Part 1 of 3 Part Series: Preparing to Sell your Business 2 to 5 Years from Now

If you plan to retire within the next five years, this series is for you. As a business owner, there are steps you can take now to save you stress, time and money later on. Have you reviewed your exit plan? Is your team as effective and productive as it can be? Have you or your managers documented your operational systems and procedures? Do you know how much your business is worth … now?  Jennifer Martin, owner of Zest Business Consulting, kicks off this three-part series with the kind of information that has made her one of the most sought-after business consultants in America.  

Questions Answered For You

Have some kind of goal in mind of what you would like for yourself personally, and then have the goal for the business itself because the market, depending on your business, there might be a lot of competition.

- Jennifer Martin

Key Takeaways

  • Two to five years out, it's a great time to start creating that road map for ideally what you would want to take place next for sure.
  • The first thing that I recommend people do is always talk to a professional to evaluate your business in today's market. Get a sense of where you sit now, because that can help you fine tune and set your path for some of your goals in the next two to five years. So that's the first thing, get a handle on your value expectation
  • I think the best thing to do is start collecting the data. Again, this is where it might be really helpful to have an unbiased third party give you their professional business valuation or a business analysis
  • There's just a couple of guidelines that I recommend that people adopt. For starters you want to make sure that your systems are so easy to understand that an 8th grader could understand them and perform them, and that's with everything

Read Full Interview


Jeff: Welcome to Deal Talk brought to you by Morgan & Westfield, I'm Jeff Allen. And if you're looking to sell your company now or at some point in the future it's our mission to provide information and advice from our growing list of trusted experts that you and all small business owners can use to help you build your bottom line and improve your company's value.

Here on Deal Talk you've heard us chat before about the importance of having that exit strategy in place early even if you don't plan on selling your business for another 20 or 30 years. It's never too early to have that exit plan. What if you have that strategy or at least a loose plan and you'd like to sell your business and retire two to five years from now, what should you be doing to set yourself up for success? My guest has some really important input we'd like her to share on the subject. Her name is Jennifer Martin. She's a published author, motivational speaker, business consultant, and the founder of Zest Business Consulting. Jennifer Martin, welcome to Deal Talk.

Jennifer: Hi Jeff, I'm really excited to be with you today. Thanks so much for having me.

 

Jeff: We're glad to have you on. And before we get started I kind of gave your name, rank, and serial number Jennifer but maybe you can share a little bit more about what you do. Give us your elevator description of Jennifer Martin and the kinds of things that you do.

Jennifer: Sure. I probably spend 75 percent of my time working one-one-one with small business owners all across the United States. My expertise is in business development and generally they're calling me because they want to grow their business. And sometimes I get calls from people who tell me that they have a plan to sell their business and they want to beef up the numbers now so that they'll look really sexy to potential buyers.

 

Jeff: Great jumping off point. What if someone is starting to think about selling their business down the line and we're going to take that two to five year time frame, which really comes up pretty quick when you think about it. What is the first thing they should do, or certainly what is the first thing they should start thinking about?

Jennifer: Great question, I usually let people know you want to first think from a personal perspective. Give some thoughts to what your goals are personally and what your goals are for the business. I'm always surprised, there’s people been in business for 13 years and they've never stopped to think about what's next. So they had maybe an idea, they want to make $10 million or even a million dollars, and that's the only plan they have, but I let people know the bottom line is if you don't know where you're going how will you know when you get there? And so you want to have a plan for your business and start to take the actions that will get you traction towards whatever that goal is. And I wanted to share today a really quick statistics that I saw on a website called Mergers and Acquisitions Today, and it basically talked about how there's going to be something like 8.1 million baby boomers that are going to be selling their business by 2018.

 I usually let people know you want to first think from a personal perspective. Give some thoughts to what your goals are personally and what your goals are for the business.

Jeff: 8.1 million! 

Jennifer: Holy smokes, right? I know. It's amazing. And then the statistic went on that in the following five-10 years there would probably be an additional eightmillion baby boomer selling their businesses. So if there isn't a better motivator to know that it's good to have a plan, don't just wing it, have some kind of goal in mind of what you would like for yourself personally, and then have the goal for the business itself because the market, depending on your business, there might be a lot of competition. 

 

Jeff: Absolutely. Think about it, 16 million people, and that's over... Did you say that was a five-year span Jennifer?

Jennifer: The statistic, it said 8.1 by 2018, and then it said within a five to ten year range, and this is from 2015. So it would be 2020 to 2025, during that period of time another eight. You have to keep in mind all across the United States there's lots of business owners. But to think that there's 16 million of them that might be selling their business by the time you hit 2020, five years from now, that's enormous.

 

Jeff: Right. Think about it. Really, it is going to be quite the buyer's market. Think of it in terms of the choices and the variety of businesses out there, so for people who are interested in buying a business who are listening to our program, great news. But if you want to sell a business, get in line. It's really going to be one of those things where you want to be up at the front of that line and you want to be up there front and center with your plan ready to go. I guess my question now is, is it important to have an exit plan or a succession plan? What are the difference between those two? And is it really important to have both Jennifer?

Jennifer: Great question. The answer to your question is absofrickinlutely. Yes, yes, yes, yes, absolutely have a plan. Depending on the size of your business you can take different approaches. We could have a whole conversation today about what to do if you're a small business owner versus you're a corporation or something like that. And I'm going to focus on what I'm going to call small business owners so you don't have to worry about distributing shares and things like that. But absolutely having a succession plan or an exit plan both supremely valuable, things to put together, regardless of even when you want to sell the business. If you're not thinking about “It might be 15 years from now and I'm just maybe gathering some information”, that can be your north star. Something bigger than “I just want to make money” or maybe have better ideas of “I want to make an impact on the world”, but it's great to know what's going to happen to your business when it matures. And so you asked about exit plan versus succession plan, and a lot of times people will use those terms interchangeably. 

What I find -- kind of the big fish, how they differentiate them. An exit plan is really going to be what's going to happen for you as the business owner with your business. What's your personal plan to actually move out and that might be to sell the business, it might be to transfer ownership, whatever the case is. Sometimes people close the doors and they're really cool with that and that's certainly possible where they sell a portion of their business and there's a lot of other possibilities. A succession plan will actually deeper that story and so that you're considering into this plan or the strategy: who is going to start taking over for you if you're running and operating your business on a day-to-day basis. I encourage people to think about things from all aspects. What do you want personally? What do you want for the business? How do you want to stay engaged with the business? As the business owner, what are you available for? What kind of economics do you need? Start targeting now who on your team might be a good candidate to either buy your business or start assuming more responsibility. Two to five years out, it's a great time to start creating that road map for ideally what you would want to take place next for sure.

A succession plan will actually deeper that story and so that you're considering into this plan or the strategy

Jeff: There you go. And if you've got an idea for an individual in mind that you are looking at passing the torch along to it doesn't hurt to have maybe a back-up idea too. A lot of companies today have two or three people who have been key in the organizations’ success, who could be standing by with a keen interest on what happens next in your company. So always include more than one individual that you can look to and have that conversation with down the line in case the first person on your list may not have the interest that you hope that they might. So what are the top three things then,Jennifer, that a business owner should put into their exit plan? There are so many things to think about, so many moving parts. We know that. So two to five years from now they're going to make that move. The three things that a business owner should have in that exit plan.

Jennifer: The first one is a really big umbrella and that is money, and like I said it's a big umbrella. You want to think about what your expectations are and that is -- a lot of people who've ran a business for a long period of time they say, "Down the line I'm going to sell it." And in their minds they have an idea about what the value is of that business based on all the time, and money, and love, and energy that they've put into it. And I hate to say it but many times they're so far off the mark that they're working their tushies off and thinking that if I just put in five more years then I can have this golden rainbow and this pot of gold land in my lap, and sometimes that's not the case. The first thing that I recommend people do is always talk to a professional to evaluate your business in today's market. Get a sense of where you sit now, because that can help you fine tune and set your path for some of your goals in the next two to five years. So that's the first thing, get a handle on your value expectation, and make sure that it's not just pie in the sky,it's something realistic.

 

Jeff: Jennifer, let me interject something here. When you say get a handle on your value are you talking about perhaps talking to a business appraiser, or a consultant, or maybe both?

Jennifer: I kind of recommend going absolutely to a business appraiser. However, just because we own businesses it doesn't mean we are experts at figuring out how to get the most out of our businesses. I owned five businesses and probably four of them until I figured out that magic and I sold them. But I realized in hindsight had I learned what I learned through the first three experiences I probably could've made more money. It wasn't a question of leaving a lot of money in the table it was a question of optimizing my time. So absolutely at the two to five year mark you have decided that you are going to sell your business, make sure that what your vision and your hope for what you'll get out monetarily is in alignment with what might be the reality. And if it's not then that is exactly the time when you might want to actually talk to a business consultant or a business coach about here's my goal and this is what the business analysis says that my business might be worth in today's market. And is there some way that I can talk to somebody about growing, or fine tuning, or doing whatever you need to keep more of the money that you make and have it look really great on paper. So that when you get to the sales point you'll get your money out of it. So absolutely. And again, there's so much more under money. The other thing is that a two to five year point you might want to, depending on if you're... 

Let's talk the flip side of the coin. Let's say your business is actually worth a lot and everybody wants that. From a tax standpoint, and again, talk to your accountants about this. I'm not an accountant so I don't give official information. But I always let people know there's a chance if you are really expecting that gigantic check at closing, now is the time that you might want to start paying yourself greater salary, your bonuses. You might want to actually start paying off your remaining debt and things like that. Again, this is an accountant conversation. But if you do expect to get a windfall at your sale it might be more advantageous for you to start paying yourself now at your regular tax rate than wait for a gigantic sum of money down the line.

Those are the two biggies around money. The other one I encourage people to think about is your legacy. What would you like to leave behind for your efforts. Now is exactly the time to think about have you personally achieved all your goals. Is there some lasting imprint that you'd like to make from your industry or from your business. And then the last thing is just what would you like to happen with your business ideally? Now is exactly the time to think about it. Do you want to sell it? Do you want to transfer it to a relative or a friend? Do you want to have an IPO? Do you want to close the doors? Have some clarity about what it is that you're really looking for, because again, no different than growing your business, now you're moving towards a goal. And as soon as you can figure out what that is you can create the road map to get there.

make sure that what your vision and your hope for what you'll get out monetarily is in alignment with what might be the reality

Jeff: So Jennifer, now then we've kind of come to a point where maybe we've decided, this is the time, or I'm absolutely committed to doing this. I want to sell my business. Maybe it's two years away, three years away. What can I start doing now to move toward that?

Jennifer: I think the best thing to do is start collecting the data. Again, this is where it might be really helpful to have an unbiased third party give you their professional business valuation or a business analysis. You want to make sure that unless you've done this several times before that you're not just relying on your gut instincts to tell you what the true facts are. That's where I'd have people start. The next thing is you want to make sure that your vision for what you want to walk away with is financially congruent with what might be possible. And then the third thing is really that you want to show, if you want to sell your business it's going to have to look pretty sexy. So you're going to want to show consistent, strong net revenues. Better than that, if you can actually show that your net revenues or income is on the rise and expected to continue to grow, even better. So keeping in mind those statistics that we talked about earlier, we're even going into selling the business you might be in a competitive market. So sorry baby boomers but you might just have to work a little bit harder than the generation before you when they went to go sell their business. But even entering into the market to sell, you want to be absolutely certain, no different than you're running your business now, that you are offering your business in a way that's competitive.

 

Jeff: So you want to sell your business in two to five years, what to do? Business consultant Jennifer Martin will share more of her ideas and insight when Deal Talk returns after this.


Experienced. Focused. Trusted. That’s Morgan & Westfield -- specializing in the sale, acquisition and valuation of privately owned businesses generating between one and $50 million in annual revenue.  Morgan & Westfield will use its vast network to leverage buyer databases, industry specific knowledge and administrative support of our system. Our multi-disciplinary approach engages financial, legal and regulatory specialists to suit your needs, while maintaining strict professional confidentiality.  And while we are highly process-driven, we’re also flexible because no two clients or transactions are exactly alike.  You’ll receive uncompromising, world class service dedicated to getting you top dollar for your business.  If you’re interested in selling your company or getting your business appraised, contact Morgan & Westfield for a free consultation: 888-693-7834--888-693-7834, or visitmorganandwestfield.com.


Jeff: Welcome back to Deal Talk, I’m Jeff Allen with my guest Jennifer Martin, author, speaker, and founder of Zest Business Consulting. I should probably point out Jennifer, we didn't touch on this before, this is really the first part of a three-part series. We're going to have Jennifer back on again talking about this and some other related subject material regarding exit strategy, selling your business. And we're going to do that in the segments to follow so we're glad that you tuned in today. Jennifer, I'm getting a lot out of this conversation. We've talked a lot about the money part of it so far and planning, setting yourself up for success, knowing that you're going to be selling your business, for example in this conversation two to five years out. That said, what else can a business owner do aside from the money stuff to set themselves up for success?

Jennifer: Thank you Jeff. I usually ask people to put that business owner capreally firmly on and start giving a lot of in-depth thought to your operation as a whole, and to the strategy, the structure, and all the people involved. Right now two to five years out you want to make sure that every person on the bus is sitting in the right seat. That your staff is doing the job that takes advantage of their skill base, their talent, their interests, passion, and so forth. And start thinking now, I sometimes recommend that people will think about the possibility of creating an organizational chart that would be ideal to then hand off to somebody. Of course, the next owner of the business may not want to keep everybody on staff. But if you can establish that your business is like a well-oiled machine, most likely a new business owner will see the value in that. And so you want to, again, focus on strategy, structure, people. See if there's anybody in your staff who might be able to take on additional responsibility. Start training them now to take on maybe even some of what the business’ owner is doing. So this is a big heads up: if you aren't really awesome at delegating, now is the time to start thinking about you as an owner, what you're doing, how you're participating, and what you can start training people, or even hiring and training people to start taking over. 

Start documenting your systems. Now is the time, if you haven't done it already to start thinking like McDonald's. Know how everything works. Make sure you can train every person at your business to do their work, and that they can train the next person because right now you want to start creating these full-proof, duplicable systems that consistently deliver the results you want. From the way you answer your telephone to what your sales staff says to prospective client. Right now start creating and documenting your systems.

I sometimes recommend that people will think about the possibility of creating an organizational chart that would be ideal to then hand off to somebody. Of course, the next owner of the business may not want to keep everybody on staff. But if you can establish that your business is like a well-oiled machine, most likely a new business owner will see the value in that.

Jeff: Think about it. You leave a position, maybe this is before you owned a business, and you had a vital role with a company, and then someone comes on, maybe someone that you worked with at your old job, worked beneath you, or someone came in from another department to take over your position, and what did you do before you left? You left them your telephone number, if they had any questions whatsoever to help them do your job after you left, they could give you a call. And then for two or three years after you left they're still calling you about things that only you knew about. So consider the importance I think Jennifer, correct me if I'm wrong, making sure that everybody on board, at your company, at your organization knows their jobs and knows how to perhaps operate in other positions or other areas of the business so that they really, truly do know every aspect of how the operation works, so that way you're not getting those calls two, three, four years down the line from people. "Hey Tom, or Hey Sarah, how do you do this?" Very, very important, I think it's vital. You talked about documenting a system. Do you have any guidance that you can provide us with Jennifer to help make this easier for folks who maybe haven't done this sort of thing before?

Jennifer: Of course. I could teach a whole class on system design and documentation but it doesn't have to be difficult. There's just a couple of guidelines that I recommend that people adopt. For starters you want to make sure that your systems are so easy to understand that an 8th grader could understand them and perform them, and that's with everything. You don't have to document how to make coffee here. I think that most adults should be able to figure that out unless your coffee machine's supremely difficult. But let's say it's shipping, how we distribute or ship something, or pull something from the warehouse or whatever the case is. Whatever you can do to break that down and appeal to the learner's senses. So by that I mean you want to capture your information in a variety of different ways. 

And so what I suggest for busy business owners for starters is that you have the person who's doing the work, start by writing down the step by step of what they do. Then they should collect samples showing the right way and the wrong way to do it. So let's say in your accounts receivable department you have a system for offering terms to your customers where they pay overtime. And there's a way that you process payment. What I would have your people do is say, "First, we send out an application. We have to make sure that it's completely filled out. And then we double check with the banks and then we pull a credit report" whatever those steps are. So you have the person who's actually doing the work, document it, write it down, collect any samples. And if you need to on that form, let's say somebody's applying for credit, you'll say even though it says name you'll say full name including middle name because maybe you're checking credit or something like that. So you might have a charted list. 

The second thing that I do, again, we want to appeal to people's sense, so you want them to be able to read it. You want them to be able to see it if they can, and youwant them to be able to hear it and try it. And hearing it and trying it, now I see, we've got smartphones most of us or something like... 50percentof all people have a smartphone now. Most smartphones have a little video camera. So it doesn't have to be super sophisticated. Let's say I wanted to create a system to show how to package and mail my products out of the mail room. I could actually take a little video, and just talk along, and say, "The first thing you need to do is weigh the item. Here's where you do it. Make sure you calibrate." I can talk through the whole thing. And then I can just save that video someplace as a training video number one for the mail room. The more ways that you can document your system, again, the easier it's going to be for anybody coming in to understand it. And whatever you can do to just support somebody coming in is going to be helpful. So that's the easiest place is where I say use an audio recorder, a video, even if it's on your phone, it doesn't have to be sophisticated. Write it down. Create little charts of boxes. “Go to step onethen step two. But you can't go to step fourwithout doing step three." You want to chart it out so that visually people can see it and then they can hear it, and get a lot of exposure.

 

Jeff: Great idea. A lot of people are visual learners. My wife and I talk about that stuff all the time. I kind of said, "No, you give me a good set of instructions, I'm good with it." But then at the end of the day, really that video helps, it's huge. And this is the era of video. When you've got a smartphone or a portable device of any other kind you can take with your mobile device as we call them of course. You can view that at any time. It doesn't matter on your lunch break or wherever you might be. So really important advice I think Jennifer. Thanks for sharing that. Anything else that someone who they said, "No, I love this. I'm young, I'm going to live forever. I have no plans of selling my business now. Yes, I've got my exit strategy in place. I'm not thinking about selling my business right now." Anything that people can do in that regard Jennifer?

Jennifer: I think that it's never too early to do a few things. One is use a professional accounting software so that you can easily run profit and loss reports and other reports. You'd be surprised at the number of business owners that I come in contact with in business years, and years, and years, and I ask them "How do you know what your cash position is?" They say, "I can look at bank statements." If you're thinking about selling I don't even care if you are collective of three massage therapists, start using a professional accounting software like QuickBooks. It doesn't have to be QuickBooks but QuickBooks is the most well-used, and start documenting your money coming in and your money coming out because when you go to sell you're going to want to provide that information to your prospective buyer. On a personal front it's not too early to talk to a financial planner. Make sure that economically you are where you want to be and have a clear picture of what your own future is. Especially in a competitive market that will help you plan and get a true sense of where you might need to be and what adjustments you need to make. 

I had one client who owned a workout gym, and because of his profit margins and what he felt that the potential was for his business, he actually decided not to wait five years and to sell now while he was at the top of his game. Because he felt that based on some market research that he could get more money for his business now and continue to go open another business rather than think about retiring in five to ten years with his gym. He has a cross-fit studio. I think having that information now can help you make a really educated decision. And then also you want to start thinking about are there any adjustments that you might need to be making now to your sales and marketing so you can continue to grow. Are there any obstacles to making your business really look interesting? 

One thing that most people don't realize is that some things that give your business more sellability. Two things that I'll probably note now. One, a big red flag is if you as the business owner are performing the majority of the work. If you're trying to sell your business but you have all the information, or people are only coming to you because they want to work with you, it's going to be hard for somebody to step in and expect to receive the same clients and the same revenues, if what your clients are buying is you. Two to five years out is the perfect time to start diversifying, start handing some of your clients off to other associates that you work with. Start training them to be able to rely and trust other people at your business, so that when you go five years from now to sell it you don't have to stay engaged in order to guarantee a lot of that revenue. 

And then the other thing is think about do you have a couple of big whale clients that actually make up the majority share of your profits or your income. Now is the time to diversify. What happens if you lose one or two of those biggiesand all of a sudden 40, 50 percentof your revenue goes away. Your business is not going to be worth as much. Those are two areas that I would recommend people really digging in now is as the business owner start phasing yourself out early on, it doesn't mean today. It doesn't mean you have to handle over everything to somebody else tomorrow, but start thinking about a plan to do that and then the same thing for making sure that you've got a diverse clientele. So that if you lose one big client it's not going to dramatically impact your end game. 

One thing that most people don't realize is that some things that give your business more sellability. Two things that I'll probably note now. One, a big red flag is if you as the business owner are performing the majority of the work.

Jeff: Jennifer, as we wind down the first part of this three-part series discussion that we're having with you on preparing to sell your business and the exit strategy two to five years out in today's particular case. This has been a great conversation. I understand that you have a special offer you'd like to extend to our Deal Talk listeners. If you could tell us a little about that we'd appreciate it, we’d love to hear it.

Jennifer: Absolutely. I can say as a five-time business owner myself, even though I thought I had an awful lot of information sometimes it was really helpful for me to seek outside expertise even just for brainstorming. I have an offer for your clients for just $195 I will have a two-hour new-client special with them. So that if they aren't sure what to do next, they don't know where to dig in, they just have three simple questions, whatever the case. They want to do some brainstorming or talk to an expert, through the end of 2015 I will offer them for $195 a two-hour opportunity to speak with an expert who can provide some insight. 

 

Jeff: And if they'd like to take advantage of that offer Jennifer how can they reach you?

Jennifer: If you're in the US or you want to call the US the best thing to do is either reach out by phone or email. Email, you can get me at success@zestbusinessconsulting.com, or you're welcome to call direct. The number is 805-669-7160, or you can reach out to us on social media.

 even though I thought I had an awful lot of information sometimes it was really helpful for me to seek outside expertise even just for brainstorming

Jeff: Excellent. Jennifer Martin this has been a great first discussion and I've really learned a lot. I hope that our listeners have too. I'm sure that they have in fact, and thank you so much for agreeing to join us today on Deal Talk. We're looking forward to the next two programs.

Jennifer: Thank you Jeff. I had a lot of fun today. Thank you.

 

Jeff: Jennifer Martin founder of Zest Business Consulting has been my guest today. I hope that you enjoyed the show. 

Deal Talk is presented by Morgan & Westfield, a nationwide leader in business sales and appraisals. If you're thinking about selling a business or buying one call Morgan & Westfield at 888-693-7834 or visit morganandwestfield.com. And for more valuable information and insight from our growing list of small business experts, and it's getting huge and bigger by the day, this list of experts we have, make sure to join us again here on Deal Talk. I'm Jeff Allen. Thanks again for listening. We'll talk again soon.

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