A client recently asked: 

“Craig, I would like to sell my business… any advice on how to price it?”

My Answer:

In most of the private deals that I have done....

We aim for a sale price of 3-4 times net operating income (NOI) over the average of the last 3 years.

(That means that if the business "stayed the same" it would take the buyer about 3-4 years to earn back what was paid for it.)

In a simple business like coaching...

NOI = Revenue - Expenses 

If your business had gross revenues of…

$150,000 in 2022

$200,000 in 2023

$250,000 in 2024

And your expenses for delivering your product or service were just 50,000 every year...

Then NOI would be: 

$100,000 in 2022

$150,000 in 2023

$200,000 in 2024

That means the average NOI over the last 3 years is $150K

Next, using the above 3-4x NOI formula to calculate sale price…

You'd ask 450-600K for your business.

Unfortunately for a lot of business owners…

It can often be difficult to find potential buyers who are able to come up with that amount of cash upon purchase.

Fortunately, the payment terms can also be a lump sum down… 

And then subsequent payments scheduled out over time.

For example…

I am part of an ownership group that recently sold a business for 5 million.

We got paid 2 million up front… 

And another 3 million in payments over the following 24 months.

Of course…

You want the payout as quickly as possible.

Especially with changing market conditions or any other trends that might affect your industry.

So you always want to construct the payment terms to be as favorable as possible.

Anyway…

Probably the MOST important thing if you ever want to sell your business…

Is to have a real business to sell in the first place.

Meaning it needs established systems, processes, trained employees, and reliable cashflow… 

Profitability CANNOT be solely dependent on you (or your prospective buyer once they take over).

People want to buy businesses.

NOBODY wants to buy a job.

And if your business can’t run smoothly and generate sales without you?

A job is all you’ve got (even if it’s a high paying one).

Conveniently…

The same systems and automated processes we help our clients install to give them more freedom and scale faster while working less…

Also make their business easier to sell if a future exit is something they’re thinking about.

Plus they’re much more likely to be able to sell for a higher multiple.

In fact, the tighter your business runs and the more systemized it is — the more a buyer will typically be willing to pay.

Especially if the acquisition involves things like:

- Intellectual Property

- “Trade secrets” around customer acquisition, sales, etc.

- Benefits to the buyer (perhaps they are rolling up a group of similar businesses for a larger sale)  

For example, in the $5 million sale I just described above… 

We got more than 3-4x’s NOI because the business includes several industry patents that will greatly benefit the acquiring company in the future.

Bottom line is:

If you’d like a big money exit in the future…

Then you MUST install systems, operating procedures, and the right people for your business to run like the kind of well-oiled machine someone will actually want to buy.

The immediate benefit is more income and free time for you NOW…

And the future benefit is more cash in your — or your childrens’ / beneficiaries’ — bank accounts whenever you or they decide to exit the company.

Success Loves Speed,

Craig

PS - If you’d like our 1-on-1 guidance implementing simple systems & processes that reliably scale your business WITH OR WITHOUT YOU there...

... Just REPLY to this email with the words “FREEDOM BIZ” and we'll set up a time to chat with you to find out if and how we can help.

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