Erik is joined by John Warrillow on this episode of the Franchise Secrets podcast to talk about building and selling a business. The guys break down some of the myths and pitfalls about selling your business, all the things you need to be thinking about from the very start, and how to achieve the highest value possible for your business.
John Warrillow is a master of building and selling businesses, founding The Value Builder System to help others become the same. John’s a best-selling author of several business books on the topic and he’s the host of Built To Sell Radio, interviewing hundreds of successful founders following their exit.
John’s background (1:40)
John discusses his experience and what you might know him from.
Selling a business too reliant on the owner (2:55)
Erik asks John about the difficulties of selling a business that is so reliant on the owner and their inability to take a step back.
How to perform due diligence in equity companies (4:44)
John gives his thoughts on selling a percentage of a business to a private equity company, including where there are risks and what you should be looking for in any deal.
When to think about building a sellable business (9:45)
John likes building a business to being a parent. While you might have dreams of what it could become, simply nurturing the company to be the best it possibly can is the best way of building a sellable business.
How to know when you’re in the right mindset (13:01)
Following up on the last topic, Erik and John talk about knowing when you’ve got the right entrepreneurial mindset to build and sell a business. John also breaks down how basing your company around your personal brand actually hurts when selling a business.
Finding higher-multiple businesses (15:45)
When beginning with building and selling a business in mind, finding the ones with a higher-multiple exit is ideal. But where do you go to find those types of businesses? John explains some of the myths and misnomers with the idea, as well as what you really should be using to find the real value.
What can impact Discounted Cash Flow valuations (18:00)
Erik and John talk a bit about how things like leases impact the value of a business and how to calculate Discounted Cash Flow (DCF).
Calculating Discounted Cash Flow for a business on a downward trend (21:12)
Selling a business that’s successful is always the goal but if you’re looking to sell and revenue is expected to take a hit in the coming years, John notes that it’ll dramatically impact your Discounted Cash Flow valuation and could even kill the deal.
What is gross margin? (28:03)
John explains what gross margin is, how to calculate it, and how important it can be when selling a business.
The impact of COVID-19 on selling a business (29:51)
Erik uses the example of fitness businesses and the struggle they’re having during the pandemic to ask John about the difficulties of buying and selling businesses right now. John breaks down what things both sellers and buyers should consider going into a deal.
The differences between selling to individuals and private equity group (38:07)
Not every sale is going to be the same and depending on who you sell to, there are major differences. John breaks down how and why selling a business to an individual differs from selling to an individual.
John explains what pre-diligence is and what it encompasses, giving an example of what it looks like and the impact it can have.
What is a virtual data room (42:09)
John details what a data room is and how it’s used for sellers and buyers.
Key takeaways from “Built to sell” (43:34)
One of John’s books “Built to sell” is about the process of turning a company’s diverse set of offerings into more of a niche service in order to sell the business. Erik and John talk about how that process would work with Mighty Dog Roofing.
Do potential buyers look at customer reviews? (48:03)
John discusses how customer reviews and Net Promoter Score can have an impact on selling a business.
Key takeaways from “The art of selling your business” (49:10)
John discusses his book “The art of selling your business” and how he wrote it as a field guide of sorts for the process of selling a business.