I just sold our business for eleven times profit or 2.5 times revenue. Many in the industry would call this a successful sale. The company is a rental and employment screening company conducting background checks on people.
I get this question often. "How did you capture the full value of the company and/or sell it for those multiples?" I even get that from my private equity friends. Read on for a breakdown on how we did it, and takeaways on how you can, too.
As is the case with many companies, we were trying our best, focusing on satisfying our customers while drinking through a fire-hose. One of the most fortuitous decisions we made was to get organized. Have you heard of EOS (Entrepreneurial Operating System®) or Traction - Get a Grip On Your Business? If you haven't, I strongly suggest checking it out. EOS® Traction is an operating system that businesses immerse themselves in from top-to-bottom (all hands on deck) where five, three and one year goals are established for each member of the team. Performance is measured monthly against key performance indicators (KPI's) that help employees and management stay on track. We wanted to measure revenue for the week against a goal. We wanted to measure customer attrition against a goal. We wanted to measure growth YoY (year over year) against a goal. We wanted to measure weekly/monthly sales against a goal. With Traction, we met weekly to ensure we were moving toward hitting these important KPI's.
The company's' goals are broken down to 90 day "sprints" assigned to employees as"Rocks" (individual goals that need to be attained in the sprint cycle). We hired a professional EOS® implementer who stopped in every 90 days to make sure we were following the program. Traction is an accountability system that manages people's energies. Imagine everything in your business being completed on time! I personally was assigned the important role of "Integrator", making sure everyone stayed on task, was engaged and continued moving forward to solve issues.
Do you think someone buying your company might be impressed that it is running like a well-oiled machine? Do you think they would be willing to pay more for a company that is?
We created a company-wide process for:
1. On-boarding new customers
a.) We dated our customers! We developed formal customer reviews at 90 days and treated them like our significant other, consistently.
2. Selling our services
b.) Rather than selling from the hip we learned about our customers needs by asking questions (being curious and consultative) in order to create solutions that met their needs. Because we developed a process for sales, we were able to scale it.
3. Operations. We had all employees document in detail how they did their job in order to create a playbook for the next employee. This allowed the new owner to grow the business, rather than focus on running it.
We created a continuous improvement program with LEAN principles. I called the process our "5-cent ideas". We encouraged employees to put suggestions about how to improve their work day into an idea box. From this we culled hundreds of suggestions ranging from, "too many steps to complete this task" to "not enough employee engagement". We encouraged participation by scheduling parties and handing out prizes for the best ideas. We also acted on much of the feedback, encouraging more participation. We created a management culture of giving profits back to the employees. If we hit a profit goal a percentage of that would go to them.
I'm personally big on employee engagement because with it, customers will be happier. Take care of your employees, who will take care of your customers and they'll take care of you.
Last, we hired a professional team to guide us to the finish line. The bankers and business brokers we worked with assisted us in creating a powerful presentation of our company and confidentially marketed it to potential buyers. The company presentation, which buyers see only after signing a non disclosure agreement, includes information about your company's leadership team, your WHY for exiting and your company story, supported with data points. If you have a larger business, you'll likely lease a data-room. The data room is a secure place for people to view these important company verifying documents and easy-to-read spreadsheets that highlight your customers and reoccurring monthly revenue.
Your job as an owner/President is to build, and eventually sell, your company. What's your WHY (value proposition first) and then how will you go about doing it? By taking the steps I outlined in this blog, your company will become attractive to outside investors. When we put the company up for sale, we had 13 interested, strategic buyers. Within a week we had 9 competing offers.
If you have questions, please reach out. I'm happy to help!