Not every entrepreneur goes into the process of putting their business on sale. But when the time comes that selling your business is necessary, whatever your purpose may be, you will have nothing to lose on your end if you prepare well. Demystifying the intricacies of business selling and acquisition with Bob Roark is John Warrillow, the CEO of Built To Sell. John discusses how to know the right time to sell a business, present it to potential buyers, and start a healthy bidding war. He also goes deep into the most critical responsibilities business owners must take on when delving into such a transaction, from breaking the news to your employees to treading carefully when signing a no-shop clause.

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Watch the episode here:

[embed]https://youtu.be/UtLDWtUfbrE[/embed]

Preparing To Sell Your Business With John Warrillow

Every business owner will exit their business at some point. If you want to learn how to create value, understand what makes your business attractive to a buyer, and then how to negotiate the sale of your businesses, where John says, “Punch above your weight with that buyer.” You're going to improve your skill stack on this episode with John Warrillow. He's the best-selling author of Built to Sell, top ten Forbes ranked podcast host on Built to Sell Radio, and CEO of The Value Builder System. He has started an excellent four companies. You would agree it's safe to say a couple of things at a minimum. John is a subject matter expert and an advocate for business owners on creating value in their business, maximizing the return on their legacy. He's one busy guy. John, welcome to the show.

It's good to be here, Bob.

Thank you for taking the time. John, I've read your previous books and I bought additional copies to share with business owners. I’ve got it dog-eared and worn out. One of your books, The Art of Selling Your Business, is an important book. It's a must-have investment for every business owner. I have to ask, being as busy as you are, why this book and why now?

It's funny you mentioned the podcast I do. I've done something like 300 episodes and what I've come to learn is that there are cadres, a small cohort of entrepreneurs, who seem to get much better offers when they go to sell their business than the prevailing industry benchmark. It got me curious about, “What is it that the small group is doing? What do they know that others don't? What are the secrets?” Independent of what industry you're in or what the mechanics of your business is. It seems like there was something they were thinking and doing differently. I tried to distill that down into some lessons and some secrets, and that's what inspired me to write the book.

You're doing field research. You're talking to business owners every week on Built to Sell Radio. If you don't have your finger on the pulse of the business owner, no one else does. On the selling trends for business owners that were hit in a difficult patch during the COVID pandemic, what do you see the trends doing here during this period of time and post-pandemic?

There are two big things that we've seen. We've done some research where we looked at people that complete the Value Builder questionnaire, which is our intake questionnaire for people who use the system prior to the announcement of the pandemic in March of 2020 and the next eight months during the pandemic. Two big things popped. One is that the pandemic is causing business owners to want to sell sooner. They moved up their sales by 20%.

Number two is their appetite to do a family transition. Passing their business down to their kids has dropped through the floor. In lieu, they are now planning to sell their business to a third party. We could riff on why that is. My guess is it's probably the stress of the pandemic that has left owners wounded and not wanting to pass that stress on to their kids. They're like, “I want out and I want to sell it to somebody other than my kids.”

[caption id="attachment_5737" align="aligncenter" width="600"] Selling Your Business: During the pandemic, more business owners sold sooner and refused to pass it down to their children.[/caption]

It's funny. I've had a number of those conversations as well, particularly the business owners that made it through ‘08 and ‘09 and recovered and back. They go, “Really? I'm getting another once in a lifetime of it in ten years. How many of these can I survive?” For that business owner, how do they know when it's the right time to sell?

There's a qualitative way to answer that question, which is probably the opposite of when you think it's the right time to sell. The right time to sell is when you're on the way up, not the way down. I did a podcast before this. It was with an entrepreneur who built a company. He was on the way up and had an offer from News Corp, Owned and founded by Rupert Murdoch, and shunned it. He said, “No, we're going to go grow and build.” Ultimately, he rode over the top and raised $10 million. He didn't build the company that he thought he was going to build and sold it in a fire sale for $1 million.

He and the shareholders got virtually nothing from the deal. It's a very common instance when we ride it over the top. That's a qualitative way of thinking about it. Probably the best time to sell is when you least feel like it's a good time. There's also an objective way to answer this question, and that is when you hit the freedom point. The freedom point is when the sale of your company after tax and after paying commissions and so forth would garner enough money for you to live happily, successfully for the rest of your life.

People say, “How do I calculate that?” Take how much income you want and multiply it by 33. That implies a 3% withdrawal rate. Once your business reaches that amount of money, the question you need that answer is, “Am I prepared to give up financial freedom in return for the next tranche of growth?” The next zero on your top-line revenue line isn't necessarily going to change your lifestyle at all fundamentally. When you reach that point, it's worth saying, “Am I willing to gamble that?” It's like the blackjack player puts all the chips on the table.

As a business owner, if you own a concentrated position in your company and it's a big part of your net worth, you're effectively gambling that freedom every time you wake up in the morning. I know there are lots of reasons to build a business. It can be to create something that is much larger than yourself. That's an admirable goal. It's worth asking yourself the question once you crest the freedom point, “Am I willing to make that trade-off again?”

The answer for more owners is, “No, I've had enough.” For that business owner who’s negotiating, like Rupert Murdoch, how do you gain leverage as a smaller business owner when you're working with an industry giant?

You want multiple offers. You want competitive tension and multiple people buying your business. What I found is that a lot of people get enamored with or fall in love with the idea of selling to a strategic like a News Corp of Rupert Murdoch if you're a media company. The challenge we’ve fallen head over heels in love with the idea of selling to one type of buyer is that you limit the universe of potential acquirers. It's the opposite of what you want. You want a lot of potential acquirers because that's going to guarantee or at least maximize the odds that you can get multiple offers, and multiple offers is what allows you to punch above your weight.

[bctt tweet="The right time to sell is when you're on the way up, not down." username=""]

There are three types of buyers and I would in the shoes of an entrepreneur, be open to all three. There's an individual investor who comes in and wants to buy a job effectively. There's a private equity group. It’s common these days for small and mid-sized businesses to be bought by private equity groups, and then there are the strategic acquirers. If you can remain open to all three, in a funny way, it gives you more leverage to sell to the person you want to sell to because you've got competitive offers. If you only got one offer, it's hard to punch above your weight.

If you did a comparison matrix, if you had three offers from the three types of buyers, you could compare and contrast. If you have one, that does disallow the ability to compare and contrast. For the owners that are interested in selling without looking desperate, how do they let potential buyers know that they're coming to market?

There's the magic in the word partnership. You can approach a potential acquirer about a partnership. Most acquirers will see through that language as, “This might be an interesting strategic partnership or potentially an acquisition,” but it gives you plausible deniability. It gives you the ability to say, “That's not what I meant. I genuinely mea