Regardless of whether you’re selling your business, or selling a product or service. The same principles apply. You need an audience. The larger that audience is, the more successful you’ll be toward achieving your vision.
If there’s one thing that has really stood out for me throughout the many ups and downs of my career so far, the biggest learning has always been related to our audience.
That could be the audience location, it could be the type of audience, or it could be the size of audience.
Take one business as an example. This one relates to location. A business I know reasonably well purchased an old farmhouse, with 12 unconverted and derelict barns. They spent three years and well over £2m redeveloping the site, and eventually completed it ready to let out as 14 self catering holiday lets. Now the problem was, although it was set in a nice location, with very nice scenery, it was about 1.5hrs drive from the tourist trade, and the business owners didn’t really know anything about marketing. Through registering with the tourist board, and a few of the main online booking directories, they managed to get about 20% average occupancy throughout the year, though it took 3 years of struggle to achieve that level. This level of custom was obviously not sustainable or sufficient to keep the business running, and so the owners decided to sell it. The following owners had exactly the same experience, and after a further two years, they redeveloped the site, and sold each property off as private homes.
This example highlights the importance of understanding where your audience is already located. Had this business been located closer to where their audience were already going for their holiday, it would’ve been a huge success. Trying to move an audience is much harder than just planting yourself in the centre of that audience.
The key to building your audience, is to discover exactly what your audience wants, and then provide it to them. To put that into the perspective of selling your business, to identify what a potential buyer wants, we have to ask a series of questions.
What do potential buyers want? Scale, Profitability, Low Risk
Who are they?
How will you reach them?
Well most buyers want a business that’s a ‘safe’ investment. Safety is judged by the level of risk the business faces. If the business could potentially lose 30% of its sales from one customer relationship, it wouldn’t be considered a very safe investment.
It needs to give them a return on their investment, having sufficient cash flow to pay them a monthly income, without having to do too much work. The last thing any buyer wants, is to buy themselves an extra full time job.
Whoever said that size doesn’t matter, they were lying.
It has to be of the size that makes it attractive, but also have huge potential for continued growth.
These type of buyers, if a corporate or strategic buyer, are normally at least 10 times the size of your business. For example, if you’ve got a £5m turnover business, the potential buyer will be over £50m turnover. The problem comes when you realize that a business at £50m turnover isn’t interested in deals of that size. For your business to be attractive to the corporate buyer, the ideal size of your business needs to be in the region of £20m+ turnover.
When you reach this range, the number of potential buyers starts to increase incrementally. The larger the business, the more valuable it is perceived to be too. For example, in a business under £5m turnover, if you’re lucky enough to achieve a sale, the valuation might be a profit multiple of 3. In a business of £30m turnover, the valuation could be a profit multiple of between 5 to 10. This is because it’s seen as less risky to the buyer.
So let's assume you have a business that currently, has less than £5m turnover. For clarity, lets say it’s £3m turnover. Well it would take many years, and a lot of sales to reach that £20m+ turnover range. That’s all well & good, but if you’re hoping to retire in less than 5 years, that level of growth probably isn’t going to be achieved through traditional sales and marketing.
But 96% of businesses fall into that bracket of being under £5m in turnover. Over 70% of business owners will reach retirement age in the next 5 -15 years. That means there are, a lot of people in the same boat as you.
If you could find, say 8 businesses similar to yours, then put them all together, take advantage of any synergies, that would put your business into that valuation bracket. In theory, with the right motivated audience, you’ll achieve that scale inside 12 months, but what if you really took advantage of the process.
What if you came together with other businesses, then spent some time taking advantage of the situation, by cross selling your services to their customers, and vice versa. Instead of taking the next 12 months, what if you spent the next 4 years doing it.
My guess is, rather than having 8 individual £3m turnover businesses, or a combined, £24m turnover group, by cross selling services, you’d quite easily have a £35m+ group. But it wouldn’t need to be businesses at £3m turnover. The same could be done for those smaller businesses, say £500k turnover.
The added benefit of doing this means you get access to more staff, and more resource to - resource that can be shared amongst the group. Let’s say you’d like a new office premises. To take on the premises individually, it might cost you £100,000. But if the cost is shared between those that need it, with every business paying for its share of usage, you might get the access for just £10,000 - or substantially less if rented.
So let’s assume you’ve put the businesses together. You’ve now achieved a £30m turnover across the group. The next job is to find a buyer. Where do you start? More importantly, how much of your time is this going to take up.
That’s where we help. We have a growing database of businesses just like yours, with a desire to grow and sell using our model. We also spend a considerable amount of time building and developing relationships with senior decision makers at large corporate buyers. This isn’t about doing it alone. Everyone can achieve much more by working together. We know you’re already busy, you probably don’t have time to set this up.
By working with us, you can focus on running your business day-to-day, doing what you’re good at, while we bring the pieces together to move the project forward. That’s what we’re good at.
In the next post, we’re going to look at the seventh piece of the jigsaw, you’ll need to sell your business. ‘Paperwork - The life blood of any business decision’ Click here to read it now.
We hope you’ve received some value from this article, and some information that you can use to move forward toward your vision.
If you’re confident that selling your business is the way to go, or perhaps you’re undecided, it’s important to consider the significant amount of effort and resource you’ll need to make it happen. It’s a full time job. - The time investment alone is enough to put anyone off. So imagine for just a minute, that you didn’t need to do all of this work. What if this could be done over the next 3 - 5 years (by someone else). Everything we’ve listed in this article, is what you’d need to do, if you were selling through a business broker, or direct to a buyer.
Unlike other private equity firms, our focus is on growing businesses at the smaller end of the market. We’ve worked in, and grown our own businesses in the exact same fields you work today. We’ve spent years coaching and supporting small businesses just like yours, developing their teams, and helping them to grow, but now, we’d like to help you.
We have a solution for business owners that need to sell their business immediately, or for those who want to stick around for a few years.
If you’re considering the options to grow or sell over the next five years, read more about how we're helping others just like you. Click here to read about our unique approach to helping you get what you want with the YokeFormula™ for your business.
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