(0:00) Sell ability isn't just about exit, it's about excellence. When you build a business that (0:05) someone else would want to buy, you're building a business that works for you too. (0:09) Welcome to The Margin Method, where I share real-world advice for founders and CEOs (0:14) who want to stop growing stress and start building margin, so they can grow profitably, (0:20) scale with clarity, and build a business that's valuable and optional, not dependent. (0:25) Because the best business is one that can run without you. I hope you share and enjoy.

(0:31) So far, we've been talking about building systems, managing cash, (0:36) tracking the right metrics, and scaling with clarity. But today, I want to ask a hard question. (0:42) Is your business actually sellable? And let me be clear, I'm not talking about to founders who want (0:48) to exit tomorrow. I'm talking about to you, even if you're planning to run your company for the (0:52) next 10 to 20 years. Because here's the deal, a business that's built to sell is also a business (0:59) that is built to scale. So in this episode, we're going to unpack what makes a business (1:04) truly valuable to someone and what silently kills deals before they even get started. (1:10) Whether you want to sell someday or never sell at all, this is going to give you a new lens (1:15) on how to lead.

(1:17) Let's start with the why. Even if you don't want to sell, building a sellable (1:21) business gives you options, freedom, leverage, resilience, and probably most importantly, (1:29) a peace of mind. Think about it. Would you rather have a business that you could sell for a premium (1:33) if you needed to, or one that runs without you, earns a healthy return and gives you choices? (1:40) That's the mindset shift we're after here. And honestly, it changes everything.

(1:44) So I can't tell you how many business owners I come across and like, Steve, every day we get (1:48) solicited to people want to buy our business. And I'm like, that's great. Okay. But I know (1:55) some people out there and they couldn't even sell their business if they wanted to, (1:59) or they would go to sell the business and they would have a huge awakening because they may think (2:05) their business is worth a lot more than it really is.

(2:08) So you don't want to find yourself in that spot because sometimes it'll take two years, three years, four years to fix things. For example, (2:15) key man risk or key client risk or data risks or system risk, whatever it is in your business, (2:21) those things take time. So you have to plan in advance if you want to sell your business.

(2:25) So if you're listening to this and you're thinking, I want to get out, I want to sell my business (2:29) and I want to be out in two to three years and you want to be done, done. I'm not talking about (2:34) like selling your business and then having the golden handcuffs that require you to stay (2:38) as like a consultant or an employee of the business to help with the transition. (2:42) Like you have to start planning now, right? You have to plan now.

(2:47) So let's talk about this. What makes a business attractive to a buyer? So whether it's a private equity firm, a strategic (2:53) acquirer or a solo entrepreneur or your brother, whoever it is with funding, they're all looking (2:59) for five main things. Okay. Maybe not your brother. Maybe they're being nice to you.

(3:03) All right. Number one, strong financial performance. So we're talking about healthy (3:08) revenue growth, solid gross and operating margins, free cashflow, and clean books. (3:15) So some of those things we covered in last week's episode, when I talked about the five (3:19) metrics you have to know cold as a CEO. So check that out if you haven't already.

(3:24) But here's the deal. Buyers, they want a business that's already working, not one they have to turn (3:29) around. I do turnarounds and I could tell you some of the companies I turn around, I wouldn't buy. (3:33) I wouldn't invest in until they were turned around. Now I could take on risk because I know how to (3:39) turn around a business, but most people, they don't want to just come in and do a turnaround (3:43) scenario. They want to buy a business with healthy, consistent cashflow.

(3:48) So if your financials are sloppy, outdated, or full of all these adjustments, it erodes trust super fast. (3:55) Want to stand out? Track your metrics monthly, use accrual accounting, and then keep your books (4:00) super clean and investor ready.

(4:02) So I'm like psycho anal when it comes to financials and the formatting (4:07) of financials. I can't tell you how many times I come across companies and their financials aren't (4:12) even formatted right. They have things down in operating expenses that should belong up in cost (4:16) of goods sold. And that's a problem, right? You don't want to make these adjustments later on.

(4:21) So if you have clean financials, if you have a dashboard where you're like, look, these are the (4:25) KPIs we're tracking, here are the trends. I mean, think how much more valuable your business is (4:30) going to be to a potential investor. All right. So that's really critical.

(4:35) All right. Number two, owner independence. This is huge. If your name is on every client relationship, (4:42) every key decision, every approval, you don't have a business. I'm sorry. You don't. You have a job.

(4:47) Because buyers want a business that can run without you. So ask yourself, (4:53) could the business survive 90 days without you? I'm talking about if you go on a vacation for 90 (4:58) days, you shut off your phone, you disappear from the world. What would happen to your business?

(5:03) And if you say it can run, great. Okay. Try it for six months and then try it for a year. (5:07) And if you can do that, then you're in a really good spot. If you can't even leave for a week (5:12) without your business blowing up, that means you have extreme key man risk.

(5:18) The next thing I'd be asking yourself is who owns the relationships — the client relationships, the vendor relationships — because if they all funnel through you, once again, that could be problematic. And then who makes all the decisions? So once again, are you the bottleneck in your organization? Does all the decision-making rest on your shoulders? Because that's key man risk, right? You leave and nobody knows how to make decisions for themselves. That's problematic.

(5:41) So the more your team owns and operates the day-to-day, the more valuable your company becomes. And just so you know, the key man risk — it could be a 20 to 30% discount on your valuation. You don't want to go sell your business for $10 million one day and take a 20 or 30% haircut. That would not be good. You’d look like me. I'm completely bald. If you don't know what I look like, just look at the podcast cover.

(6:02) All right, let's talk about repeatable revenue. Number three — this doesn't have to mean subscriptions, though those are great. It just means, can someone predict what revenue will look like next quarter or next year? For example, do you have retainer clients, long-term contracts, consistent reorders, and/or high customer lifetime value? And if you're starting from scratch every month, your business is going to look super risky.

(6:25) Buyers want to see stability and predictability, not one-off wins. That was the thing with my landscape business early on. We didn't do a lot of maintenance. We were doing new builds. So we're doing renovations, construction — like landscape construction. And the problem was that we had really healthy revenue and really healthy margins, but it was very lumpy.

(6:52) We were doing jobs and some of them were like $200,000 to $300,000 a piece, right? So that just created very lumpy revenue and it was very unpredictable. Because if one of those jobs went away or we didn’t win one of those jobs one month or one quarter, then our financials would be all out of whack.

(7:04) So people want repeatable revenue. That’s number three — super important.

(7:11) Number four, documentation and process. This is where systems matter. So I'd ask yourself: number one, are your key processes documented? Number two, can a new team member follow them without a two-week shadow session?

(7:30) Because if you can give them work instructions and a checklist to follow, that’s super key. Which leads into the next one — do you have SOPs (standard operating procedures), playbooks, handoffs, etc.? Do you have an operating guide to drive your business?

(7:48) This is really, really critical. This lowers the perceived risk and it makes integration 10 times easier for the buyer. Because if it's documented, you'll be able to demonstrate it — and then you'll be able to duplicate it. It also shows maturity and discipline in the business, which is a major credibility boost.

(8:03) All right, number five — low concentration risk. This one gets overlooked all the time. So ask yourself: number one, does one customer make up more than 20% of your revenue? If so, that could be problematic. Number two, does one vendor or partner control a critical piece of your operations?

(8:22) Think about what happened with COVID — with supply chain issues — this really hurt businesses and brought this to life. So if you answered yes to either of these, you have a concentration risk. And buyers will see that as a huge red flag. And oftentimes they'll want a discount on the value of your business, or they may not even want to buy your business.

(8:39) The goal is to build a business where no single relationship can sink the ship. Diversification here equals durability.

(8:51) Let's get into what kills a deal, even with strong numbers. So we'll talk about the flip side. I've seen deals fall apart not because of the P&L, but because of these silent killers.

(9:04) Number one, dependency on the founder. Without them, this thing falls apart. Number two, no financial clarity — unexplained expenses, blurred personal and business lines, etc. Sloppy accounting kills deals.

(9:17) Inconsistent performance — you're up one year, you're down the next, and there's no clear story. Most people don't like risk and uncertainty. Legal or compliance issues with your contracts, your IP, your licensing, HR problems, lawsuits — all that stuff. Okay, that's not good when you go to sell.

(9:37) Team turnover. That means having a weak bench, no leadership beyond the owner. There's nobody to backfill certain people. So if they leave, it creates a major hole in the business. You're definitely going to want to fix this in your business, if this is you.

(9:52) So if any of these sound familiar, it doesn't mean your business is doomed. That's the good news. It just means it's time to level up. And that's the good news because all of these things are fixable. They're in your power.

(10:02) Let me share a real-world example. A founder I know built a $7 million service business over 12 years. Amazing work, loyal clients, solid margins. But when she tried to sell, buyers backed out again and again — which was heartbreaking to see.

(10:16) So why did this all happen? 85% of her revenue came from three clients. She was the face of the business and in every deal. And there were no real SOPs, no leadership team, no operating system. She'd built a high-revenue business, but it was not transferable.

(10:41) So after a rough year of failed deals, she took a step back, brought in a fractional COO, delegated client relationships, and then built real systems. And two years later, guess what? She exited for seven figures with earnouts tied to performance — not her presence.

(10:54) Now, I'm not a big fan of earnouts, but that’s what happened in her situation. More on that later. But nonetheless, that's the shift. That's the difference between growing a business and building one that's worth buying.

(11:06) So here's a quick self-check you could do right now today.

(11:13) Number one, could the business run for 90 days without you?
 Number two, are 80% or more of your clients under contract or highly likely to return? That revenue retention — that stickiness — is really good.
 Number three, can someone outside your company understand your financials within an hour? If not, it means that you have sloppy financials, and that's going to be a major problem if you go to sell your business.
 Number four, are your processes documented and followed consistently?
 And number five, is no single client responsible for more than 20% of your revenue?

(11:48) If you answered yes to all five, you're in great shape. If not, no stress. Just focus on closing the gaps over time.

(11:53) Here's the final word. Sell ability isn't just about exit. It's about excellence. When you build a business that someone else would want to buy, you're building a business that works for you too.

(12:05) That's why it's always a good idea to build a business that is sellable — even if you don't want to sell it. Because you will reap the rewards. It will give you options. It will give you freedom. It will give you peace of mind.

(12:16) So here's the challenge, okay? Can I give you a challenge? A little invitation? Start thinking like a buyer, build like an owner, and then lead like someone who's creating real lasting value.

(12:27) Right. Coming up next — the next episode — I'm going to be talking about the hidden value killers in your business model. We'll dig into the silent margin drains, low margin services, bloated SG&A, underpriced labor, and how to fix them all.

(12:46) So until then, subscribe if you haven't. Also, it means the world to me if you would share this with a founder who you might think they're building value, but could use a little reality check.

(12:58) And remember, just keep building a business that creates freedom, not just more work.

(13:03) All right. I'll catch you in the next episode. Take care of yourself. Cheers.