Two weeks ago at SuperConference I spoke about having an exit strategy…
So you could set yourself up to sell your business for millions…and millions…and millions.
During the question and answer period, one GKIC member said he had a billion dollar company interested in buying his $5 million revenue/year software company.
When I asked him why this company wanted to buy his company, he didn’t know.
Then, I asked him what he thought his company was worth. He told me he thought it was worth $7 Million.
After asking him a critical question, he was surprised to hear me say I thought his company was probably worth closer to $30 Million.
As I’ve mentioned before, as you build your company, a smart plan is to have an exit strategy. And part of having an exit strategy is knowing what your company is truly worth. So the one BIG question you always want to keep in mind is:
“Why would someone want to buy my company?”
Knowing the answer to this will help you correctly determine what your company is worth to a potential buyer.
Here are some of the top reasons a business might want to acquire your company:
Your customers: Dan Kennedy often talks about knowing your customer’s lifetime value. If you know this, some simple math will help you determine with high predictability the revenue that will occur. For example, if you know that the average lifetime value of your customer is $2,376 with an average of 2,000 customers, your customers would be worth $4,752,000.
Trade secrets, technology or know-how: Do you have a product or system for doing things that’s better than what the buyer currently has or that is the best available on the market? Acquiring a company for trade secrets, technology or know-how can give the buyer a competitive advantage. Plus by buying you, they eliminate a potential competitive threat.
Your marketing systems: We have hundreds and hundreds of GKIC members who talk about how the marketing systems they’ve learned from Dan and subsequently put into place, have made them virtually untouchable in their market space. One of the reasons for this, as cited by GKIC member and attorney, Ben Glass, is that it’s too difficult for others to duplicate. When you look at the time, money and know-how invested, your marketing systems can definitely be a driving factor in why a buyer would purchase your company. Therefore, this should definitely be considered when determining your worth.
On a side note, as it turns out, the reason the billion dollar company is interested in buying the aforementioned GKIC member’s software company is because of his marketing…and is why his company is worth $30 million instead of $7 million.
Recurring cash stream: Do you have continuity programs, subscriptions or long-term contracts? Recurring and/or predictable income streams are reasons a buyer might consider purchasing your company, especially if your rate of return is higher than what an investor can get on his money on an investment with similar risk. For example, if your company can reliably put $100,000 in the bank every month and your ROI is thirty percent, and the best return he can reliably expect in another investment with similar risk is only ten percent, then buying your company is a no-brainer financially.
Often companies are purchased for more than one of the reasons stated above, however regardless of the reason, it is crucial for you to know why a buyer is interested in purchasing your company. When you do, you’ll have a better understanding of what your company is truly worth and avoid undervaluing it or selling it below its true worth. Plus you’ll have the information you need to solicit other competitive offers, setting yourself up to get the best price possible for your company when it comes time to sell.
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