Every potential acquirer is going to need The Question answered to their satisfaction before they agree to buy your company. There is no telling when you’ll get The Question. Some acquirers will pose The Question in your first face-to-face meeting. Others will wait to pose it over a business dinner after you’ve had a glass of wine. Still others will wait until the final days of due diligence before posing The Question. Rest assured, you’ll get asked the following question:

“Why do you want to sell your business?”

A seasoned acquirer will be looking at every aspect of your response from what you say to how you say it. Many deals have been derailed by bad answers to The Question. Here are six of the worst responses you can give to The Question:

1. I’m just ready to do something else
2. I’m tired of this business
3. I think our best days are behind us
4. I want to make a lot of money
5. I need a vacation
6. I think the market might turn on us

Here’s a better response to The Question:

“I’m proud of what we have built and I think we have a lot of room to grow. Personally I’m at a stage of my life where I’d like to create some liquidity for the value I’ve created so far and find a partner who can help us get to the next level”

The response above hits some key points:

• You’ve created a business of real value that you expect to be paid for
• You believe your business has lots of potential upside to grow
• You’re willing to stick around to help the acquirer unlock some of the upside

How you deliver the response is equally important. When you get The Question, stop whatever you are doing. Look up and find the eyes of the potential acquirer. Lock on them. Do not hesitate. Deliver your answer crisply without sounding rehearsed.

You will get The Question and a tight response is essential to selling your company.

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Do you accommodate your clients when they ask you for a little something unique? If so, you may be pleasing a client at the expense of the market value of your company. Let me explain by using an example. North of Toronto there are a series of lakes called “cottage country”. The unofficial capital of cottage country is a fast food restaurant called Paul Webers. “Webers”, as locals refer to it, is an example of a company with a Standard Service Offering.

Webers has decided what they are good at and have stopped doing everything else.

At Webers, they serve 800 hamburgers an hour on a typical Saturday. You can have your burger with cheese, ketchup, onions and a few other condiments. You can also order fries. That’s about it. The menu is so basic it fits on one sign that hasn’t changed much in 20 years. The simplicity and consistency of the menu and model means Webers can focus on hiring inexpensive summer students with not much more than a quick smile and a youthful appearance.

Now Webers is not for everyone. A lot of people see the small menu and the rigid practices to be factory-like. They’d rather be able to order their burger medium rare or get a side of chipotle sauce. That’s fine, Webers isn’t interested in changing its model for the 20% of customers for whom it doesn’t work, when they can stamp out the formula for the 80% who love the simplicity.

Now this only works if you’re good at delivering your Standard Service Offering. Webers burgers are excellent and the fries are so laden with Lawry’s seasoning salt they will have you gulping down your chocolate milkshake. But it is not the food that makes Webers worth studying – it’s the Standard Service Offering that gets you your burger. My favorite nuance of the Webers model is watching the servers move you through the line up. You arrive at Webers on a typical weekend with a queue snaking out the door. Your spouse convinces you to stop because, they remind you, the line moves fast. You approach the line and the friendly fresh-faced college student takes your order. She then runs back inside to make sure your order is put into the rotation and comes out with your bill and the change for pretty much any denomination of cash you might hand her. If you’re bill comes to $24.67 your server has exact change for two $20 bills or a $10 and a $20 bill or a $50 bill or a $20 bill and $5 bill. It’s like she has read your mind. Again, when all you make are burgers, and all you take is cash, you get good at anticipating the combination of bills someone is likely to hand you.

We service providers have a problem in that we like to say “yes” when a client asks for something a little unusual. It is in our DNA to find a way to help. The problem with being flexible and veering off your model is that it requires human intervention. The broader the customization, the more senior and experienced people you need. The more senior folks you rely on, the more a potential acquirer will see you as a people business and no company wants to buy a bunch of loosely affiliated people. Acquirers don’t want to buy a delicate collection of people; they want reliable, predictable cash machines.

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Create a positive cash flow cycle and you will increase the value of your business. A Positive cash flow cycle simply means you charge for your product/service up front, then set about on making your product or delivering your service. Negative cash flow cycles are the opposite: deliver your service / make your product and then present the bill. I first learend about positive cash flow cycles from  Verne Harnish who has written extensively on how Dell went from the brink of bankruptcy to a cash engine by flipping their model from a negative to a postive cash flow cycle.

Your goal should be to get paid first, then to deliver your service. The problem is, we’re not used to paying for services up front. When you go to a restaurant, you expect to eat first and then be presented with the bill. If you have your windows cleaned at home, you expect your windows to be spotless before you pay the cleaner. It is a standard and accepted practice to pay for services after they are rendered. Some service providers will charge a deposit up front but typically the bulk of their compensation comes at the end.

This phenomenon is perpetuated by service providers who are stuck in a never ending cycle of providing whatever service their clients want and simply charging an hourly or daily rate. Not knowing how many hours you will invest in a project makes it difficult to charge for anything other than a deposit in advance (unless you’re a lawyer and don’t mind the backlash of asking your clients for an open-ended “retainer”).  This means you end up presenting your bill long after you first started the assignment.

You need to create and name a Standard Service Offering and it will look to prospective clients as if they are buying a thing, a product, a tangible item they are socialized to pay for in advance. When you go to Costco, you know and expect to pay for the 24 pack of toilet paper before you use it. It’s a product and you pay for it first.

Your goal should be to make your service appear like a product and charge up front. This means the more you sell, the more cash you accumulate. If your typical service takes a month to deliver and you get paid before you start, you get to use your client’s money free for 30 days. If your service takes one year to deliver and you charge up front, you get to use your client’s money for an entire year. Now imagine 10 clients pay for your service up front. Now imagine 100…you will never need to rely on bank financing again. In fact, you’ll be giving the bank money and asking them to get a decent return on it because you’ll have more money than you need in the short term to run your operations.

Positive cash flow businesses are worth more because a) acquirers do not need to commit their capital to funding their day-to-day operations and b) the bottom line is fatter because positive cash flow businesses do not incur financing expenses and they often have some investment income to juice the revenue line.

Make your service a product and then charge up front. Your business will be more fun to run and you’ll get more for it when you go to sell.