Why Your Business Will Sell.

Five practical reasons your small business will sell and how to intentionally build long-term exit value.

Most business owners say they want to sell one day but very few actually build a business someone would want to buy.

In this episode, Henry Lopez outlines five practical reasons your business will sell and the disciplines required to build exit readiness long before you’re ready to exit. A sellable business isn’t created at the moment you decide to sell – it’s built over years through intentional design.

Henry shares the five core elements that dramatically increase sellability:

1. A scalable, repeatable offer
2. Predictable and recurring revenue
3. Documented systems
4. Owner independence
5. A credible growth story

Free Scorecard: Business Sellability Scorecard

Referencing ideas from Built to Sell by John Warrillow, Henry reinforces the principle that “a sellable business is a productized business” – one with clearly defined and standardized offerings instead of highly customized one-off projects.

Whether you plan to sell or not, building a sellable business creates greater freedom, stronger profitability, and more control over your future.

Why Your Business Will Sell – FAQ:

Question: What makes a small business sellable?
Answer: A sellable business typically has a repeatable offer, recurring revenue, documented systems, owner independence, and a clear growth opportunity.

Question: Why don’t most small businesses sell?
Answer: Many fail to sell because they lack systems, recurring revenue, and transferable value – making them too dependent on the owner.

Henry Lopez  00:12

Welcome to the how of business podcast. This is Henry Lopez. Most business owners say they want the option to sell one day to sell their business, but very few actually build a business that someone would want to buy. On this episode, I’m going to walk through five practical reasons your business will sell and what you need to build to have that exit option. You can find all of the how a business resources, including the show notes page for this episode, and learn more about my one on one and group coaching programs at the how a business comm. I also invite you to join the how a business community on Patreon, and please subscribe wherever you might be listening so you don’t miss any new episodes. So the question is, will it sell? Can you eventually actually exit your business by selling it? Many business owners say they want to sell one day, but the reality is that very few ever do, because their businesses end up not being very attractive to any real potential buyers. And so it’s all about exit readiness as a business discipline the way that you go about growing and building your business. And it’s not about selling tomorrow, especially if you haven’t gotten your business ready. It’s about building that option in as you grow your business. You know, one of my favorite books on this topic is built to sell by John Warrilow and I had the benefit of having him on the show back on episode 349, but what John Warlow argues is that a sellable business is a productized business, meaning your core service or offering is clearly defined, standardized and delivered the same way every time. We’re pretty close to the same way every time, rather than reinvented for each client, or highly customized for each client. Now, again, it’s not that there’s anything wrong with those types of businesses if it doesn’t meet that criteria. We’re talking about what’s most sellable here for a typical small business. And so to summarize here and introduce the topic, the five reasons your business will sell are you have a repeatable offer, you have recurring revenue, you have documented systems, you have some level of owner independence, the more the better. And you have a growth story, an opportunity for the potential buyer to see how they can take your business to the next level. Those are the five reasons that your business will sell or has the higher probability of selling? Are there other reasons? Of course, there are, but for the purposes of this episode, I’m going to focus on those five. So before we get into more detail on those five reasons why your business will sell, let’s talk about why selling must be intentional. Most businesses fail to sell, to exit through a sale, because they haven’t prepared for it properly, partly, again, because they have no systems and no transferable value, at least not enough for someone to pay anywhere near what your business should be worth or to make it worthwhile for you to sell it. Again, referring to Episode 349, where I chatted with John Warlow. He says, quote, The Best Companies are built to thrive without the owner. End, quote. Now the reality is, in my experience, is that for most of us as very small business owners, that’s a hard thing to ultimately achieve, to have a business that is completely independent from us, but we can get pretty darn close. We can get to a point where we’re not working in the business every day, where the business can function, even if we’re not there for a period of time, where we have built the systems and empowered the people on our teams that will be able to operate it even when we’re not there. Of course, this doesn’t apply to a solopreneur type of business or a solo practitioner. We’re talking about here businesses that can scale by bringing in other people to help you execute, without you having to do everything, or without you having to do most of what is involved with delivering the product or service that you offer. This is Henry Lopez briefly pausing this episode to share exciting news about business bookkeeping. Yes, bookkeeping, it can be exciting, especially when it’s accurate and timely and you don’t have to do it. I’m excited to announce that I’ve launched the how of business bookkeeping, a technology driven essential bookkeeping service for small business owners like you and I’m accepting a limited number of clients in our early access program. Let me ask you this, do you have accurate and timely financials to measure the performance of your business and help you make critical decisions if you’re behind on your books, or tired of doing it yourself or frustrated with your current bookkeeper, then I invite you to consider my new bookkeeping service, the how of business bookkeeping. The service includes your QuickBooks, online subscription monthly account and credit card reconciliations, accurate financial reports, a KPI dashboard and professional bookkeeping support so you always know where your business stands and you can make decisions with confidence. All of our bookkeeping work is performed by US based QuickBooks, certified bookkeepers, ensuring your books are handled accurately and professionally. And it’s all brought to you by my company, the how a business a name you can trust to help you run and grow your small business. And right now, I’m waiving the 99 Onboarding fee for new clients so to learn more or to schedule a free consultation, just visit the how a business Comm, look for the bookkeeping service link on the homepage or on the menu. Take that first step today, and finally, get the timely and accurate bookkeeping you need to help you grow your small business. Visit the how a business Comm, to learn more.

Henry Lopez  05:25

So let me share some further thoughts for each of these five reasons why your business will sell. Reason number one is you have a scalable, repeatable offer. By repeatable, we mean something that is your core offering, a product, a service, combination that you deliver through a process. It’s a repeatable process. It’s not only you that can deliver it or that can sell it or deliver it, others can do so. You have consistent margins on this. It’s not variable to a big degree. The pricing logic is consistent, and so it’s something that others can sell, others on your team can sell. You can repeat the sales process, and it doesn’t have to be you highly configuring it or building it, or the only one that can sell it. John Warlow, again, says, quote, if every project is custom, you don’t own a business. You own a job. End, quote, so again, if you’re in the type of business, let’s say you’re doing consulting as a solopreneur, and every project is customized. It’s not that that’s a bad business. It’s just going to be hard, if not impossible, to sell that business because it’s so highly customized and so dependent on you. So for example, let’s say a bookkeeping firm has three fixed packages, an introductory package, a kind of middle of the road, and a higher end package for small businesses that need more bookkeeping work. What a business like that can do, ideally and should do, is standardize the onboarding, standardize how bookkeeping is conducted, standardize the reporting, standardize the pricing. It’s not the owner who’s the only one that can do the work or sell it or onboard someone or provide the bookkeeping, and so that’s a business that’s repeatable, that someone else following your system, your recipe, can also execute. At the other end of the spectrum is, as I mentioned, something like a consulting firm, where perhaps every proposal is different. The scope always changes and is specific. There’s no standard deliverable. It gets highly customized, or completely customized for each client. It’s gonna be really hard to sell that type of business, because the prospective buyer cannot see, understandably, how they can repeat that, how they can scale that. So complexity usually makes it harder to sell a small business. So the takeaway here, on reason number one that you will sell your business, which is you have a scalable and repeatable offer, is to ask yourself this, could someone else sell and deliver this exact offer without having to redesign it, that buyer of your business? Can they take your recipe, how you do it, how you sell your product or service, and can they just continue to execute and have an opportunity to scale it, maybe enhance it, but to be able to take what you’re doing and continue delivering it. Reason number two, revenue is predictable and recurring in your small business. If you get to a point where your revenue is predictable and recurring, that’s reason number two, why your business will sell now, repeatable does not necessarily equal recurring. Repeatable means Can They Sell the same offer again? Recurring has to do with revenue that continues automatically, subscription type revenue. So for example, let’s say a web designer, just, just an example, a web designer has repeatable business. They can build a website the same way, the same approach, but once they build it, they’re done. They’ve billed the client, they’ve collected their money, and they’re on to seeking and serving the next client. There’s no recurring component, except if maybe that business also offers something that is a subscription, like ongoing SEO work or support or social media marketing. So they expand beyond just building a website to other services that do provide an opportunity for recurring revenue. Another example a residential HVAC company, let’s say that has annual maintenance plans well now that component is recurring and predictable, and that is very valuable to a potential buyer. So not only does this HVAC company do installs and one off service calls, but they’re also selling annual maintenance plans that provides that recurring and predictable revenue that makes up Reason number two why your business will sell. Buyers pay premiums for predictability of revenue for reason number two why your business will sell revenue is predictable and recurring. I want you to think about how much of your revenue is contracted, subscribed or retained or repeated, monthly or whatever period of time that is now, not all business models lend themselves to repeatable revenue. So if you don’t have that, that doesn’t mean your business is not sellable, but this is if you do have it, or if you can add it, it’s one of the reasons you’re busy. Business will sell. Reason number three, your business will sell is you’ve systematized your business. You’ve developed and documented system. This is fundamental, and I’ve been talking about this forever, since day one on my podcast, how critical it is to develop systems. Buyers are not going to pay for information that is in a bunch of people’s heads, or maybe in your head, or your key star employee, because when they walk out the door, there goes that knowledge. It hasn’t been institutionalized. And so anything that’s an informal process, or if a buyer hears, well, this, this process is so complex, only David can do it, that’s a red flag. That’s a problem, and it’s something you should look for. It goes back to the only reason that would be a valid answer is you have such a highly engineered solution that that’s the only way to do it. And even then, I would challenge you that as unique as you might think your process is, there is lots of it that can be documented so buyers want understandably transferable operations, written playbooks and manuals and instructions and checklists, measurable controls. How do they measure productivity? How do they measure success? And those are key things to a business. I’ll give you an example, a business that I bought and then sold six years later. When we bought that business, there were very little systems in place. Over the course of the first few years of operating that business, I developed comprehensive systems, both for the front desk. There was a front desk position everything that happened and from checklist to open the location to closing it, to everything in between. And I had a back office manual that laid out step by step, everything that had to be performed from a financials perspective and other processing that had to occur on a daily, weekly, monthly, quarterly and annual basis. All of that was documented. And I can tell you from experience that one of the reasons I had multiple offers to buy that business was in part because the systems were so documented, because these buyers saw that they could take over the business and continue operating it the same way. They didn’t have to learn it. They weren’t going to have to try to extract that from my head. It was all documented. It was turnkey, and that added tremendous value to that business. Now, as it relates to systems, I think you start with if you don’t have anything of significance in place, or if you want to validate that you have the right systems in place. There are really three systems that are critical and every business must document. One is your sales and lead system, or leads and sales system. How do customers find and buy from you? Number two is your delivery and operations system. How do you fulfill those orders? How do you deliver the product? How do you install the product or deliver the service. And three is your financial management system. How do you manage the money that flows in and out of the business? Those at a high level are the three most critical systems that every business should have documented. So an action we’ll take away here for you on Reason number three that your business will sell, which is you’ve systematized the business is, if you were to take a vacation or disappear for 30 days from the business, you did not appear at the business. You didn’t check in. Ideally, you tell them ahead of time, but you’re gone for 30 days. What would happen at the business? Would the business continue to operate? Would it still continue to bring in leads and make sales and serve customers and deliver the product and service the product would it continue to collect and pay its bills. If all of those things continue to happen, let’s say at least at 90% rate, then you probably have good systems in place. Now, what you want to validate is that you don’t just have a great manager in place that knows it all that obviously would allow you to step away from the business, but doesn’t solve this issue, or doesn’t address this point of having systems in place. Reason number four that your business will sell. The business doesn’t depend on you, so owner dependence, if the business depends on you, that’s a value killer buyers are going to see that. Or most buyers that are willing to pay a premium are not going to give you that premium if they very quickly discern that the business is based on you. You’re the one that brings in the money, or you’re the only one that can deliver the product or the service or everything has to go through you. No one is empowered or trained or capable of making decisions or making anything happen. You have the secret recipe in your head that’s a business that’s entirely or very heavily dependent on its owner or maybe a key employee or two, and that will kill the ability to sell your business. Going back to John Warlow, here’s a quote related to this. Quote, the moment the buyer realizes you are you are the business, the multiple collapses end quote, and by multiple meaning, what you’re going to get paid as a multiple of your profits, one of the typical ways, simplest ways, that a small business is valued. So what does it look like if you do have independence, if you’re not in the business day to day, or you have management layers, you have a team in place. You have a leadership team in place. You consistently delegate authority. You empower that team to make things. Happened to make decisions, to make the company run. Your client relationships are owned by the company, or teams on your company, or someone in your company, not you, and you’ve trained, at least to some level, a successor or someone that can operate the business if you’re gone, let’s say, for a month, if you were gone from the business, have you empowered a team that can run the business for some period of time without you at all. Reason number five that your business will sell is you can tell a credible story about growth, you can share with your buyers, and they can see how they can continue to grow or scale the business. Buyers are buying the future. That’s why they’re paying you a premium, ideally a multiple. They’re not buying the past, although the past is important, because it is, of course, the only true indicator financially that we have of what’s going to happen in the future. But strong growth stories, meaning from the buyer’s perspective, include that they can see, or you can help them see expanded market opportunities, untapped channels, where there might be some pricing leverage, either from the sell side or the buy side, and capacity to scale. They’ve got to see where they can now take this business to the next level. They can take what you’ve built and scale it. So now let me share with you a simple scorecard to assess where you’re at right now based on these five reasons your business will sell, and if you’re not where you can write this down, don’t worry. Just listen through and kind of keep this in your mind. And then you can always go to the show notes page for this episode at the Howard business Comm, and I’ll have the scorecard there. So as I walk through these five reasons why your business will sell, I want you to rate yourself or self score on a scale of one to five. One being not good, five being very good. So the first one is a repeatable offer. You have something that is repeatable, not just a highly customized one off every time you sell something number two recurring revenue. So in addition to what you might sell, that’s a one time thing, you also have something that you sell that is recurring revenue of some sort, a subscription, or some other type of ongoing revenue that’s predictable. Reason. Number three is documented systems. This is a critical one. Five means you’ve got comprehensive systems. Number four reason why your business will sell owner independence. So a one means the business is highly dependent on you. You’re still involved day to day in the business. You’re still making the bulk, if not all, of the key decisions. A five means you could step away for 30 days, and you have people in place to make decisions. Number five reason why your business will sell. They see where they can take the business next. They see how they can scale the business. So a five is that there’s a clear opportunity on how they can take the business and therefore why they would pay a premium. Those are the five categories. Score yourself. If you’ve got 20 points plus, and the maximum total would be 25 five times five. If you’ve got 20 plus, I would say you’re pretty darn exit ready. 15 to 19, you’re kind of still working on it. You’re building and under 15, then maybe what you have is a job disguised as a business. Got a lot of work to do if you’re really going to have an opportunity to sell your business. So I’ll wrap it up here. The point I want you to take away is that a sellable business isn’t built at the moment you’re ready to exit. It’s built years in advance through repeatable offers, predictable revenue, strong systems and a level of owner independence, even if you never plan to sell. Building a scalable business gives you more freedom, stronger profits and far more control over your future. This is Henry Lopez, and thanks for joining me on this episode of The how of business. I wish you the best as you start and grow your successful and profitable small business and hopefully be able to sell your business at some point in the future, if you desire to do so, I release new episodes every Monday morning, and you can find the show anywhere you listen to podcasts, including the how of business, YouTube channel and at my website, the how of business.com thanks for listening.