleagues at Bain & Company and Satmetrix, developed the Net Promoter Score® methodology, which is based around asking customers a single question that is predictive of both repurchase and referral. Here’s how it works: survey your customers and ask them the question “On a scale of 0 to 10, how likely are you to recommend <insert your company name> to a friend or colleague?” Figure out what percentage of the people surveyed give you a 9 or 10 and label that your ratio of “promoters.” Calculate your ratio of detractors by figuring out the percentage of people surveyed who gave you a 0–6 score. Then calculate your Net Promoter Score by subtracting your percentage of detractors from your percentage of promoters.

The average company in the United States has a Net Promoter Score of between 10 and 15 percent. According to Satmetrix’s 2011 study, the U.S. companies with the highest Net Promoter Score are:

USAA Banking 87%
Trader Joe’s 82%
Wegmans 78%
USAA Homeowner’s Insurance 78%
Costco 77%
USAA Auto Insurance 73%
Apple 72%
Publix 72%
Amazon.com 70%
Kohl’s 70%

3. Sales per square foot

By measuring your annual sales per square foot, you can get a sense of how efficiently you are translating your real estate into sales. Most industry associations have a benchmark. For example, annual sales per square foot for a respectable retailer might be $300. With real estate usually ranking just behind payroll as a business’s largest expenses, the more sales you can generate per square foot of real estate, the more profitable you are likely to be.

Specialty food retailer Trader Joe’s ranks among companies with the highest sales per square foot; Business Week estimates it at $1,750 – more than double that of Whole Foods.

4. Revenue per employee

Payroll is the number-one expense of most businesses, which explains why maximizing your revenue per employee can translate quickly to the bottom line. In a 2010 report, Business Insider estimated that Craigslist enjoys one of the highest revenue-per-employee ratios, at $3,300,000 per employee, followed by Google at $1,190,000 per bum in a seat. Amazon was at $1,010,000, Facebook at $920,000, and eBay rounded out the top five at $530,000. More traditional people-dependent companies may struggle to surpass $100,000 per employee.

5. Customers per account manager

How many customers do you ask your account managers to manage? Finding a balance can be tricky. Some bankers are forced to juggle more than 400 accounts and therefore do not know each of their customers, whereas some high-end wealth managers may have just 50 clients to stay in contact with. It’s hard to say what the right ratio is because it is so highly dependent on your industry. Slowly increase your ratio of customers per account manager until you see the first signs of deterioration (slowing sales, drop in customer satisfaction). That’s when you know you have probably pushed it a little too far.

6. Prospects per visitor

What proportion of your website’s visitors “opt in” by giving you permission to e-mail them in the future? Dr. Karl Blanks and Ben Jesson are the cofounders of Conversion Rate Experts, which advises companies like Google, Apple and Sony how to convert more of their website traffic into customers. Dr. Blanks and Mr. Jesson state that there is no such thing as a typical opt-in rate, because so much depends on the source of traffic. They recommend that rather than benchmarking yourself against a competitor, you benchmark against yourself by carrying out tests to beat your site’s current opt-in rate.

Dr. Blanks and Mr. Jesson suggest the easiest way of increasing opt-in rate is to reward visitors for submitting their e-mail addresses by offering them a gift they’d find valuable. Information products – such as online white papers, videos and calculators – make ideal gifts, because their cost per unit can be almost zero. Using this technique and a few others, Conversion Rate Experts achieved a 66 percent increase in the prospects-per-visitor rate for SOS Worldwide, a broker of office space.

7. Prospects to customers

Similar to prospects per visitor, another metric to keep an eye on is the efficiency with which you convert prospects – people who have opted in or expressed an interest in what you sell – into customers.

Conversion Rate Experts’ Dr. Blanks and Mr. Jesson recommend you monitor the rate at which you are converting qualified prospects into customers, and then carry out tests to identify factors that improve that ratio. Conversion Rate Experts more than doubled the revenues of SEOBook.com, the leading community for search marketers, by converting many of SEOBook’s free subscribers into customers. Techniques that were found to be effective included (perhaps counter intuitively) restricting the number of places available; allowing easier comparison between SEOBook and the alternatives; communicating the company’s value proposition more effectively; and simplifying its sign-up process. The trick is to establish your benchmark and tinker until you can improve it.

Acquirers have a healthy appetite for data. The more data you can give them – in the ratio format they’re used to examining – the more attractive your business will be in their eyes.

Please leave any comments in the box below!!

How would your business score in the sellability stakes?  take this 14min quize to find out – Sellability Score

Follow me on Twitter : @vabizcoach

James Lawson is a Business Transformation Coach and author located in Fairfax, Northern Virginia. He works with and helps business owners TRANSFORM their businesses from where they are to where they ultimately want to be.

How Often Do Your Customers Come Back To You?

How often do your customers come back to you? The answer can define the value of your business.

Such is the case at Wpromote, an online advertising agency that manages its clients’ online marketing and social-media promotions. Wpromote founder Michael Mothner is not looking to sell, but he did let my colleague Mark Tepper, the founder of Strategic Wealth Partners, and I have a look under the hood of his business to see just how sellable the company would be if Mothner ever wanted to get out.

We found a business that will have the big agency holding companies salivating if and when the time comes for Mothner to sell. Wpromote derives 99 percent of its $11 million in annual revenue from six-month contracts that renew at a rate of 96 percent.

This wonderful article in INC magazine by Built To Sell Author John Worrillow investigates how creating a recurring or subscription based model can radically increase the value of your business and at the same time create a line waiting to buy it when your ready to sell.!!

Buyers will Line Up For This Business Model

James Lawson is a Business Transformation Coach and author located in Fairfax, Northern Virginia. He works with and helps business owners TRANSFORM their businesses from where they are to where they ultimately want to be.

Great Employees Are Not Replaceable

One of the key aspects of making a business sellable is the quality of the people that will be there after you leave. As a potential buyer I want to have the comfort of knowing that the business will continue to grow and prosper and that your ‘team’ can effectively run the business without your input.

Why is it then that owners aren’t putting as much time and effort into not only attracting great people but also looking at innovative ways of keeping them there!

Amy Rees Anderson wrote a great article for Forbes just a day or so ago that caught my eye and so I thought I would share it with you!

Click on the link below to read Amy’s article and start to gather ideas about how you can attract the right talent for your business and keep them there!

Great Employees Are Not Replaceable

Watch our new video and tell us what you think – Winning The Uphill Battle

James Lawson is a Business Transformation Coach and author located in Fairfax, Northern Virginia. He works with and helps business owners TRANSFORM their businesses from where they are to where they ultimately want to be.

What Your Birth Certificate Says About Your Exit Plan

In our experience, your age has a big effect on your attitude towards your business and how you feel about one day getting out. Here’s what we have found:

Business owners between 25 and 46 years old

Twenty- and thirty-something business owners grew up in an age where job security did not exist. They watched as their parents got downsized or packaged off into early retirement, and that caused a somewhat jaded attitude towards the role of a business in society. Business owners in their 20’s and 30’s generally see their companies as means to an end and most expect to sell in the next five to ten years. Similar to their employed classmates who have a new job every three to five years; business owners in this age group often expect to start a few companies in their lifetime.

Business owners between 47 and 65 years old

Baby Boomers came of age in a time where the social contract between company and employee was sacrosanct. An employee agreed to be loyal to the company, and in return, the company agreed to provide a decent living and a pension for a few golden years.

Many of the business owners we speak with in this generation think of their company as more than a profit center. They see their business as part of a community and, by extension, themselves as a community leader. To many boomers, the idea of selling their company feels like selling out their employees and their community, which is why so many CEO’s in their fifties and sixties are torn. They know they need to sell to fund their retirement, but they agonize over where that will leave their loyal employees.

Business owners who are 65+

Older business owners grew up in a time when hobbies were impractical or discouraged. You went to work while your wife tended to the kids (today, more than half of businesses are started by women, but those were different times), you ate dinner, you watched the news and you went to bed.

With few hobbies and nothing other than work to define them, business owners in their late sixties, seventies and eighties feel lost without their business, which is why so many refuse to sell or experience depression after they do.

Of course, there will always be exceptions to general rules of thumb but we have found that – more than your industry, nationality, marital status or educational background – your birth certificate defines your exit plan.

James Lawson is one of Northern Virginia’s top Business Coaches. He works with and helps business owners TRANSFORM their businesses from where they are to what they ultimately want, creating value and wealth.

Exit Strategy – Don’t Confuse ‘Growth’ with ‘Value’

What’s the most important thing that most business owners fail to consider when planning for business succession or sales of their business?

The answer is that the vast majority of CEO’s or owners of privately held companies confuse Growth with Value. In order for any company to be ‘worth’ buying there needs to be transferable value in the business. Lots of companies are successful in growing, in fact many of our own clients have seen tremendous growth over the last 3 years, however, that growth has to be aligned with a strategy that creates value in the business outside of just top line or bottom line growth!

So, how do you know if your creating value in your business?

Tracking growth or using key performance indicators have is fairly easy whether you are looking at revenue, profitability, rev per client and so on.  Measuring value however is a little tricker – so tricky in fact that we often start with looking at the areas that reduce value and work to eliminate them first – that strategy by default will make your business more valuable.

A couple of key metrics to focus on would be…

1. Who in the business owns most of the client relationships?

If the CEO or business owner has or owns all or most of the key client relationships, what happens when the CEO moves out of the business? Can those relationships be transferred. In most cases they won’t and any new owner of that business will have to either go find new clients or work very hard to gain the trust of the current ones. Either way, that has an impact on the value of the business.

2. Customer Concentration

We all want to have repeatable business – that is, those customers or clients that come back time and again to buy our services or products. The challenge when looking at the value of a business however is, what we call EXPOSURE! Take a look at your clients base. Are you relying to much on 1, 2 or 3 clients to bring in the majority of your business? What would happen if one or more of those clients went away? The most valuable businesses have a wide client base that doesn’t create an overly exposed revenue stream.

3. What % of our Revenue is Repeat Business?

Who many of your clients come back and buy time and again from you, or, is your business one where a number of clients pay you an ongoing fee for  your services. How your business model works will and does have an impact on its real or perceived value by anyone looking to purchase it. A business that has recurring revenue streams will be regarded higher in teh valuation stakes than a business that continually has to find new customers every day, week or month! So the real question is, can you develop products or services that clients will continue to pay for over the long term versus a one time purchase.

There are different characteristics of a business that influence its value and all to often the CEO or owner of that business believes that they are doing all the right things to get to a successful exit however, all the decisions that are being made are almost always being run through the filter of are these the right decisions to GROW the business rather than  increasing the value of the business.

Creating TRUE value in your business goes way beyond just driving revenue and profits. It means creating an organization that can continue to grow and thrive without YOU being there (read Built to Sell by John Warrillow).

James Lawson is one of Northern Virginia’s top Business Coaches. He works with and helps business owners TRANSFORM their business from where they are to what they ultimately want, creating value and wealth.