Risk & Business Magazine McFarlan Rowlands Fall 2016 | Page 29

MAKING YOUR COMPANY SELLABLE

“The big thing to remember when selling your
business is that if it’s not valuable to you, it
won’t likely be valuable to someone else
either, especially if the entrepreneur
can’t step out upon sale”.
factors that determine whether--and for
how much--a private company can be
sold. Do it right and you get to walk away
a rich person. Don’t ignore any of these
key factors.
1. FINANCIAL PERFORMANCE
Tech deals like Zappos and Whatsapp
cloud the mind from conventional
thinking about business. Those deals are
the exception, not the rule. Warrillow
points out most companies are valued
on how much they sell and, even more
importantly, how much profit they make.
Warrillow also explains that smaller
companies are discounted for higher risk.
So maybe bigger is better.
2. GROWTH POTENTIAL
Warrillow gives great insight on how
your rate of growth can impact value.
Investors are trying to buy something
that has the ability to scale. Otherwise
there is little upside to them to pay a high
price or even be interested. Warrillow
outlines several creative ways to grow and
expand.
3. OVERDEPENDENCE
Having a giant client is great for fast
growth, but when they are more than 15
percent of your business, that can be a
red flag for a purchaser. There is a risk of
attrition when a company is sold, and if
the big player leaves they may take all the
profit with them. No need to drop the big
customer, just get more of them.
4. CASH FLOW
If a buyer has to invest more than the
purchase price to make the company

achieve maximum value, they are going
to discount the sale. Warrillow says the
highest value companies are those that
can finance their own growth internally.
Hoard that cash and grow steadily. Focus
on cash management and efficiency to get
top dollar.
5. RECURRING REVENUE
John Warrillow has been a recurring
revenue evangelist ever since he first took
the stage. Customers who have to renew
save on cost of acquisition and stick
around longer. Companies with recurring
revenue and low attrition provide
bankable models that attract buyers with
deep pockets looking for long term, low
risk ventures. If you currently eat what
you kill, find a way to make your product
or service renewable and addictive.
6. UNIQUE VALUE PROPOSITION
A commodity business will bring
low value due to low margins. Only
competitive advantage can warrant
premium pricing and create barriers to
entry. If your competitors can’t match
your differentiation without investing
time, money and effort, buyers will pay
more to have your edge.
7. CUSTOMER SATISFACTION
Any business with unhappy customers
will be in decline in short order.
Warrillow is an advocate of using Fred
Reichheld’s Net Promoter Score to
demonstrate you