It was my wife’s birthday yesterday. She’d kill me if I told you how old she turned but suffice it to say, it was a biggie (there is a zero on the end).

In an effort to preempt melancholy, I made my wife her favourite breakfast of all time: an egg McMuffin complete with a happy face made of HP sauce:

Kicking off a milestone birthday right

Finding English Muffins in this part of France is no easy task but I was determined to get this milestone birthday off to a good start. Which got me thinking, about milestones. Why is it that we celebrate birthdays or the start of a new year? On paper, it’s just another day, right? But milestones give us an excuse to hit the pause button and remind us of what we have accomplished, all the things we have to be grateful for and gives us permission to dream a little about the future.

So what are the milestones that you’re celebrating on your journey to building a valuable, sellable company?

If I may, here are a couple I think you should consider commemorating.

1. The day you go “all in”

Most of us start businesses while doing something else. You plan your business, maybe make a couple of sales but, as long as you have a job or a few credits left to get, you’re still on the fence. Then one day you decide to quit everything else and commit 100% to getting your business off the ground. Now that’s a day worth celebrating –  not for what you have accomplished, but for the courage it takes to jump off the fence and the adventure that lies ahead.

2. First time someone (or something) makes a sale

Making a sale as a business owner is a bitter sweet feeling. The sense of triumph is tainted by the realization that your business is dependent on you showing up. But the day that your salesperson walks into your office with a signed contract or someone hits the “buy” button on your website without you having to nudge them is a glorious moment in time.

3. A New home for your company

There is something special about moving into new space. A lot of business owners are creative souls at their core and a new environment to work in usually means you’re growing and investing in the future. Definitely a time to throw a party.

4. The million dollar mark

Hitting a million dollars in revenue is a significant achievement. Of the 27 million businesses in the United States, roughly 3%  do more than a million dollars in sales. You’re in an elite group – celebrate.

5. The first shot over the bow from an acquirer

The first time someone approaches you about buying your business is a special milestone. It’s usually an informal advance, maybe over lunch or at a trade show. I remember the first time I was approached by a big company who wanted to buy my marketing agency. The partner in charge of business development asked me to lunch and, once the plates had been cleared,  asked me if I would ever consider selling my company. I asked him what he was offering and he made a vague reference to “ten times”. I thought ten times was a very generous offer for a service business until he revealed he was referring to ten times net income after tax and that most of it would be made available on a five year earn out. While I passed on the offer, a little part of me was flattered to have been approached.

6. One million dollars of EBITDA

While you don’t need to have a million dollars of pre tax profit to sell your business, it is an important milestone to shoot for because it opens the door to a wider range of buyers. Some strategic acquirers won’t consider a business will less than a million dollars of Earnings Before Interest Taxes, Depreciation and Amortization (EBITDA). Also, financial buyers (e.g. private equity companies) have started to come “down market” and some will now consider businesses with a million dollars in EBITDA. You may not want to sell to a financial buyer, but having another offer at the table creates competition for your business.

7. First management team meeting

Cobbling together a senior team is a slow process but eventually you realize that your business is no longer all in your head and that other people have (and want) a say in things. Sitting down with your management team for the first time is a moment to savour – you’ve built a business capable of attracting senior talent and you have taken a giant step towards being sellable.

8. LOI / term sheet / Expression of Interest

Another big milestone is the first time you get a written offer to buy your business. More than empty chatter over lunch, this is a formal document where someone validates – in writing – that your life’s work has value to someone other than you. There’s still a long road ahead before closing day, but you deserve to celebrate.

9. Closing day

You need to down an entire bottle of your favourite bubbly for surviving the due diligence period which is a little bit like how I imagine a stoning to feel.

10. Your last day

In my last company, I remember the final day like it was yesterday. I had ridden my bike to work so when it was time to go, I put on my biking clothes, said my goodbyes, and road off down the street. The spring air has never felt so fresh, my bike had never felt so light. Freedom is a feeling to behold.

Out of interest, what milestones are you celebrating?

DONE DEAL

By Nick Whitmore

Colin (not his real name) sold his central Virginia business-referrals firm after 11 years of running the franchise he’d created.

Prior to closing, Colin’s business generated revenue of $420,000. He decided to sell to focus fully on a new business-advisory enterprise he’d set up.

The business had two divisions: one in Shenandoah Valley and one in central Virginia.

“My mentor told me, ‘You have two businesses within that business, so you could split it up into two and sell them separately,’” said Colin.

Colin didn’t place a single ad to sell his business. He gave his assistant, who was running the central Virginia arm of the business, the option to buy it. However, the assistant wasn’t able to purchase it because of finance issues. In the end, Colin received four offers on his business before finally closing a deal.

The buyer of the central Virginia division was a good friend of Colin’s. “He said, ‘Are you selling it?’ I said, ‘Well, we weren’t, but we’re always open to selling it.’ We really liked the guy, so we said we’d sell it.”

Colin’s former bookkeeper purchased the Shenandoah Valley arm.

In total, Colin’s business was generating $206,000 of earnings before interest, taxes, depreciation and amortization (EBITDA). The business was sold in two parts for a combined total of $550,000, representing an EBITDA multiple of 2.67. The business was sold “as is.” There was no earn-out or seller finance involved.

Deal Snapshot

Business type: Business-referrals
Revenue: $420,000
EBITDA: $206,000
Selling price: $550,000
Multiple paid: 2.67

(photo courtesy of sxc.hu/blary54)

DONE DEAL

By Nick Whitmore

When Ken (not his real name) decided to retire and sell the company he’d spent over 20 years building (12 as owner), his business was generating revenue of around $2 million.

Ken’s rental business offered props (e.g., tents, furniture, dishes) and planning help to those organizing graduations, birthday parties and other celebrations. The established rental business had multiple locations, which included retail space and a warehouse for storing the rental inventory.

Unfortunately, the sale of Ken’s firm didn’t go quite as smoothly as planned, with one of the major stumbling blocks being the value of his rental inventory. Ken placed a value of $1.2 million on it, whereas the buyer valued it at just $600,000.

“One of the key elements in a sale like this is getting a handle on the true utility value of the rental inventory,” said Sue Wain, director of business sales at Calder Associates and Ken’s business broker.

After some negotiation, the parties agreed to a sale price of just over $1.5 million, including all inventory, which represents a 6.0 multiple on Ken’s $250,000 of earnings before interest, taxes, depreciation and amortization (EBITDA). The full amount was paid on closing, and there was no earn-out involved in the deal. Real estate was not included in the sale of the business; the seller decided to lease the premises to the buyer.

Wain believes that Ken made a good decision choosing to sell his business. “He didn’t want to make the additional investment required to grow the business on his watch. He felt like he was inhibiting its growth. It was a perfect invitation for a buyer to come in here, but not only buy it—grow it.”

Deal Snapshot

Business type: Party rental
Revenue: $2 million
EBITDA: $250,000
Selling price: $1.5 million *
Multiple paid: 6.0

*includes inventory valued at between $600,000 – $1,200,000

(photo courtesy of Flickr/ *ASAP*)

This week I was working with my friends Rich and Simon on creating a video trailer for my new book and we were talking about why someone would want to create a sellable business. My friends had assumed – like most people – that Built to Sell is about how to sell your business and sail off into the sunset.  I tried to convince them that the book has a broader message, and is really about creating a business that doesn’t rely on you personally. >> More

One of the most interesting things about researching our new Done Deal series for this site has been discovering how common it is for the person selling the business to lend part of the money to the buyer.

It’s called “vendor financing” and for the sale of smaller businesses, it has become common. Basically you mutually agree to what the company is worth. The buyer then pays you a portion of the money on closing, with the other chunk paid to you over time with interest (the rate is negotiable).

>> More