Video Summary

This was a short video I threw together for a machine shop owner who was looking to retire.  Here’s what I had to say: You’re the owner of a machine shop, you’re looking to sell, and your goal is to make sure you’re set up for retirement. To do this, you need to sell your business for the maximum amount, or if you’re transitioning the business to an employee for a residual profit share, you need to make sure the company is profitable. In both of these cases, the most important three items are: #1 the value of your long-term contracts/blanket orders #2. The value of your machinery & facility and #3 Your lead generation mechanism.
Let’s put ourselves in the mind of the buyer. As a buyer, sure I want to know that if the worst case plays out, I can sell the equipment and facility for a profit. At face value, I am concerned with your on-going contracts. Are those contracts going to stay in place if you leave? Even if I am confident that they will stay in place for the time being, there’s not guarantee about the future. So my mind turns to the question of “How did you get these contracts in the first place, and how can I ensure that opportunities will come my way after you leave?”
This brings us to the answer to the question posed in the title of the article: The worst time to sell your business is when you don’t have any opportunities on the horizon. These opportunities, these leads that haven’t yet become customers, are the future potential of your business, and they may very well be the most attractive aspect of your business to me as a buyers.
Unfortunately, the one factor that could get you the top of market price for your business is the one factor that you almost certainly have not paid attention to. Think about it: If I was looking to buy your business, and I saw you were getting new leads on a weekly basis, how much value would that have to me? As the writer of this article, I recently purchased a business, and I’ll tell you that the lead generation machine was my primary concern. Without consistent/automated lead generation, I know that the business could easily go bankrupt in 12 months when the current contracts expire.
You are 100% shooting yourself in the foot if you try to sell your business right now, with no thought to the future buyer’s long-term success.
Let’s do a little math. If you were to generate 1 lead per week, your close rate is 10%, and the average value of a job you take on is $50,000, that means you will add $260,000 in revenue every year. This means a whole lot more to a potential buyer than the $800,000 revenue you currently have locked in for only the next 12 months. This optimal situation of consistent lead generation would easily add 30% to your valuation.
What sort of investment would you have to make to increase your valuation by 30%? Say you were trying to get $1.6M (a 2 year valuation) If you were to upgrade your equipment, you’d need to spend $500,000 to gain 30%. If you were to upgrade your lead generation, you’d need to invest about $35,000.
What’s my recommendation? Get as aggressive as you can, as fast as you can with SEO and an upgraded website. Within 12 months, you’ll be consistently generating new leads, and heck, you might not even want to sell your business any more.