EP # 187 - From Owner-Dependent to Owner-Free: Your Roadmap to Making Your Business a Valuable Asset

In this episode, Maggie dives deep into the essential components that make your business not just profitable, but highly sellable. 

Whether you're planning to sell in the near future or just starting out, these insights will help you build a more successful, valuable, and sustainable business.

Key Topics Covered: 

• The 10 critical components of a sellable business

• How to reduce owner dependency (including the "Vacation Test") 

• Strategies for building predictable revenue streams 

• The importance of strong brand presence and online reputation 

• Ways to create scalable business models

💡 Key Takeaways:

1. Strong Financial Performance: 
   • Target 15-30% net profit margins (higher for online businesses) 
   • Focus on recurring revenue streams 
   • Maintain clean financial records 
   • Diversify revenue sources
   
   
2. Scalable Business Model: 
   • Document all processes 
   • Leverage technology 
   • Create repeatable systems 
   • Build growth potential
   
   
3. Brand and Reputation: 
   • Develop strong online presence 
   • Maintain a professional website 
   • Build a strong Google Business profile 
   • Foster customer relationships
   
   
4. Owner Independence: 
   • Implement the "Vacation Test" 
   • Build competent teams 
   • Create standardized processes 
   • Transition from operator to CEO
   
   
5. Recurring Revenue: 
   • Develop subscription models 
   • Create loyalty programs 
   • Secure long-term contracts 
   • Implement rebooking systems

📈 Whether you're just starting or running an established business, these principles will help you build a more valuable and sustainable company.

🎯 Ready to transform your business into a valuable asset? Schedule a free consultation with Maggie here https://stairwaytoleadership.com/

Transcript

Building a Sellabale Asset - Maximising Your Business Value

Hello, everybody. Welcome to Diamond Effect Podcast Episode 187. Today, let's talk about something that I'm passionate about and I help my clients do. Grow your business and set it up in a way that becomes a sellable asset. I really believe that a business owner, we have this unique opportunity to get a high return on our investment of work and resources into growing a business and down the line, whether it's 10 years from now, five years from now, or you're just starting and not even thinking about it, you can sell your business. Or pass it on to your family members and get a hefty return from the investment of that work. 

Another benefit of having a business that's a sellable asset is that it's not dependent and reliant on you. So when you intentionally build it that way you can actually [00:01:00] enjoy life while you are growing your business. 

Today I want to talk about 10 components that need to happen in order for your business to be sellable. And not only sellable, but actually the valuation of your business being as high as possible when you're ready to sell it.

Now, regardless of where you are in your business journey, listen to the episode and at the end, I will tell you how to approach it. So let's get started. 

In order to make your business and sellable asset, you want to focus on building a business that it's not overly reliant on you as the owner to be doing everything in it.

It also needs to have predictable revenue streams. Predictable way of making money and signing clients that are also as low risk as possible of those revenue streams going away. And it needs to demonstrate growth potential. 

[00:02:00] Your buyer, when you sell it down the line, is not buying the business to retire the following year. They want to keep growing the business for their investment and their ROI down the line. So of course, as you sell your business, it has to have that growth potential. 

Today let's go through the 10 components of a sellable asset and you growing a business this way.

The first one is, of course, strong financial performance. Nobody wants to buy a business that is not profitable, that it's struggling to find customers, that it's struggling to make an income.

As soon as you can, you want to ensure that the business is profitable. 

Consistent and growing profitability is critical and usually buyers look at healthy margins. And those healthy margins, depending on the type of business, vary. However, in more traditional business, [00:03:00] not an online business, it's about 15 to 30 percent of net profit margin. Now, depending on the industry, if you have an online business, those profit margins could be and should be much higher than that. 

Another part of financial performance is recurring revenue. So consistent income coming into the business. And that's when you need to think about building predictable revenue streams. And of course, they will be different depending on the business, but think about subscription models.

Or a way the customers come back to you on a regular basis. If you have a contracting business, one of those is maintenance contracts. Because if you only respond to repairs, to breakages, that is less predictable than having a contract with, let's say a homeowner, when you go and check the furnace every year. And you have enough of those contracts, they provide that baseline of your revenue. 

Repeat [00:04:00] clients. When you are providing services that are cyclical, whether you are a med spa or a hair salon or even restaurant, the more of a returning loyal client base you have, the more predictable recurring revenue you create. 

Another thing is having clean financial records. As soon as you can, you want to have a professional doing your books. Unless you're a trained bookkeeper and an accountant, in the beginning when you're bookstrapping, that's fine, do it yourself. But as soon as it's possible, that's probably one of the first tasks you want to delegate. Not only because it takes a lot of time and most people don't like it.

I don't like it at all, but it's also you want it to be done by a professional, have clean books.

So it's then easy for whether it's a business broker or an auditor to look at your profit and loss statement, balance sheets, cash flow, and of [00:05:00] course easy to determine what are your tax liabilities. One last thing about strong financial performance is diversification of your revenue because that builds business resilience.

It's better to have more clients with good revenue that rely only on one or two big contracts that bring all the revenue to the business. Because then if you have, let's say, two clients providing all the revenue to the business, if you lose one of them, the business just lost 50 percent of the revenue or 60 depending on the size of the client paid.

Also, don't rely on just one segment of revenue. Let's say if you are an interior designer; if you can, diversify your revenue from residential to commercial, from [00:06:00] maybe different industries in the commercial, it will allow you to have much more predictable revenue and also serve bigger market and therefore be more resilient even to the changes in the economy.

The second consideration to building a sellable asset is to have a scalable business model. Something that can be repeated over and over. Now, if you're just starting and you're a solopreneur delivering the service, you're thinking, Oh my God, nobody can do anything as well as I, and I can guarantee they can.

If you have the right teams and if you equip them with the proper tools and you train them, you have well documented processes. Systems and processes are key when you grow and scale your business. They need to be documented. Examples here are client onboarding, the service delivery, your marketing and sales processes.

That shows that the [00:07:00] business can run without the owner. That shows that if I came into your business and I read those processes, I would know how to acquire new customers, how to serve them and deliver great service, what to do to onboard them, how to retain them.

One of the things that comes into that is leveraging technology. There is a lot these days that you can automate. That you can streamline and actually decrease the mistake rate. So whether it's scheduling, invoicing, preparing the client for the project, leading the client through the project; if you're a project based business. 

It also improves efficiency and therefore is scalable.

With the scalable business model, you're creating a growth potential in your business.

For example, if I have a clear process on hiring great people, onboarding great people, training them [00:08:00] and integrating them into the business, then a new owner will know, Oh, hey, I can expand, enter new markets, I can increase client retention, or I can expand in services because I have this model that allows me to do it.

The third consideration is having a strong brand and reputation in your industry, in your area. 

If you, are you a local business, then the area reputation is so important. If you're a multinational business, then being the leader in your industry, one of the best, so key.

That brand equity is very often undervalued and not paid attention to by small business. But when you build a recognizable and trusted brand with a loyal customer base, It raises your valuation hugely. Just think about any brand that you love, [00:09:00] that you go back to because you're loyal to it. And ultimately, if the owner of that brand changed, but everything else stayed the same, you wouldn't care.

For example, Apple. Steve Jobs is no longer here, and yet people still love the phones, love the equipment. Starbucks could be another example.

A big part to building a strong brand is having a presence online. And often small business owners neglect that because they're busy, they develop marketing more through traditional streams. Especially if you're a local business, then the word of mouth and collaborations go into play, which is very important. But if you neglect your online presence, then your brand is not as recognizable and known. And by online presence, I don't mean only social media presence, but also having a professional website, strong Google [00:10:00] profile. 

Think about it. Us customers, the first thing we do to check out a new brand that we want to try or a new business we want to go to, we actually Google them, right? We check them out online and if the website is not great or the Google Business profile doesn't exist or they have not a lot of presence on social media; we don't necessarily trust them that much. 

So you might be losing a big opportunity in attracting new clients and even keeping the clients if you don't have a strong media presence. Because even your current clients can get influenced by the brands your competitors have and their social media presence.

You might lose them because they were like, "Oh, there's this great new spot. Let me try them. I just saw them on Instagram." 

What also strong online presence allows you to do is build and maintain customer relationships. Yes, when you deliver a service, that's a huge customer relationship [00:11:00] builder and then keeping in touch with the customers in more personal ways.

But as you scale online presence allows you to interact with them even outside of your email list. Even if you have email, digital marketing, or text. It allows them to interact with you, see what's going on, new offers, new product, recommend to their friends.

Part of the strong brand is building and nurturing customer relationships on every point of the client journey. In your marketing and sales, in your service delivery, after the service delivery.

Your clients can have touch points with you even if you're not delivering a service in that moment with, for them.

The fourth consideration is minimal owner dependency. As you grow your business, you want to keep asking yourself, okay, what part of my business is still dependent on me that as a business owner, I shouldn't be [00:12:00] doing. And you should be delegating progressively as your revenue grows and. You get busier and busier, especially as a solopreneur.

And as you delegate and hire people, you build those systems and processes. So delivering the service and operating the business at some point, you want to hire and train competent people who not only can deliver the service, but then manage the team. So that the business can operate day to day without your involvement 24 7.

 What helps with that? Standardized processes. 

And as you grow, you want to transition from owner operator to the CEO when you are just a strategic visionary guiding the business. And then down the line, you might want to even reduce your time in the business to part time position. And what that does, it reduces the buyer's perceived risk. 

Now, as you grow your business, a [00:13:00] great test that one of my clients do, and I, nicknamed it is Vacation Test. 

So if you take vacation and you go away, let's say for two weeks and you don't get involved in the business at all, meaning nobody calls you, can your business function? 

If they cannot function right now, that's something you should think about and think, "okay, if I were to go away for two weeks, how can I make sure my business functions?" "What do I need to put in place: People, processes, tools for that to happen.?" And then when you have that in place, Go away on vacation, enjoy yourself, enjoy life, and then when you come back, see where the hiccups happened.

 Those hiccups will direct you to what needs to be still strengthened, streamlined, delegated, and what kind of processes you need to put in place. Vacation Test is a great test to [00:14:00] see if your business is very dependent on you, or can it function day to day without you in it.

The fifth consideration is reoccurring repeat business. Even though we mentioned that in the financial part, I wanted to spend a little extra time talking about it. 

You want to make sure that your business has recurring repeated revenue and clients.

Is there something that I can offer in my business as a subscription model? As we talked in contracting, doing maintenance is one of them. If you're in health and wellness, maybe a monthly beauty rejuvenation. You can be very creative if what you offer to the clients. 

Think about product based businesses, they do those subscription boxes. Once a month, the client keeps paying the price and they get some amazing things. 

What can you offer to your clients in terms of services, or maybe you can [00:15:00] partner with a product business or create your own product that could be a subscription model. 

Loyalty programs. Having loyalty to encourage the clients who already love you to come back on a much regular basis. And even processes that do that. 

For example, if you are a recurring service provider like a hair salon or a spa or a massage therapist, and normally it would be in your best client's interest to come back to you once a month and every other month. Having even a simple process of booking the next appointment with the client when they're leaving their current appointment and paying you. It's already a great process to have in place rather than leaving up to the client to rebook with you when they come back home and get back to their busy life and forget and instead of coming next month or in two months, they come in six months.

And then depending on your industry and the type of business, you could also secure [00:16:00] longer term contracts with clients who need ongoing services. 

In corporate world, when we were in facilities management and we're maintaining buildings for the clients, managing the budgets and buildings, the contracts went from three to five to even 10 years.

Think about having a five year contract. That's a very good low risk business model because if you have a buyer who let's say buying a business and you're in a second year of a five year cycle of that contract they know that for the next three years they have the recurring revenue. They have a potential of building a relationship with the client so by the time the contract gets to the renewal, the buyer will have a big chance of renewing it. 

Now not every industry can't do that. But if you are in this industry, think about it, be creative. Long term contracts with multiple clients, not one or two, but multiple clients are a great way to create recurring [00:17:00] and repeat business.

The sixth consideration that will raise your valuation of the business is a strong market position. And what it also does, it makes your business immune to competing on prices only. It gives you that competitive advantage. 

What is strong market position? Differentiating your business through unique services, or even if your service type is not unique, the way creating a unique delivery, some intellectual property that you only do. Superior customer service. Everybody loves to be served well.

Some specialized expertise or getting into a niche that not everybody can do is giving you a competitive advantage. Also thinking about "what type of markets am I operating in?" Am I [00:18:00] in markets that are growing and stable and the predictions for the future are good or am I in a declining market?

If am I in a declining market, I might need to add some services or change to markets that are growing.

Another way you want to differentiate yourself from the competition is it's creating stickiness with your client. So offering something that it's not easy to replicate. For example, having intellectual property processes, something that's unique to you. Creating exclusive partnerships with other complimentary brands and building that strong brand loyalty. Think starbucks, iPhone, and Nike. Brands that have just loyal customers that will buy whatever they issue new; and they're not inclined to switch to different brands.

The seventh consideration is [00:19:00] operational efficiency. Having good cost control, where your overhead costs are as low as possible while maintaining high service quality. So it's not about chopping costs to the point where you can't serve the clients anymore at the highest level, because then you start competing on price. But your client shouldn't be paying for your inefficient business.

There is a balance between high value or high quality service and what it takes to deliver that service and keeping the costs as low as possible. Streamlined operations help with reducing that cost. When you have optimized workflows, when you have technology, automation, you can use your people to actually be creative, add to the competitive advantage, and do things that only humans can do.

[00:20:00] If you're a business that has physical products for example, spas, you want to manage your inventory effectively just to reduce carrying costs and freezing the costs in unnecessary products that maybe stay there for too long. And then potentially you have some losses with those products.

The eighth consideration is having a documented growth strategy. Every business should have a growth plan and growth strategy. Even if you're just starting because it keeps you focused. And with the strategy you can accommodate for everything that you need to pay attention to. And create actionable steps to do that.

That means marketing and sales plan. Showcasing, what are the strategies we're using. What is our sales approach. And every year, it should have [00:21:00] things that are trusted and proven and you're working that. But you're also exploring new things. Because markets change, technology change, clients preferences change.

Then you want to have a sales pipeline. Maintaining a healthy pipeline of potential clients that demonstrate future growth opportunities. And when you're thinking about selling your business, that all has to be documented. It cannot be in your head or in somebody's notebook.

Documenting expansion opportunities. Highlighting different opportunities for new business, whether it's geographic expansion, new service offerings, and partnerships. 

Part of every strategic plan is the SWOT analysis: strengths, weaknesses, opportunities and threats. Strengths and opportunities, are internal and external, that comes to growth of the business.

Whereas threats and weaknesses, it's about [00:22:00] identifying potential risk and reducing this risk. Planning what to do about them. They're internal and external.

The ninth consideration is legal compliance and readiness. Having proper business structure, clean legal history, proper licensing. If you have intellectual property, then protecting it with trademarks, patents. That increases the value of your business. 

And then the last one, planning your exit. So when you prepare for sale, working with a business broker and some advisors who specialize in it, just to make sure you have everything well prepared.

You want to have a transition plan for transitioning your role, but overall handing the business to the new owner and tax optimization. Structuring the sale in a tax efficient manner for yourself. So consulting a tax advisor is always great.

Now you might be [00:23:00] thinking, okay, Maggie, that was a lot. I'm not thinking about selling my business anytime soon. How does it help me? This helps you because it gives you a playbook of what you need to put in place for your business to operate well. All those things; it's not just about raising valuation and be ready to sell, but this is about building a successful, prosperous business.

The sooner you start putting those things in place, the faster you'll grow. Especially when it comes to strategy and having a plan, and having a scalable business model, recurring revenue and clients. All that just helps you be successful in business, but then it also just builds a good foundation.

Now, if you are just starting and you're like, Maggie, I just had a side hustle. I haven't really made any money yet or barely. What you want to focus [00:24:00] on is building recurring revenue in the clients. That's the first consideration. But then as you grow you can look at all the other things. If you want to start taking this seriously, really grow your business well, and start treating your work and your resources that you put into your business as investments. So down the line you can sell the business no matter whether it's in five years, ten years, or twenty years.

I can help you. And I will help you do it in a progressive way. The best way for you, depending on where you are on your journey. All you need to do is schedule a free consultation with me. I always leave the link to my calendar in the show notes. I hope to talk to you soon. And thank you for listening.

Don't forget to subscribe to the podcast. See you next week. Bye.