SELLING A BUSINESS

What's Your Number?

Writing down how much you would sell your business for can help keep you focused and motivated, advises Built to Sell author John Warrillow.
Advertisement

Most business owners I know have one. It's not something you talk about in polite company. Your spouse may not even know what it is. Your number is the price you would accept if someone walked into your company tomorrow wanting to buy it.

Whatever your number is, my advice is to write it down now and stand by it. Many of us start out in business with a number, and then the chaos of running a company somehow takes over. We become reactionary and addicted to the thrill of creating one new product, finding one new customer, solving one more problem, hiring one new employee. Your number starts to fade into the background.

If you're lucky, your business grows into a sellable company, but if you don't have a number written down, inflation starts to set it. What seemed like a dream number when you started becomes more realistic as your business expands, and the temptation is to move to an ever-bigger number.

Then you're on the hamster wheel, and you forget why you got into business for yourself in the first place. Most of us start companies because we want to achieve something remarkable or out of a deeply rooted need for independence. In the absence of an objective measurement for 'remarkable' or 'independence,' your number can act as a marker to let you know when you've crossed whatever finish line you're striving for.

I was lucky because I met with a group of 40 or so entrepreneurs once a quarter as part of a program called the Strategic Coach. Each meeting included a formal review of our goals. I would look at my number and ask myself a series of questions:

1. Where do you stand right now?

Is my business more valuable than it was last quarter? Last year? Personally, I found things didn't change much from quarter to quarter, but it was motivating for me to see the progress over a series of years.

To value my business, I estimated our earnings before interest, taxes, depreciation and amortization (EBITDA) and used the multiple businesses like mine were selling for. I recently wrote about how hard it is to find a reliable multiple to use to value a company, so people tend to settle for a guesstimate.  The multiple is somewhat less important than the process of thinking through what your business is worth and being clear about the progress you're making from one quarter or year to the next.

2. What do you have to do in the next 90 days, and over the next year, to make your business more valuable?

This question helped me prioritize important but not necessarily urgent initiatives (thank you, Stephen Covey). If you start each quarter saying, 'What will make my business more valuable?' you may find yourself prioritizing important tasks that would not have necessarily made the cut if your goal was simply to sell more or make more profit. Sales goals are good, but forcing yourself to think about what will make your business more valuable is a slight twist and requires a more nuanced answer. For example, you could ensure your customer contracts are set up to "survive" a change in ownership of your business. Another idea would be to upgrade your website, since it is likely to be among the first impressions potential acquirers get of your company. 

3. What experiences do you want to enjoy after you sell?

I found it motivating to write down experiences I would like to have—rather than material things I would like to buy.  My list of experiences included things like these:

  • Live in another country
  • Save a life
  • Spend a winter in a mountain town and snowboard every day of the season
  • Renew my wedding vows
  • Start a foundation to lend money to entrepreneurs in the developing world
  • Take my kids to every continent in the world
  • Watch the Tour de France from the summit of Alpe d'Huez
  • Write a New York Times bestseller
  • Qualify for the Hawaii Ironman

Each quarter, I would imagine these experiences in as much detail as I could muster. I would refine the wording and occasionally add to what is essentially my bucket list. Writing down the experiences I wanted to have after I sold my business forced me to disrupt the inertia I felt pushing me to grow my business at all costs without thinking about why.

And it all starts with a number. Have you written yours down yet?

John Warrillow is a writer, speaker, and angel investor in a number of start-up companies. He writes a blog about building a sellable company at www.BuiltToSell.com/blog.

Last updated: Nov 3, 2010

JOHN WARRILLOW | Columnist | Sellability

John Warrillow is the author of Built to Sell: Creating a Business That Can Thrive Without You and the founder of The Sellability Score, a cloud-based software company that helps business owners improve the value of their company.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: