SALEABLE BUSINESS…DO YOU HAVE ONE?

If you’re like the majority of hardworking small business owners, you don’t have time to buy your wife a birthday present, let alone think about checking your business value to see if you have a saleable business, one that’s attractive to prospective buyers.

Procrastinating – Do I have a Saleable Business?

How many times have you said to yourself, I’ve got to find out if I have a saleable business if I’m to retire when I want to. But when you’re in operational mode there’s simply too little time to check the value. You always seem to be running in all directions at once, just to keep your head above water…so you procrastinate.

But people procrastinate for different reasons. Dr. Joseph Ferrari, associate professor of psychology at De Paul University in Chicago and Dr. Timothy Pychyl, associate professor of psychology at Carleton University in Ottawa, Canada identifies three basic types of procrastinators:

  • Arousal types, or thrill-seekers, waiting to the last minute for the euphoric rush.
  • Avoiders, who may be avoiding fear of failure or even fear of success, but in either case, are very concerned with what others think of them; they would rather have others think they lack effort than ability.
  • Decisional procrastinators, who cannot make a decision. Not making a decision absolves procrastinators of responsibility for the outcome of events.

As small business owners, you probably know which one applies. But it’s safe to say, one of these reasons is the root cause for the lack of action. Now there’s a way to find out if you have a saleable business and it only takes 13 minutes of your valuable time. It produces a highly qualitative and quantitive result that provides solid remedial action to solve problems. It’s called the “Sellability Score” and it’s based on an advanced algorithm. The algorithm factors in a multitude of different variables to determine how easy, or for that matter, how difficult it would be to find out if you have a saleable business.

Saleability Business Tool

The saleability business tool was developed by John Warrillow. He is author of “Built to Sell: Creating a Business That Can Thrive Without You”, this innovative software tool shows both textually and graphically in a 24-page report, how your business would stack up against your competition if you tried to sell it today. You will gain valuable insights into how buyers would analyze your business, including:

  • Where your business ranks on a scale from “easy” to “hard” to sell.
  • Your best options for selling your business depending on your score.
  • The most important, as well as, painful questions to ask yourself prior to selling you business.

After completing the online questionnaire to check whether you have a saleable business, you will immediately receive your Sellability Score (from 1 to 100), along with instructions for interpreting your results. You will also have the option to receive a free 24-page report via Email, complete with your results and a detailed explanation of the eight key attributes of a sellable business.

Once you know your position on the Sellability scale to determine if you have a saleable business, you can start taking the appropriate actions toward preparing your business for sale. Since the endgame is to “realize your dreams” isn’t it, when you walk away from your business. And you can only do that when you have the wealth you’ve earned over the years in your business.

Take the test here and find out: Sellability Score questionnaire

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SEVEN POWERFUL RATIOS TO START TRACKING NOW!

Doctors in the developing world measure their progress not by the aggregate number of children who die in childbirth but by the infant mortality rate, these are powerful ratios of the number of births to deaths.

Similarly, baseball’s leadoff batters measure their “on-base percentage” – the number of times they get on base as a percentage of the number of times they get the chance to try.

Acquirers also like tracking ratios and the more ratios you can provide a potential buyer, the more comfortable they will get with the idea of buying your business.

Better than the blunt measuring stick of an aggregate number, a ratio expresses the relationship between two numbers, which gives them their power.

If you’re planning to sell your company one day, here’s a list of seven ratios to start tracking in your business now:

1. Powerful Ratio Number One – Employees Per Square Foot –

By calculating the number of square feet of office space you rent and dividing it by the number of employees you have, you can judge how efficiently you have designed your space. Commercial real estate agents use a general rule of 175–250 square feet of usable office space per employee.

2. Powerful Ratio number Two – Ratio of Promoters and Detractors

Fred Reichheld and his colleagues at Bain & Company and Satmetrix, developed the Net Promoter Score® methodology, which is based around asking customers a single question that is predictive of both repurchase and referral. Here’s how it works: survey your customers and ask them the question “On a scale of 0 to 10, how likely are you to recommend <insert your company name> to a friend or colleague?” Figure out what percentage of the people surveyed give you a 9 or 10 and label that your ratio of “promoters.” Calculate your ratio of detractors by figuring out the percentage of people surveyed who gave you a 0–6 score. Then calculate your Net Promoter Score by subtracting your percentage of detractors from your percentage of promoters.

The average company in the United States has a Net Promoter Score of between 10 and 15 percent. According to Satmetrix’s 2011 study, the U.S. companies with the highest Net Promoter Score are:

USAA Banking 87%
Trader Joe’s 82%
Wegmans 78%
USAA Homeowner’s Insurance 78%
Costco 77%
USAA Auto Insurance 73%
Apple 72%
Publix 72%
Amazon.com 70%
Kohl’s 70%

3. Powerful Ratio Number Three – Sales Per Square Foot

By measuring your annual sales per square foot, you can get a sense of how efficiently you are translating your real estate into sales. Most industry associations have a benchmark. For example, annual sales per square foot for a respectable retailer might be $300. With real estate usually ranking just behind payroll as a business’s largest expenses, the more sales you can generate per square foot of real estate, the more profitable you are likely to be.

Specialty food retailer Trader Joe’s ranks among companies with the highest sales per square foot; Business Week estimates it at $1,750 – more than double that of Whole Foods.

4. Powerful Ratio Number Four – Revenue Per Employee

Payroll is the number-one expense of most businesses, which explains why maximizing your revenue per employee can translate quickly to the bottom line. In a 2010 report, Business Insider estimated that Craigslist enjoys one of the highest revenue-per-employee ratios, at $3,300,000 per employee, followed by Google at $1,190,000 per person in a seat. Amazon was at $1,010,000, Facebook at $920,000, and eBay rounded out the top five at $530,000. More traditional people-dependent companies may struggle to surpass $100,000 per employee.

5. Powerful Ratio Number Five – Customers Per Account Manager

How many customers do you ask your account managers to manage? Finding a balance can be tricky. Some bankers are forced to juggle more than 400 accounts and therefore do not know each of their customers, whereas some high-end wealth managers may have just 50 clients to stay in contact with. It’s hard to say what the right ratio is because it is so highly dependent on your industry. Slowly increase your ratio of customers per account manager until you see the first signs of deterioration …slowing sales, drop in customer satisfaction. That’s when you know you have probably pushed it a little too far.

6. Powerful Ratio Number Six – Prospects Per Visitor

What proportion of your website’s visitors “opt in” by giving you permission to e-mail them in the future? Dr. Karl Blanks and Ben Jesson are the cofounders of Conversion Rate Experts, which advises companies like Google, Apple and Sony how to convert more of their website traffic into customers. Dr. Blanks and Mr. Jesson state that there is no such thing as a typical opt-in rate, because so much depends on the source of traffic. They recommend that rather than benchmarking yourself against a competitor, you benchmark against yourself by carrying out tests to beat your site’s current opt-in rate.

Dr. Blanks and Mr. Jesson suggest the easiest way of increasing opt-in rate is to reward visitors for submitting their e-mail addresses by offering them a gift they’d find valuable. Information products – such as online white papers, videos and calculators – make ideal gifts, because their cost per unit can be almost zero. Using this technique and a few others, Conversion Rate Experts achieved a 66 percent increase in the prospects-per-visitor rate for SOS Worldwide, a broker of office space.

7. Powerful Ratio Number Seven – Prospects to Customers

Similar to prospects per visitor, another metric to keep an eye on is the efficiency with which you convert prospects – people who have opted in or expressed an interest in what you sell – into customers.

Conversion Rate Experts’ Dr. Blanks and Mr. Jesson recommend you monitor the rate at which you are converting qualified prospects into customers, and then carry out tests to identify factors that improve that ratio. Conversion Rate Experts more than doubled the revenues of SEOBook.com, the leading community for search marketers, by converting many of SEOBook’s free subscribers into customers. Techniques that were found to be effective included, perhaps counter intuitively, restricting the number of places available; allowing easier comparison between SEOBook and the alternatives; communicating the company’s value proposition more effectively; and simplifying its sign-up process. The trick is to establish your benchmark and tinker until you can improve it.

Acquirers have a healthy appetite for data. The more data you can give them, in the ratio format they’re used to examining, the more attractive your business will be in their eyes.

Wondering if you have a sellable business? The Sellability Score is a quantitative tool designed to analyze how sellable your business is. After completing the questionnaire, you will immediately receive a Sellability Score out of 100 along with instructions for interpreting your results. Take the test here: Sellability Score questionnaire

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The C-word and 7 Others to Avoid at Work

The majority of businesses in America today started out as service companies.

If you want to own a web design firm, you don’t need a lot of money, just a technical knack. Enterprising professionals who know how to get the media’s attention can start their own pubic relations firms without much more than a mobile phone. No capital required.

But if you want to build a valuable company – one you can sell – you’ll want to stop presenting yourself as a service firm. Consultancies are not usually valuable businesses, because acquirers generally view them as a collection of people who peddle their time on a hamster wheel. The typical way to sell a consultancy is for the consultants themselves to trade their equity for a job, in the form of an earn-out that may or may not have an upside.

If you want to build a valuable company consider re-positioning your business out of the ‘consultancy’ box.  Depending on your business, you may need to change your business model and ‘productize’ your service. One of the first things to do is to stop using consulting company terminology and replace it with the terminology of a valuable business:

Consultancy

Defining your company as a ‘consultancy’ will announce to the market you are a collection of people who have banded together around an area of expertise. Consultancies rarely get acquired, and when they do, it is usually with an earn-out. Replace ‘consultancy’ with ‘business’ or ‘company’.

Engagement

An engagement is something that happens before two people get married; therefore, using the word in a business context reinforces the people-dependent nature of your company. Replace the word ‘engagement’ with ‘contract’, and you’ll sound a lot more like a business with some lasting value.

Deck

A deck is a place to have a glass of wine. It’s not a word to use to describe a PowerPoint presentation unless you want to look like a ‘consultancy’.

Consultant

Instead of describing yourself using the vague term ‘consultant’, describe what you consult on. If you are a search engine optimization consultant, who has developed a methodology for improving a website’s natural search performance, say you ‘run an SEO company’ or ‘help companies improve their ranking on search engines, such as Google’.

Deliverables

Consultants promise ‘deliverables’. The rest of the world guarantees the features and benefits of their product or service.

Associate, engagement manager, partner

If you refer to your employees with the telltale labels of a consultancy, consider replacing ‘associate’, ‘engagement manager’ and ‘partner’ with titles like ‘manager’,” ‘director’ and ‘vice-president’, and  you’ll reduce the chance of your customers expecting a bill calculated at 10-minute increments.

Clients

The word ‘client’ implies a sense of hierarchy in which service providers serve at the pleasure of their client. Companies with ‘clients’ are usually prepared to do just about anything to serve their clients’ needs, which sounds great to clients, but also telegraphs to outsiders that you customize your work to a point where you have no leverage or scalability in your business model. Would your ‘clients’ really care if you started referring to them as ‘customers’?

It’s easy to get stuck in a low-growth consulting company. ‘Clients’ expect to deal with a ‘partner’ on their ‘engagements’, so the business stalls when the partners run out of time to sell. If a company ever decides it wants to buy your consultancy, acquirers will know they have to tie up the partners on an earn-out, to transfer any of the value. When it comes to the value of your business, optics matter and the first step in avoiding the consulting company valuation discount is to stop using the lingo.

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