Episode 69: What You Need to Know Before Selling Your Business
Transcript Episode 69
Stephanie Skryzowski: Welcome to the 100 degrees of entrepreneurship podcast. The show for purpose-driven entrepreneurs who want to get inspired to step outside of your comfort zone, expand into your purpose and grow your business in a big way.
You’ll hear from entrepreneurs and leaders that have shifted their mindsets, learned life-changing lessons, and built profitable businesses that fuel their lives and their hearts. And you’ll hear from me, Stephanie, Skryzowski!
My mission as a chief financial officer is to empower you to better understand your numbers, to grow your impact and your income. Let’s dive in!
Hey, everybody. Welcome back to 100 degrees of entrepreneurship. I’m Stephanie, and today we are talking about selling your business.
Yeah! Selling your business. If you think about your business as your baby, this may seem like totally bananas to you. Like why in the world would I ever want to sell my business? But I have worked with a lot of entrepreneurs that have considered it. That are working on it. That have done it. And it’s a really interesting sort of next step for you as an entrepreneur, as a business owner.
And there are many reasons why somebody may want to sell their business. Right? Maybe you’re looking for more time -freedom, maybe you want to just go do something new. Maybe you have another opportunity that you really want to put your time into, maybe your heart is just not in your business anymore. And all of those reasons and tons, more reasons are completely valid for why you may want to sell your business.
But what I wanted to talk to you about today was the things that you need to be thinking about if selling your business is on your radar for some point in the future.
So if you are looking to sell your business in like the next six months, there’s like a lot that you need to be working on way beyond what we’re going to talk about today.
But if the idea has ever crossed your mind, or maybe now that you’re listening to this podcast, “Oh, maybe that is something that I might want to consider in the future!”
I’ve got some things for you to think about today and things that you can be doing now, to set yourself up for bank success down the road, whenever that time comes for you.
So the first thing is thinking about the way that your business operates. And your team and your role, right? You need to have your business set up so that it can run without you, right? We don’t want everything in the business, any revenue-generating activities should not all hinge on you. Right?
Like, we need the business to be able to generate revenue on its own. On its own, you know, brand assets. On its own accord and not be reliant upon you.
So if right now, if your business is entirely reliant upon you to grow, to make money, think about what you could do to start to step away from that a little bit.
Could more of that be automated? Could more of, you know, your brand, be less about you as a person and more about the company? Or other people on your team be contributing to, you know, to marketing and to revenue growth and to sales and things like that?
Not that I’m thinking about selling my business, but one thing that we have done is to basically cross train somebody else on my team. To be able to do discovery calls or sales calls.
So in the past, I mean, really for the last seven years. I have done every single discovery call in the business. But what we learned is that the business cannot continue to grow if I have to do every single discovery call. Because if I have to step away for one reason or another related to a sale or not, the business is not going to continue to grow.
If I have to do every discovery call, if I’m the person responsible for bringing new clients in entirely. Right? So think about what in your business you are entirely responsible for and how can you duplicate that work somewhere? How can you figure out how to make that like repetitive? Right?
So whether it’s a system or another person or whatever that might be, how can you sort of step out of the, “I’m the CEO and I know everything and do everything,” and document and delegate and train and systematize. Like how can you do that in your business?
So that’s the biggest thing I have heard with businesses who have sold or who are getting ready for a sale is that, you know, the whole business can not revolve around the CEO. Because theoretically, right? If you sell the business, you’re probably not going to be around for very long.
Maybe you’ll stay on as an employee or as a consultant to kind of help the business, get to that next stage without you, and sort of assimilate if there’s an acquisition assimilate into the new, the new company, the new organization, but like most likely you’re not gonna be around forever. Right? You’re not, it’s just not likely. So you need to figure out how the business can operate without you.
The other thing that I have seen that is where I really want to talk about today is getting your financials in order. So when you think about selling your business, they are going to want to see whoever is potentially considering acquiring buying your business is going to want to see financials.
And this is not just like, “oh yeah, here’s a quick like P and L from QuickBooks.” It’s like, they’re going to want to dig deep. So not only do you want to make sure that your bookkeeping is an order, but like your bookkeeping really needs to be an order and you need to know some big numbers, right?
You need to know what your EBITDA is. That’s earnings before interest, depreciation, tax, and amortization. If you look it up EBITDA, um, you’ll see what that means, but that’s a number that’s going to be tossed around a lot.
And so your financials are likely in a place. If you have a good bookkeeper and you can probably glean this information from your financials, but it’s an important number to know. If you don’t know, look up the definition and ask your bookkeeper, “Hey, what’s our EBITDA?” so you’re going to want to know what that is.
You’re going to want to have your tax returns from like the last three to five, maybe even longer years. So if you don’t have those or if they’re buried in your email somewhere. Oh my gosh. Yeah. Guilty here. Um, pull those out, get them organized in a folder. Cause that’s something you’re definitely going to want to have.
You’re gonna want to know your profitability, especially if you have different revenue streams. So you’re gonna want to know your profitability by revenue stream. Right?
Think about it. If somebody is going to come buy your business, take on your business, all of your expenses and everything you have going on in the business, they want to know how profitable it is. Right? And not just the business overall, they’re going to want to know how profitable each revenue stream is.
So if your books are not set up, if QuickBooks is not set up for you to have this information in this way, now is the time to do it. And at the end of the day, if you never sell your business, that’s fine. You just have more information for yourself to work with, which is only a bonus, right?
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They’re also going to want to know, like, what’s your burn rate? How much money are you spending every single month? And they’re going to want to know, like, what are the core operating expenses?
What does it actually cost to run this business versus what are all of those other business expenses that you have that are true business expenses, but it’s not like a core operating cost.
And so I was talking to somebody who had sold their business and they really pulled apart things like. Uh, travel to a conference, right? Like that’s a business expense for sure. For you as a business owner, but that’s not like a core operating activity.
Like if a big company comes in and acquires you, like, they’re not going to have that specific travel to that conference, right? As an expense. And so being able to somehow pull those apart.
And so maybe it’s separate line items in your chart of accounts, so you can really see. Like, what is a core business operating expense versus some of these other expenses. That, yeah, they’re expenses, but a company who would potentially be purchasing your company would not need to incur those expenses.
And so I think that number is really important because that is going to impact your EBITDA, right? Your earnings before. Interests appreciation, blah, blah, blah.
It’s going to impact that number because when you pull out some of those expenses, your earnings, your profit basically is going to, it’s going to be higher. So that’s something to think about as well.
They’re also going to want to look at your cash flow. So what does your cash position look like? Are you constantly like, you know, squeaking by on, you know, on fumes going into payroll? Or do you have a healthy cash reserve? What does your cash balance look like month to month?
Is it like a rollercoaster where you’ve got, you know, a whole bunch of money in the bank and then it drains out and they’ve got nothing. Or is it more consistent, right?
They’re going to want to look at that and really understand, um, what the flow of cash looks like. Because if they’re taking on your business, they’re going to be taking on that cash flow to a degree. Right? So if you understand it, you can talk about it better and you know, really sell your business too.
Or this is also applicable. And if you’re taking on investment in your business. Um, and so just to be able to talk about your business in a really educated way, really knowing your numbers is super important.
So the other things that they are going to want to know are, are you doing your accounting on a cash basis or an accrual basis? So we’ve recently helped a few clients transition from cash to accrual accounting. That really helps you, uh, be able to look at your profitability on a monthly basis a little bit more clearly.
So that’s something to think about as well. Are you on a cash basis or an accrual basis? And knowing what that is, and being able to talk to it and potentially make a switch if you need to is, is really important.
And just so you remember, cash is basically recording transactions when they hit the bank. So when revenue comes in, hits the bank, that’s when it is recorded as revenue. And when expenses, you know, leave the bank account, that is when they are recorded as expenses.
So accrual is a little bit different. It’s basically when a transaction is incurred, right? So like for us, we invoice our clients on the 15th of the month. And so that is when we record the revenue versus. That’s not actually when we received the money in the bank account, right? Uh, we might receive the money in the bank account like 30 days later, but we’re recording the revenue. Uh, when we actually invoice.
Same thing with expenses, we’re recording the expense when basically like the date of the bill. When we get a bill from a vendor or something, that’s when we’re recording the expense, that’s when the expenses incurred, but we might not pay that. Three more months or three more months, three more weeks.
No, we’re not three months delinquent on our bills. Thank you very much. Um, three more weeks, we might not pay that bill for three more weeks. And so it might not, um, leave the bank account for a couple more weeks. Right? So we’re recording it when the transaction is incurred.
And so that’s an important thing to know, because as you’re doing your financials, they’re gonna wanna know. They’re gonna want to see really what your accounting method is, and you can be able to be able to talk about it.
So if you are thinking about selling your business. I mean, there’s so much more, there is so much more, they’re going to want to know about your team and the contracts that you have with your major vendors. And, um, any contractor is, and any fractional services you have. They’re gonna want to know what your org chart looks like.
And they’re going to want to understand all of your marketing activities, and your return on ad spend. And, oh my gosh! So, so, so, so, so much right.
Think about it. If you were about to drop like seven, eight figures on a new business, you want to know everything. You want to know what you’re getting yourself into, right? So that’s what they’re doing. But making sure that you have a crystal clear look at all of those numbers for yourself is really important. If you’re even considering potentially selling your business in the future.
And again, even if you don’t sell your business, you have now just gained so much more insight into the business that you can use to help you make decisions.
So kind of a win-win situation, but I attended a session at a conference a few weeks ago of a woman that sold her business. Um, I’ve been talking to people, although just sort of in my network, who are considering selling their business.
And there’s just so many conversations being had and so many things to think about and to do that, I thought it would be just kind of useful and interesting to talk about today.
So that’s it! That’s all I’ve got. Like I said, there’s so much more. I am not like a mergers and acquisition specialist by any means. I’ve been part of these conversations and it just emphasized for me the importance of having your numbers, like super tidy. Super organized. Crystal clear, done, you know, updated every single month!
And that’s, you know, that’s exactly what we do for our clients. So shameless plug, if you’re listening to this like, “oh, my gosh, my numbers are a hot mess. I would never be able to even consider selling my business.” Give me a call, my friend! You know, where to find me 100degreesconsulting.com
But you know, I just think this is a useful exercise for anybody, regardless of whether you’re going to sell your business or not. To understand your metrics, understand your profitability and make sure your numbers are super clean and super tidy. Because honestly you never know what opportunity is going to come your way!
So why not be ready? Anyway friends hope this episode was useful as you all know I’m super grateful for you.
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Thanks for listening to the 100 degrees of entrepreneurship podcast. To access our show notes and bonus content, visit 100degreesconsulting.com/podcast. Make sure to snap a screenshot on your phone of this episode and tag me on Instagram @stephanie.skry and I’ll be sure to share thanks for being here friends and I’ll see you next time.