Race Against Time? Time is so Important
Time is a critical element yet, over and over again, we see business owners misunderstanding how important time is for their business. We coach business owners how to scale their company to $100 million and more, in three to five years. This is doable for any business. And because we know the value of time and how it is misunderstood by many business owners we want you to pay special attention to the answer to the opening question.
Let’s assume your business is currently doing $5 million a year and netting $500,000 of profit a year after the owner’s salary of $150,000 has been paid. Let’s also assume it is growing at 5% a year. Sounds like a decently run business doesn’t it.
Now let’s assume this business owner plans to be in business another 20 years before selling the business to retire while growing at this same pace for the twenty years. This will result in the business growing to $13,266,500 in annual revenue.
To many, this sounds good. Not to us and here is why.
When you choose to monetize your business by selling it you will discover it is difficult to find a buyer able and willing to acquire this size of business unless you personally finance the sale of your business. Why does this happen? Because most sources of capital consider every business this small a very high risk when it is sold to new owner.
They consider this a very high risk because there is seldom sufficient physical assets in this small a business for the lender to lien against. And most buyers for this size of business have less than 10% of the asking price to put down.
Let’s model a typical sale. You will hear small business owners believe their business is worth between one and two times annual revenue. Often because they heard of another small business being sold for this level of valuation. What is seldom discussed is that the seller carries the loan for the buyer and in most of the cases the seller ends up either foreclosing on the buyer and taking the business over again, fixing the business and trying to resell the business. Or they choose to just walk away from the bad debt because they don’t have the energy or desire to get back into the business.
What is the solution to this problem?
Scale your business so it is attractive to larger companies that have the financial resources to buy your business. Often these companies are publicly traded companies that consider acquisitions as part of their growth plans. These companies however prefer to acquire companies that are showing considerable year over year growth and are close to or over nine figures a year of annual revenue.
There are many reasons for this. One is they want to acquire a business with a strong management team in place that can run the company as it is being merged into the larger company’s structure. Another is they want each acquisition they do to move their needle enough that when they make the public announcement their shareholders will respond positively.
These are just a few reasons we help business owners target getting past $100 million in annual revenue. There are many ways to scale your business so it can achieve this level of annual revenue. One last point, when you scale a company quickly the buyer will pay you more for your business because they expect it to continue this level of growth for many more years which is another accretive benefit for the purchasing company
Until next time,
To Your Growth & Profits
William De Temple CEO Antirion LLc
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