Selling is where you make the money — Built to sell

Intro

Most owners take a wage from their business for twenty years and call that the reward.

It isn't. The wage is what you earned for doing the work. The sale is what you earned for building the thing.

I've sold a supermarket-anchored shopping centre on a sub-5.5% yield. I've sold a venue for about 200% above what I paid for it. I've been part of a hotel group bought out by a NASDAQ-listed operator. In each case the money was not made on the day we sold. It was made years earlier, in decisions that looked like nothing at the time.

A buyer is not buying what you think

You think you're selling revenue. You're not. You're selling future profit that arrives without you.

Everything a buyer does in due diligence is an attempt to answer one question: what happens to this business the day after the owner walks out?

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

— Warren Buffett, Berkshire Hathaway Chairman's Letter, 1989

The whole discipline of building to sell was set out by John Warrillow in Built to Sell (2011). His argument is blunt: the biggest mistake owners make is building a business that relies too heavily on them. A profitable business can still be unsellable, because the value walks out of the door wearing your coat.

The four things that set the price

Can it run without you? Not "could it cope for a week." Can it make decisions, win customers and fix problems without your name on any of it.

Is the revenue repeatable? One large customer who could leave is a discount. Many customers who return is a premium.

Are the numbers clean? Separate accounts. Real books. Add-backs you can explain without embarrassment. Buyers pay less for anything they have to take on faith.

Is the story true? Every claim you make gets tested. One number that doesn't hold up makes a buyer re-check all of them, and re-checking costs you price.

Build it to sell even if you never sell it

Here's the part people miss. A business built to sell is simply a better business to own.

It runs without you. It has systems. Its numbers are clean. It doesn't collapse when you take a holiday. You can either sell that business at a premium, or keep it and enjoy owning something that isn't slowly eating your life.

Building to sell costs you nothing if you never sell. Not building to sell costs you everything if you ever want to.

The line that matters

Start with the exit in mind and every decision in between gets easier.

Next: what a business owner should actually do each day →