It turns out a PR firm isn’t always beneficial to your business. The biggest lesson is that you need to craft your own story about your business. You know more than anyone else. It’s also very expensive, so if you can learn to do some of it on your own, like hiring a freelance writer to help you write a story and then you pitch it to journalists, then that will save you a heck of a lot of money. Another disadvantage is that they do their job of booking media coverage, but that doesn’t necessarily mean you’ll get more customer as a result.
Having said that, there are certain instances when hiring a PR firm is beneficial. Read on to help you decide:
- When a PR firm is beneficial for your business
- How to hire a PR firm if you decide to do so
- When not to hire a PR firm if you can help it
1. How a PR firm can help your business
- HELP YOU ESTABLISH A STORY THAT ELICITS EMOTION: Your company’s core story should address the problem that you’re aiming to solve and explaining why it matters. It should include where the idea first came from too. Pull on some heartstrings. Expose the problem or opportunity for an improved life that your audience may not realize it needed. If you don’t have this, you need it, and PR agents can be helpful in identifying this central “so, what?” of your brand. (Medium article)
- LEVERAGE THEIR LOCAL NETWORK: There are times when a PR professional can be of value to you: For example, if you run a small business that is based in a specific city, and you will only be dealing with local and regional press. In that case, there may be a few key reporters and editors who cover your relevant beat. Therefore, hiring a flack with local knowledge and strong local connections could certainly be useful. As your company and budgets grow, when you can afford to bring in a full-time PR and communications pro, whose job it is to always keep pitching and look for media opportunities, do it. But until then, keep media management within your own realm. (Fastcompany article)
- REVITALIZE A PRODUCT OR SERVICE: Sometimes even the best in-house PR mavens can run out of good ideas. Just as in a re-brand or website redo bringing an outside agency to revitalize your PR can pay huge dividends. Good PR agencies know how to look at a product, service, or company and see something new – something buzz worthy. Something that you think is dead or tired can quickly be taken to a new market or a new outlet and quickly gain legs. Using a PR firm that can quickly dial up their contacts and test new ideas can spring to life a fading product or business. Remember though, even the best PR can’t revive a dying product, make sure there is something there and be honest with your agency about past successes and failures so they can provide proper strategy. (Martech article)
- DRAW INVESTORS TO YOUR BUSINESS: In marketing your new business, utilizing PR can attract investors to your brand, which is especially beneficial when you’re just starting out. A carefully planned PR strategy can generate positive media coverage, giving you a better negotiating position with potential investors. Additionally, well-executed PR makes your business appear larger and more established, which can help you secure partnerships and funding (Walkersands article).
2. How to hire a PR firm
- DEFINE YOUR GOAL FIRST BEFORE LOOKING FOR A PR FIRM: As with all PR and marketing programs, I always advise defining goals before getting too far into making decisions about retaining an agency. We must recognize that strategy is the first step to success and leads to tactical execution. I am a firm believer that good strategy starts with goals. As you look to hire a PR firm, decide what you are trying to achieve. A few great examples are: brand awareness, thought leadership, attention for a specific product or program, etc. (Meltwater article)
- LOOK FOR A PR FIRM WITH A TRACK RECORD OF SUCCESS: Before you choose a firm, be sure to look at their current and previous clients — which is often displayed on their homepage — and to check that they have worked with companies in the same industry as yours. The next step is to schedule a strategy call with the firm to get an idea of how qualified they are, what ideas they have for your upcoming campaign and what publications they suggest would be most suitable for your announcement. If it doesn’t offer a structured onboarding process before any payment is made, keep on walking. (Entrepreneur article)
- THEY SHOULD’VE DONE THEIR HOMEWORK AND BRING CREATIVE IDEAS: In the pitch meetings, if the PR firms have done their homework and prepared properly, they will present a few different PR campaign ideas based on your RFP (request for proposal) requirements. I generally take these ideas with a grain of salt, after all these PR firms are not fully on-boarded and have limited knowledge of your brand. That said, at least one of the ideas should be out-of-the-box and cool enough to get you excited! (Meltwater article)
- CHECK TO SEE THAT THEY ARE RESPONSIVE: For an additional test, during the pitch and courtship period, send them an email during non-office hours and see how quickly they respond. Too many times I’ve dealt with PR professionals who didn’t respond to emails for hours, sometimes days, which baffles me. (Venturebeat article)
- THEY MUST HAVE KNOWLEDGE AND EXPERIENCE IN YOUR INDUSTRY: Depending on your needs, make sure you find a public relations firm that is knowledgeable about your startup’s market or adjacent ones. Assess its track record and expertise with strategic positioning and communications. A good PR firm will have skills that include positioning, articulating your message, conducting market research and refining your audience—in addition to getting media and industry influencers to communicate your message. Ask the firm to show you what metrics they will use to measure the success of their work for you and to introduce you to the individuals who will work on your account. Make sure you are satisfied with what you learn. (Marsdd article)
3. But wait, why you should NOT hire a PR firm
- EXPENSIVE : PR agencies charging retainers of $3,000 to $10,000 per month. But here’s the deal: As a former journalist myself, with more than two decades of experience in TV, radio, print and web, I can assure you that pitching your story is not rocket science. Journalists and producers need fresh, interesting and topical content. All you have to do is learn to package your brand’s message in a way that’s mediagenic, then get organized about following up. Because the benefits of doing it yourself extend past the cash savings. (Entrepreneur article)
- MEDIA COVERAGE DOES NOT TRANSLATE TO SALES: Your PR person is not your Director of Sales. This is the number one reason most agencies get fired: clients are unhappy that the placements didn’t generate a massive uptick in sales. The role of a publicist is to formulate stories that get the media’s attention and result in a placement. If a publicist is getting you consistent placements, then they are doing what you hired them to do. The problem is when clients start complaining, “I know you got me a three-page spread, but it didn’t translate into new business.” That is the equivalent of saying to your dentist, “I know you filled my cavity, but you didn’t fix the pain in my jaw. The pain in your jaw should be seen by a doctor, not your dentist, and it’s not the dentist’s responsibility. The same goes for sales and PR. (Observer article)
- YOU CAN DO IT YOURSELF: Michael Seibel (founder of Justin.tv) says he wasted $150,000 (£93,000) on PR firms in the early days of Justin.tv. “People think they need to hire someone to do their PR, but 99 percent of PR in the early stages is stuff you can do yourself. It’s just like business development — there’s the warm-up intro, followup to build relationships, then add something of value.” Make sure you have a story to bring journalists — a significant hire, or something else newsworthy, rather than just expecting a profile piece. (Wired article)
- PR FIRMS OVER-PROMISE EVERYTIME: PR firms seem to take the inverse approach and promise things they can’t guarantee, like media coverage on national shows or in major daily papers. They also start with grandiose plans but produce a press release and a million excuses. I literally can’t count the number of times clients have asked me to quickly create something their PR firm failed to deliver. They end up paying twice to get the job done. (Roundpegg article)
- PR FIRMS DON’T HAVE ALIGNED LONG-TERM GOALS: PR firms won’t think long-term. A deadline a month away is not on the radar in PR because news media moves at lighting speed and staff is focused on the “right now.” Good luck getting your PR firm to attend to a project three weeks out – they’ll likely get to it with 24 hours to go. And at 2:00 AM. Short term results don’t matter as much as long term results. A PR firm will hand you a report showing the ‘pickup’ from your press release blast. It’s a listing of all the websites that supposedly ran your press release verbatim last week. Doesn’t mean anybody read it. Doesn’t mean that it exerted any influence. Influence is built over time, with a strategic approach. You need your PR agency to leverage relationships with influencers, to connect you with industry analysts who will quote you in their next report, and to coach you into thought leadership. The big stuff like that gets the bigger results. (Roundpegg article / Redcup article)
I hope the reading the above has helped you determine whether hiring a PR firm is right for you at this stage of your business. If you decide that it’s not the right time for you now, there are 40+ other ways to increase customers.
If you’re a PR specialist, I would love to hear from you!
Hiring a motivated, driven, likeable, and experienced salesperson who is the right fit is not an easy task. Follow the steps below to find the right salesperson for your business.
1. WHERE to look for a salesperson
- “Forget job boards. When recruiting outside of your personal network, start with businesses in your market who are a couple years ahead of you. Find one with an established and successful sales team and reach out to one of their junior reps.” http://blog.close.io/recruit-first-sales-rep-for-startup
2. WHAT to look for in a salesperson
- “Instead of looking for sales experience, look for sales talent. Here are some of the key characteristics of successful startup hustlers:
- A compassionate and competitive nature
- Excellent communication skills
- A high tolerance for rejection
- Charisma and charm
The best place to find people with those traits? Your immediate network.”
3. HOW to turn the salesperson you hired into a superstar
“There is a common misconception that the output of the hiring process is the identification of a great salesperson. It’s not. The output is a salesperson with the potential to be great in a specific sales role for the company. That potential is only recognized when a bridge program is put in place that connects the salesperson’s knowledge and skills with proficiency in the role.
Most executives begin the sales onboarding development project by inviting a bunch of colleagues to a meeting where the discussion focuses on one question: “What are we going to include in the program?” In other words, they start the initiative by considering curriculum. The two issues with that approach are: 1) Curriculum can be added for an eternity; and 2)There’s no way to gauge if the program serves its purpose.
The best place to start is at the finish line – by identifying expectations. Imagine you had a salesperson who is described as having successfully completed the onboarding program. What are those expectations?
- What is she expected to KNOW (i.e., product knowledge)?
- What should she be able to DO (i.e., conduct a sales call)?
- What should she be able to USE (i.e., CRM)?”
4. HOW much to pay them
- “More than just about any other position, salespeople are incredibly talented when it comes to figuring out how to maximize their overall compensation. That’s a good thing…as long as their compensation program drives the behaviors and results which are good for your business. Compensation, especially variable compensation, should focus a salesperson’s efforts on selling business that represents a high return to an employer.
- I remember inheriting a sales team that was compensated for total dollars sold without considering the relative profitability of what was sold. $1,000 of sales of 20% gross margin items was compensated the same as $1,000 of sales of 60% gross margin items. Thus a million dollar salesperson who delivered $600,000 in gross margin was paid the same as the a million dollar salesperson bringing in just $200,000 in gross margin. Not good! Key takeaway: review the comp plan to make certain it drives sales behaviors that produce good results for your company.” https://www.boyermanagement.com/sales/hiring-right-salesperson-part-1
- Most companies compensate between 60% commission / 40% salary and 80% commission / 20% salary https://www.entrepreneur.com/article/276272
5. EXPECTATION from them and from you
- “Just hiring someone and leaving them to it is a recipe for disaster. Unless you find someone who lives for selling then you are going to have to monitor his or her every move. There are 101 things to do that are easier than selling, such as checking email, planning the next sale, cleaning up the sales database, writing letters, designing promotional literature – the list goes on. Create a reporting structure (use customer relationship management (CRM) software) that allows you to see how many calls they have made weekly and what their closing rate is. Meet with them at least once a week and review their progress.” https://www.linkedin.com/pulse/20140409185806-14186304-the-10-things-you-should-know-before-hiring-a-salesperson/
Searching databases for new sales leads is better suited for business-to-business (B2B). The benefit of searching a database to identify and pursue potential customers is that you’re not putting word out there about your company and just waiting. You know exactly who you’re going after and who you have to talk to in order to win accounts, even if cold calling sucks.
But at least cold calling gives you the advantage of building rapport with your potential customer, which opens up the pathway for a future deal or you learn what similar customers you’re targeting are truly looking for which you can use to tweak your sales pitch and offerings to other potential customers.
Since cold calling potential customers is a numbers game and therefore is a long and arduous process, the one thing you don’t want to waste time on is going through pages and pages of google search results to look for potential customers; not to mention, the hard part is knowing the keywords to search on google in the first place. This is when leveraging a database can save you time and more importantly, help you find customers that have more likelihood of saying yes to your sales pitch.
What you need to know:
- Which database should you go with and how much does it cost?
- How do you use the database to identify your potential customers?
- You have a list of contacts – now what? How do you cold call and convert leads into customers?
Let’s explore each question.
1. Which database is right for you and how much does it cost?
Make sure that the database you subscribe to specializes in your industry. I talked to a few database customer representatives while assessing which database suited my line of work, and unfortunately, what they advertise is not 100% accurate.
Look at the cost for each database listed below and choose the one that fits your budget.
Next, call or live chat the database and ask which industries they specialize in. Describe the industry and type of customer you’re looking for and find out how many leads they have in their database that match that profile.
Below is a list of all the reputable and sizeable databases to consider for your business and how much each costs:
- Boasts 40 million contacts across 10 countries
- $1,800/year per user
- Specializes in “all” industries
- Focus on IT sector
- $20,000 per year + additional user license for $1,500
- In depth information about the target leads
- Acquired another database, Rainking, so increasing data size
- Has 250+ “researches” that call and confirm and update the contact details in their database every 60 days
- Clearly lays out the industries they specialize in, which are: IT, Software, Advertising, Merchant Services, Commercial Cleaning, Education and Training, Research and Consulting, Hospitality, Logistics, Healthcare, Financial Services, Manufacturing & Distribution
- Provides additional software add-ons to convert leads into customers and to maintain relationships with customers
- Reviews are very polarized – on Yelp, on Trustlink
- ~$15,000 for 3 months
- 40 million leads across 300 sectors
- Starting at $9/lead
- Mostly public company data, limited private company data
- Screening allows you to search for a variety of mix and match criteria
- Used mainly by Finance professionals but is not limited to Finance folks
- ~$24,000 + ~$5,000/additional user
- Backed by the largest commercial database, Dun & Bradstreet, has over 100 million contacts in 1,000+ industries
- Subscription includes access to private company information
- 20 million business contacts in “just about every industry”
- Markets themselves as the affordable alternative to Hoovers
- Pricing ranges from $49/month for 200 – $129/month for 2500 (or enterprise level), which is $0.25 – $0.05/lead, respectively
- Global contacts in various industries
- [Waiting for pricing info]
- Sourced from US & Canada yellowpages and other repositories (doesn’t seem to have contact person info; just businesses)
- Starting at $99/month
- Specializes in email list (not phone numbers)
- Ranges from $0.25/lead to $0.05/lead based on package size or you can get the total list by industry – pricing varies depending on size of data by industry
- Boasts “unmatched accuracy” of emails
- Markets themselves as the affordable alternative to Data.com
- Starting at $999/month
- Linkedin Sales Navigator
- $100/month/user for 100 contacts
- 91 million contacts worldwide
- ~$2,000 for 1,000 contacts; i.e. $2/lead (which it sounds like you can negotiate down the price of)
- 32 million contacts worldwide
2. How to use the database to turn leads into customers
The first thing to do after you sign up for a database is to look on the website for a guided tour/video of how to use it. If you can’t locate it, call their customer representative and ask to walk you through how to use it.
That’s the easy part.
You don’t want to spend all your time prospecting leads. You should know exactly the profile of your target customers. Your customer profile should include the following characteristics:
- Service/Product offering
- Size, i.e. average revenue
- Online or offline
- How your product or service fits with their needs
Example 1) Steel OEM manufacturing company that revenues $10 million/year on the West Coast of North America that would need specialty paint from my company.
Example 2) A company of realtors that specialize in first time home buyers in downtown San Diego that make a total pooled revenue of $3 million/year that need an online CRM tool that my company offers.
Once you have the customer profile, use this to screen for your leads.
3. How to convert your leads into customers (How to cold call)
Once you have your prospects’ contact details, begin cold calling. Remember that it’s okay to sound like an idiot. You only get better by trying over and over again. Know that going in you’ll have a lot of No’s before you hear a Yes, but the ones that separate the successful entrepreneurs from the rest are that they keep trying and don’t stop until they see their vision come to life.
So, I’ve curated the following posts that are punchy and to the point but have substance that can teach you a thing or two about crafting the sales pitch and how to cold call effectively:
If you need to read more, then by all means, search for them yourself. But I’d suggest at this point, enough reading and preparing, start calling!
- Find the database that fits within your budget and one that has a sizeable database of contacts in your industry. Do a free trial.
- Profile your customer and identify the prospective leads and their contact details from the database.
- Craft the sales pitch and have an online or physical information pack that you can provide them.
- Cold call or email. Schedule to meet in person.
- Track them and follow up.
If your company has an account, better yet, if your company’s financials get audited every year, then what you need to gather to prepare for the sale of your business should be easy. If your company has unorganized financials, then it’ll be a bit more work, which will be covered in a future post. If your business is profitable but your financial statements are unorganized, this alone will bring down the value of your company, which will cost you in the transaction price. I’ve provided the spreadsheet you can download to organize your company’s financials. Remember that you also need to provide supporting material such as the monthly/quarterly/annual financial statements or management accounts that you prepared each period.
Listed below are key financial statement items that the potential buyer and their broker will ask for:
- Last 5 years of P&L (profit & loss, aka income statement)
- Last Twelve Months (LTM) P&L or Year-to-Date (YTD) P&L
- Last 5 years of B/S (balance sheet)
- 5 year forecast (including capital expenditure and working capital)
Now I’ll get into key traits for each item above that will value your company higher.
Scroll to the bottom to download the spreadsheet that you can use to organize your company’s financials.
1. Last 5 Years of Profit & Loss Statement
Each company’s P&L will look different because of line items that are relevant to one company that are not relevant to another. But the basic items of a P&L (or aka income statement) are:
- What you need to show:
- Revenue for the last 5 years should show a growth each year (at least 3%)
- Breakdown of revenue build-up – group the largest sales accounts and show prices and quantity
- Customer list – for B2B businesses, show customer contracts with key accounts
- Cost of goods sold % of revenue should be stable each year
- Operating expenses and SG&A cost breakdown in a separate schedule – to show that your business doesn’t have egregiously high spending
- EBITDA margin should be stable each year and growing – to show that the company has been scaling up and efficiency has improved
- Interest expense should not be higher than 5% of revenue otherwise it will be a red flag because the company has too much debt
- Nonoperating and nonrecurring expenses should not be occurring each year and the reason for them should be reasonable in the context of the business – for example, a new machine had to be replaced or there was a natural disaster that destroyed the plant and had to be repaired
2. LTM or YTD P&L
If your company’s financial statements fiscal year is from April 1 – March 31 and the period you’re valuing the company is August, then you need to show the last twelve months or the year-to-date P&L. This is to show that you’re not selling the company now because you suffered serious losses this past year or had some unknown adverse circumstance affect your business, such as the largest key account leaving you for a competitor.
If that is the case for why you’re selling, then you should reconsider and try to build the business back up before you sell or accept that you will receive a much lower price for your business than you originally anticipated.
3. Last 5 Years of Balance Sheet
Unlike a P&L, a balance sheet shows numbers in accounts and ledgers at a point in time, not for a period of time. So it may not make sense to show historical 5 years worth of balance sheet, but actually, analyzing historical balance sheet over the last 5 years shows a lot of useful information. A general grouped items on a balance sheet looks like this:
- What you need to show:
- Over the last 5 years, your business had a healthy float of cash
- Accounts receivable has not been increasing every year as it indicates that you’re not able to collect the cash from your customers and that signals bad debts that are never paid by your customers
- Inventories are not increasing each year and that it’s at a stable level
- Property, plant & equipment level is stable each year and makes sense for your company with respect to the industry it operates in (for example, if you’re a service-based business, then the PP&E should be almost nothing, whereas if you’re a heavy-machinery company, then PP&E is expected to be high)
- Accounts payable is stable and is not growing or too high as this indicates you owe a lot of money still to your suppliers
- Debt is minimal – there is a healthy level of debt that your business can keep on the balance sheet, but lower the better
4. 5 Year Forecast
Now this is the exciting part. This is where you get to show how awesome your business is going to be in the future based on what you’ve built up to now. And these numbers are the crutch of what the valuation will be based on. But a forecast is only as good as the assumptions, and the assumptions are built off the historical numbers. So, you can’t bullsh#% these numbers.
The forecast needs to have legitimacy by showing evidence from the historicals, new sales contracts, evidence of improvement in operation efficiency, etc. A forecast model will look like this:
- What you need to show:
- Revenue build up – why do you believe in year 1-5, the revenue will grow by x%?
- Customer list and forecast of sales by customers or groups of customers (note any contracts with customers in place)
- Existing customers and targeted customer acquisitions
- Projected price increases
- Evidence of operating efficiency improvement plans
- Sales & marketing plans and budgeted
- Cost of goods sold and operating costs should also be broken down and each sub item should be explained why it will be x% of revenue
- Any capital expenditures to add to or replace fixed assets like machinery or trucks
- Incremental working capital, which is the net change in cash required to put into the business each year
The more supporting evidence you have for your assumptions the better. If your financial statements historically and forecasts are organized, it shows that you know your business inside out and that your business is in good shape. Moreover, you need to show that your top line has been growing because it proves that once taken over by the buyers, the business will continue to generate healthy and growing level of sales. Margins also have to show enough profitability that the buyer can benefit from the profit from the first year. How the buyer improves the efficiency of the business to increase the margins is up to them, but the business needs to have a good foundation to start with.
There are many ways to generate new leads, get more customers, increase customer base, however you want to put it. Some methods will work better for your business than others depending on the customer profile you’re targeting and the value that your business provides. For instance, if your company is a local food delivery service on a college campus accessed via an app, then you’d want to employ online advertising on websites and social media groups where local college kids hang out. If your business sells coffins, you might do traditional advertising via direct mail in neighborhoods with an aging population or build relationships with senior homes in your area.
Below is a list of 36 ways you can increase customers, either offline or online. If there are methods missing in the list, please comment below or send me a message and I will add them to the list.
Click on each method below for practical step-by-step instructions on how you can use the method to get new customers:
- $60k in salary + commission (40/60 to 20/80 salary/commission)
Attend conferences and tradeshows
- $2k – $5k as an exhibitor per conference
- $500 – $1,500 as an attendee per conference
Send direct mail to potential customers
- $0.50 – $3 per package; total of ~$5,000 per round of sending direct mail
Print advertising in a newspaper or magazine
- $500 for a local newspaper, $20k – $100k for national coverage
Buy/rent a contact list and cold call
Attend business networking meetup groups
- Free – $2,000/year membership
Create a customer referral affiliate program
Create an employee referral affiliate program
Give free samples/trials to targeted customers
Host and teach in-person workshops
Add a live chat on your business website
Co-promote your product with another business
Buy/rent a mailing list and email blast
- $200 – $500 per thousand emails (ideally send to 1k to 5k targeted customers at a time)
Create free and useful content on your website
Create a lead magnet on your website
Use SEO to promote your website
- $100/month for subscription to SEO website or $1k-$2k for SEO services
- $0.15 – $3 per 1,000 impressions
Google adwords or other advertising platforms
- $1 – $3 per 1,000 impressions
Sponsor an influencer (blogger or YouTuber)
Send your product to an influencer to review it
Comment and write on blogs
Answer questions on Quora
Write consistently about your industry on Medium
Be a guest blogger
Ask an influencer to write a guest post on your blog
Hire a content writer
Upload a useful presentation on Slideshare
Make YouTube videos
Actively engage in Facebook groups
Write consistently on LinkedIn
Actively engage in LinkedIn groups
Write an ebook
Create online courses
Post an engaging and useful video on your website
Increase positive reviews on Google and Yelp
Publish a press release
- $250 – $500 per press release
Missing something above? I would be grateful if you let me know so I can add it to the list.
You’ve built your business from the ground up, putting in sweat equity like no one else will understand and appreciate. For that reason, it’s hard to let go of your baby because you think it’s worth more than what others are willing to pay for it and you can’t trust anyone to run it like you. These are all considerations in finding the right buyer for your business, but trust that if you put in the right preparation, you can find the right person to sell it to that will leave you feeling glad and relieved that you made the right decision.
Part of exit planning is to know who the potential buyers are. The more interested buyers of your business there are, the more competitive and higher your selling price will be and you’ll be in a position to choose who will run the legacy of your business after you. The top mistake business owners make is that they don’t do their homework, so they end up exiting too early at a low selling price or they go with the first broker on their google search whose goals aren’t exactly aligned with yours. Avoid regret by following the steps below to identify the right buyer.
How to find a buyer:
- Find a broker
- List your business in a market place
- Identify potential buyers and cold call or warm call
More on each below.
1. Find a broker
Finding a broker might be the easiest and hardest method. It’s easy because you can google local business brokers and you’ll get hundreds of hits. It’s hard because you have to then sift through the list and vet the right one to work with. If you don’t consider yourself financially savvy and would rather not hustle your way to finding a buyer, it’s most prudent to go with a broker.
Do remember that brokers can be expensive. They will usually charge a retainer fee of between $15,000 – $30,000 for a business under $5m and a retainer fee of between $30,000 – $80,000 for a business over $5m plus somewhere between 3% – 8% of the transaction fee, depending on the size of your business. For example, if your business has $10m in revenue, $2m in EBITDA and sells for $8m, then you will pay the broker ~$400,000, so you will actually receive $7.6m from the buyer after broker fees. Note that fees vary regionally and by industry, so these numbers are not the standard for every business.
Considering that brokers are expensive, you need to make sure to pick the right one. A good broker will possess the following:
- Understand the reason for you selling the company and advise strategically how you can maximize the selling price; for example,
- Timing – urgent to sell it asap or is there flexibility to maximize value?
- Tender received – receive all cash upfront or part equity, vendor take-back loan with interest, royalty?
- Asks and understands if you’re willing to stay on board as an employee for several years to successfully transition the business to new owners.
- Asks about qualitative questions about who you would ideally want to sell for – for example, would you be okay if a private equity firm bought your business and tore it apart into pieces as long as you can exit in a timely manner or do you want to sell it only to another dedicated hard worker who will see through running the business even if you don’t get paid the purchase price all up front?
- In the second time you meet or speak, they should have done their homework and identified a rough list of potential companies that might be interested buyers (even if these companies don’t come to fruition, it shows that they’re dedicated and do their homework and want your business)
- Also, in the second time you meet or speak, they should have an idea of how much similar companies have sold/selling for – what were precedent transaction multiples?
- Do they work alone/small team or are they partners of the company who delegate everything to minions and only talk high-level? As you can tell, I’m not a fan of the latter. I’ve seen first hand how disconnected these partners are and get briefed 10 minutes before a meeting.
- Are they responsive and available? Selling a business you’ve built over the years is very personal so they need to be there to support you. Also importantly, when the buyer is doing due diligence on your company, their contact person will be the broker. If the broker isn’t responsive, the due diligence will get delayed and the buyer may lose patience.
- What is their track record – ask and find out if they have the capability to successfully close the deals and how long their past deals have taken from engagement.
- Are they financially capable themselves (rather than delegating the financial valuation to their team members)?
- Do they have a good network? Check their LinkedIn – do they have recommendations given? Are they professional with colleagues and other stakeholders?
- Most importantly, you need to feel comfortable with them – if they’re dismissive and unfriendly, you will feel intimidated or hesitant to reach out to them with any question. You should feel free and comfortable to ask them any question pertaining to the business transaction.
Googling the brokers may take forever. I would advise starting here (International Business Brokers Association): https://www.ibba.org/find-a-business-broker/
2. List your business in a marketplace
If your business is in a specialized industry, google “[your industry] businesses for sale in [your city]” and look at where people who are looking to buy or sell businesses in your industry are gathering.
If your business is in a broad industry, you’ll have to rely on big market places that have a lot of traffic – not just where sellers are going to list, but where a lot of serious prospective buyers are going. The most well-known online marketplace to list your business is bizbuysell.com.
3. Proactively identify potential buyers and cold call them
Sounds daunting and is a huge task at hand, but this could provide the most payoff with respect to:
- higher selling price
- an opportunity to work with them in the future
- creative terms of the sale
- personally rewarding
- personally vet the new potential buyer
- avoid broker fee
- more control of timing
- since it’s a numbers game, round up more interested buyers to gain leverage when selling
The payoff from this approach comes from targeting and selling to buyers who strategically need your business. No matter how dedicated your business broker is, they won’t put in as much devotion as you will to find the best potential buyer.
The challenges are that:
- you have to sell the qualifications of your business such that the buyer sees why strategically it’s the perfect fit
- it’s a numbers game to cold call your list of identified potential buyers and get an interest
- the buyer may need more conviction that you are a credible seller
- you have to be available for questions and push through any delay or bottlenecks in the sales process
- you have to be financially savvy
If you’re ready to take on this challenge to reap high reward, the first step is to make a list of potential buyers. These are the types of buyers you want to search for in your industry and your region:
- private equity
- search fund
- bigger company in your industry
- bigger company in an adjacent industry
- startup that could benefit with your business’s assets
This method of identifying potential buyers and cold calling them is not for the faint of heart. You need thick skin, you need drive, motivation, and a kick-ass hustle mentality. You also need to have your business groomed in terms of historical financials, supporting basis for growth in your forecasts, supporting build-up of revenue, costs and operating expenses, and other areas of improving your business to the highest value.
What stage are you in your business? Are you ready to sell now or do you have some flexibility to improve your business, educate yourself in whom you can sell to and which of the above method you want to go with?
Describe your business below or contact us to get an assessment of where you are in the business cycle and what areas you need to improve in order to prepare your business for a successful sale.
If you want to sell your business, there are several technical valuation methods to determine the right selling price. But before you hire a business valuator to do that for you, consider following these steps to maximize your selling price:
- First, estimate roughly how much you can sell your business for (below)
- Then, improve certain areas of your business to maximize the selling price
- Now employ the technical valuation methods to fine-tune the estimation of selling price
This strategy works for real estate, so why not for selling your business? For example, you may first get an estimate of how much houses on your block are sold for. Then you invest $80,000 to renovate your house or condo. That raises the value of your house by $150,000, so ultimately, the selling price goes up. Same method can be applied for selling your business.
Let’s explore each step.
1. Quick and dirty formula for selling price
The rough ballpark of your business’s selling price is to multiply your company’s EBITDA by 4. (EBITDA = earnings before interest, tax, depreciation & amortization)
For example, let’s say your business’s financials look something like this:
Revenue $3.5 million
Cost of Goods Sold $1.0 million
Gross Profit $2.5 million
Operating Cost $1.8 million
EBITDA $0.7 million
Multiply $0.7m by 4x. Therefore, a reasonable expectation of how much you can receive for your business is $2.8 million. Again, this is just a rough estimate of the selling price, but you need to know this as a starting point.
In reality, the number that you multiply to your EBITDA is typically somewhere between 2 and 6, which means that you can sell a small, private business that has been steady and stable for the past 5 years for somewhere between $1.4 million and $4.2 million.
That’s a big range, so how do you get the selling price closer to $4.2 million? Now that you know the starting point, let’s go through the factors that will get you to the highest selling price.
2. How to maximize the selling price
Maximizing the selling price depends on a multitude of factors, some with higher weighting than others.
The most important base factors your business should possess before you decide to sell your business are:
- Business has been established for more than 5 years
- Revenue has been steady and growing at least 1% yoy the last 5 years
- After-tax cash flow is/has been positive the last 5 years (i.e. profitable business)
- EBITDA margin (EBITDA as a % of Revenue) is/has been steady at 20% or above the last 5 years
Other factors that affect the selling price are listed below. Scroll down to download the calculator.
At this point in your business where you’re considering selling your business but you aren’t in a rush, the most prudent way is to find out what the rough selling price would be for your business and grow your business’s valuation by targeting improvement in certain areas of your business. The list can go on but the truth is, there’s no such thing as the perfect selling price. In my days working for a fund, we followed 8-factor investment criteria that the companies had to meet in order for us to consider investing in. Some people rely on a “gut” feeling and others will do a full-blown 100-page research & analysis report.
See other posts (at the time of writing this, they are not yet posted but are in the works) to grow your business to maximize the selling price.
Scroll down for the link to download the spreadsheet to find out how much you can sell your business for.
3. Valuation methods
Once you’ve successfully improved your company’s performance to maximize the selling price, the following are valuation methods (which will be posted if they are not at the time of reading this):
- Discounted cash flow method
- Comparable public company multiple
- Precedent transaction multiple
- Net book value