In this episode of The Daily Dose of Dave on the Inside BS Channel, Dave Lorenzo explores what makes a business truly sellable. Sharing his expertise from Exit Success Lab, Dave breaks down the "Three R's"—Results, Repeatability, and Records—and how mastering these elements can maximize your business's value and readiness for sale.
Tune in to discover actionable strategies for transforming your business into an attractive, sellable asset.
Episode Highlights:
- Introduction: Why every business owner should know if their business is sellable.
- Step 1: Results: Ensuring your business produces desirable, sustainable profits that appeal to potential buyers.
- Step 2: Repeatability: Building systems and processes that enable consistent results without the owner's daily involvement.
- Step 3: Records: Maintaining detailed, accurate financials and standard operating procedures to showcase operational excellence.
- Actionable Steps: Evaluate your revenue's predictability, assess how results can be achieved independently, and tighten your documentation and financial records.
Featured Quote:
"The three R’s—Results, Repeatability, and Records—are the critical pillars of a sellable business." – Dave Lorenzo
Call to Action:
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(00:04):
Is your business sellable? Do you have a business that can be sold to someone else? If you don't know the answer to that question, you have to join us for this edition of Your Daily Dose of Dave on the Inside BS channel. Hey, now, my name is Dave Lorenzo. I'm the godfather of growth, and today we're talking about the three question tests that will determine whether or not your business can be sold to someone else. These three questions can easily differentiate a business that can be sold from a business that can't, and I'm going to share the questions with you, and I'm going to give you some thoughts on what you can do today to make your business sellable. Question number one, do you have desirable results? Does your business produce a profit? Does your business produce a profit that will enable a person to live very nicely, whether or not they work in the business or not?
(01:06):
That's the first and most important question you can ask to determine if you have a sellable business. I see people on LinkedIn, on social media writing articles that say that you can sell a business that's not profitable, and while that may be true, your focus must always be on driving the maximum amount of profit through your business. If you have a business that's profitable, you have more options than someone who has a business that's not profitable. So step one in the entire process is, does your business produce desirable results? Is there a profit there for the business? Now, there will be people who listen to this and they think, okay, well, step one is, does it produce desirable results? My business isn't profitable, but it's not profitable because I'm making an outsized salary as the owner. Okay, well, when I say, does your business produce desirable results, the reason that I talk about results is because if you're taking a huge and you're running all of your expenses for your home and for your family through your business, then maybe you have desirable results.
(02:34):
So that's the first question. Does your business produce desirable results? Question number two, can someone else repeat the results that you've received? So question one is, does your business produce desirable results? Question number two is, can somebody else get the results that you're driving through the business? If they can, then you've passed the second test for having a sellable business. The important thing to remember is that the results that you're receiving, if they're dependent upon you, then you don't have a business that's sellable. However, if somebody else can produce those results, either after you train them or without their day-to-day involvement or without your day-to-day involvement, then you've got repeatable results. And repeatable results are one of three driving factors for a sellable business. One of the reasons why I love recurring revenue so much, and one of the reasons why I stress recurring revenue to all of my business owners, all the business owners that I work with, is because recurring revenue most often will lead to predictable profitability.
(04:01):
So if there's the opportunity for you to develop recurring revenue, there's a really good chance your business can produce repeatable, desirable results over time. Question number three, can you document everything that goes on in your business? Can you document everything from profitability to quality of revenue, all the way back to standard operating procedures? Do you have accurate documentation? Not only for the things that are required from a compliance standpoint, but for the production of the results that you're receiving? Businesses with standard operating procedures, businesses that have documented processes in place are far more valuable than businesses that do not have documented standard operating procedures. If you are looking to sell your business, you have to have great records. You've heard Nicola, Nikki, g and I talk about nothing being sexier than nice tight books. Well, if you're looking to sell your business, your books are the first thing everyone's going to see.
(05:22):
So they need to be tight. They need to be well-documented. Now, I have conversations all the time with people who are business brokers or m and a experts, and they say, nobody has pristine books. Dave, they tell me all the time, Dave, nobody has the kind of records that you're telling people they should have. Well, that's not true. My clients have the kind of records that I'm telling people they should have. So if my clients can do it, those of you who are listening, you can do it too. The third R, the aspect of having a sellable business is really good, accurate records for everything. Profitability, all the way back to standard operating procedures. So the three R for a sellable business are results, repeatability, and records. So if you can produce repeatable results and you have accurate records to document everything that's going on in your business, there's a really good chance you have a business that can be sold.
(06:38):
If you don't have any one of these three things, you need to take a step back and think about what you're doing and get your business sorted out. The easiest thing for you to do is to think about your revenue and look at the predictability of the revenue. If it's predictable and repeatable, check that box off. The next thing is determine if that revenue can be driven without you there. If the profitability can be driven without you being involved, if it's true, if it can, check that box off. And then the third element is your records. Start with your financials. Talk to your accountant and work backwards on your financials to make sure that everything in your financials would pass the smell test. If you were to undergo an IRS audit, or if you were to go to the SBA to get an SBA backed loan from a bank, would your financials pass that test and then work backwards and document everything that is important to drive those financial results.
(07:50):
And that's your standard operating procedures. So results, repeatability, and records, those are the three things you need to determine whether or not your business is sellable except no other answer from anyone else. People who say you don't need profitability in order to sell a business. If that's true, it's the exception to the rule. People who say, you don't need to have something that's repeatable. Oh, they just want to buy your customer list again, that would be the exception to the rule. And people who say, eh, you can get away with running your household expenses through your business. You might be able to get away with it, but again, that's the exception to the rule. Those three Rs are critical to you being able to sell your business. If you want more great information just like this, join me again tomorrow at 6:00 AM I'm here every day for your daily dose of Dave. And don't forget, every Wednesday at 6:00 AM we release a brand new Inside BS show with an interview that's guaranteed to help you make a great living and live a great life. Until tomorrow, I'm Dave Lorenzo.