Selling a Business? Chase Your Happy Exit

The reason for selling your boutique is very personal. And it should be. You poured your life into building the firm. Leaving it and handing it to someone else takes much thought. Some owners sell for the money. Others say they are bored or exhausted. Others say that the work became a job. It was not fun anymore. 

Some professional services firm owners are afraid that tomorrow might not be as profitable as today. At times, partners start fighting, and one needs to be bought out. Maybe it is time to retire. Or perhaps you are getting divorced, and the assets are being divided. A health scare causes some to consider selling a business. The list is long.

When selling a business, you should aim for a happy exit. I have met owners who have had happy exits and owners who have had unhappy exits. What is the difference? Those who had happy exits knew why they were selling. Those with unhappy exits made one of the biggest selling mistakes: they did not have a reason.

Happy Versus Unhappy Business Exits: Real Case Example

If you are wondering how to sell a business, your first step is understanding your why. I am fortunate to be one of those professional services firm owners who had a happy exit. I knew why I was selling. Allow me to share my personal journey with you. 

I started my firm to answer a question: “How good am I?” I thought starting a firm from scratch was the purest way to find out. I started with no customers, no product, and no employees. I put all my money into the new firm and rolled the dice. If I blew it all, I was prepared to start over. If I was successful, I could look in the mirror and know what I was made of.

As time went on, I matured. I developed a personal mission statement. I outlined a vision of my future that I wanted to pursue. I determined how I wanted to behave. I codified this into eight core values, and I lived by them.  

I became a skilled decision-maker. I made good choices, which created new opportunities. I met many different types of people. I learned which tribe I wanted to belong to. I discovered how best to spend my time. I knew what my limitations were. 

This led me to goal setting. I settled on a single goal: self-actualization. The concept of full personal potential lit a fire in my belly. I began to evaluate my boutique against this goal. Was being the owner and CEO of this firm helping me self-actualize? The answer was no. 

The firm was providing things to me that were no longer important. My basic needs for food, shelter, and the like were secured for a lifetime. Safety for myself and my family was stable and certain. I had an identity outside of work. My need to belong was being fulfilled elsewhere. And most importantly, I had answered my burning question. 

The firm was thriving. I had become wealthy and had received plenty of recognition. I was validated internally and externally. I had reached the point of diminishing returns. There was nothing left for me inside the boutique. 

After reading a book called Halftime: Moving from Success to Significance by Bob Buford, I realized where my journey needed to go. The next stage in my entrepreneurial journey was not owning a boutique but selling it. I then had my reason for selling a business.  

Top Ten Questions to Ask Yourself Before Selling a Business

When selling a business, you need to have a clear reason. And this reason needs to be personal and well-thought-out. If you are looking for a happy exit when developing your business exit strategy, these are the questions you need to ask yourself:

1. Do you have a clear vision of your future?
2. Will selling your business help you to get there?
3. Do you know the reason why you do what you do?
4. Would selling a business bring you closer to your purpose?
5. Do you have a set of core values that define how you behave?
6. Would selling your professional services firm allow you to behave the way you want?
7. Do you know the type of community or tribe you want to be part of?
8. Would selling your firm allow you to spend more time with this community?
9. Will you be using the proceeds of the sale on more than just material possessions?
10. Are you prepared to start your next chapter and sell your business? 

How you answer these questions will determine whether or not you are ready to sell a business. For example, if you answered yes to eight or more questions, you know your reason to sell. If you answered no to eight or more, do not sell your business. You are not ready to exit yet. 

Happy Exits Are Possible Once You Know Your Why

Every entrepreneur exits. We all die. You cannot run your boutique from the grave. Most of us sell our firms before we die. There are good exits. Some owners are happy after they sell. There are bad exits. Some owners are unhappy after they sell. 

So what will set you apart from those owners who have unhappy exits? A great business exit strategy starts with a genuine, passionate reason to sell. If you have this, then selling a business is the next logical step for your career. 

Join us today to learn more about how the Collective 54 mastermind community can help you sell your firm faster. Our community offers valuable and irreplaceable collective knowledge from peers and mentors in the professional services industry. 

How to Scale An Accounting Firm to Sell: Know the Growth Facts

Boutiques are attractive to potential acquirers when they are growing. And your growth rate is determined based on growth in revenue and profits. Also, growth is relative. It is relative to the other boutiques in your space and the growth rates of an existing practice inside of a market leader. You are attractive if your accounting firm is growing more and faster relative to the alternatives.

Most professional services firms are private. Therefore, data on growth rates are hard to come by. Accounting firms often think they are growing and scaling nicely, only to learn later that this isn’t the case. And finding this out during due diligence is embarrassing.

If you are devising a scalable plan for your accounting firm so that you can sell your business, remember that growth is relative. Scaling a business takes time. A year or two of great results does not mean you have a sellable boutique.

Case Study: When a Scalable Plan Leads to an Unsellable Firm

I was recently involved in an auction of an IT services company. This company had a strategic relationship with the software provider Tableau. They helped clients use their data to make better decisions through data visualization. The investment bank running the auction touted the boutique as a high-growth firm. 

When I met with the management team, they were proud of their accomplishments. I was presented with slide after slide of steep revenue and profit growth. And this growth was accelerating. I had looked at a few firms in this space and had an unfair information advantage. This boutique grew revenue at 22 percent per year and had done so for about three years. The problem was that their boutique competitors were growing their top lines at twice that rate. 

You see, the data visualization space was hot. A rising tide was raising all ships. When I dropped out of the bidding process, they were insulted. I explained my rationale and provided my evidence. They claimed that my comparisons were not apples to apples, that the firms I compared them to were not “pure plays.” 

This firm was not able to find an acquirer. It appears that I was not the only one with a command of the facts. And the story gets worse. The data visualization space cooled off. Tableau, the golden goose, stopped laying eggs. As their growth rate and scaling slowed, so did the growth rate of its service partners. 

What is the moral of the story? Know your facts. Growth is relative. When creating a scalable plan for your accounting firm, you have to look at your business from all sides. Don’t take your revenue or profit growth at face value. Compare it against competing professional services firms and determine where you truly stand in the market. 

Seven Growth Benchmarks to Consider When Scaling a Business 

Here are a few growth benchmarks for you to consider if you are wondering how to scale an accounting firm to sell at a later date. These are specific to NAICS 54—the professional services industry. And they are specific to the segment—that is, boutiques with between 5 and 250 employees in the United States. 

Proceed with caution. These numbers can change a lot based on the submarkets. For example, law firms are different from marketing agencies and so on. 

• A five-to ten-year track record of consistent growth; 
• Greater than 30 percent top-line revenue growth; 
• More than 75 percent gross margins; 
• Forty percent EBITDA margins; 
• More than twelve months of forward visibility; 
• One year of payroll in cash on the balance sheet; 
• No debt. 

A boutique under five years old will have a tough time selling. One without five to ten years of solid growth in revenue and profits is unsellable. Unfortunately, many boutiques have remarkable top-line growth but no profit growth. This is a deal killer for most. These firms have not decoupled revenue growth from head-count growth. Until they do, they should not try to sell an accounting firm.

When they do, gross margins and EBITDA margins will jump. That is the time to sell. This is when they have a proven, scalable plan and business model. Lastly, forward visibility must be at least a year out. Investors are not going to take your word for it. Performance relative to your scalable plan will be a much-scrutinized item.

Wondering If Your Scalable Plan is Working? Ask Yourself These Questions

When scaling and growing an accounting firm, you need to make sure your scalable plan will hit the growth benchmarks required to sell the firm. Ask yourself these questions to determine if your scalable plan is working for your business: 

1. Are you growing revenue at a faster pace than competing accounting firms? Have you been doing this for years?
2. Are you growing your profits faster than your competitors? Have you been doing this for several years?
3. Are you growing your revenue faster than the practice inside the large market leaders? 
4. Are you growing your profits faster than the practice inside the large market leaders?
5. Are you increasing your cash balance to cover payroll for twelve months?
6. Do you have at least twelve months of forward visibility? 

If you answered no to more than half of these questions, your scalable plan and growth story needs more work. 

Developing a Successful Scalable Plan: Remember Growth is Relative

Growth matters when scaling a business to sell it later. A lot. And relative growth matters even more. A decade of market-beating growth will command an excellent price and excellent terms. 

And profit growth is as important as revenue growth. This indicates that you have cracked the code. You are one of the few who broke the link between revenue and head-count growth. Be sure to run a tight ship. Be prepared to demonstrate reliable forward visibility and plenty of working capital as part of a scalable plan.

For more insights on how to scale an accounting firm, join our mastermind community today. Collective 54 is the first mastermind community for founders and owners of professional services firms. Members enjoy multiple benefits, including peer-to-peer networking, live expert instruction, and small group learning. 

Networking is an Entrepreneur’s Best Asset

When working with boutique owners, I’m often asked, “What’s the best way to help my business grow and become successful?” The answer is business networking. To be an entrepreneur and lead your professional services firm to success, you need to network. 

Many founders and owners of professional services firms fail to recognize the importance of networking in entrepreneurship. It is possibly your best asset in driving your firm. Why? Business networking allows you to connect with and learn from others that share common challenges, experiences, and goals. Not only will you create relationships, but you’ll get the opportunity to learn from the successes and failures of others. 

Still unsure about why networking in entrepreneurship is worth it? Let’s look at what benefits it provides. 

How Business Networking Can Benefit You During Your Firm’s Lifecycle

Business networking must be part of each stage of the business lifecycle journey. You are wrong if you think you’ll only need to network during the growth stage. Boutique owners often fall into the mindset of “going it alone.” Yet, running a firm requires advice and support from many others throughout the journey. 

Here’s how networking benefits entrepreneurs during each stage:

Growth Stage

The United States Bureau of Labor Statistics claims that approximately 20% of small businesses fail in their first year. Yes, many factors can lead to this happening, including cash flow problems and insufficient product or service demand. Yet, a failure to network can be included in this list. 

If you want your professional services firm to see its second birthday, business networking can help you do that. By joining a mastermind group or attending industry events, you can better grow your business. 

Here’s how: 

1. Gain Access to a Growing Network

Successful entrepreneurs start networking close to home. Capitalize on your existing contacts, whether they’re friends, family, or the guy you met on vacation last year. This is how you open doors and expand your professional network when growing your business. Being an entrepreneur means accessing a complex system of connections that provide access to human, social, and financial capital. 

2. Bring Your Concept From Idea to Reality

Business networking also helps you bring your idea from concept to reality. When you have access to an extensive network of connections in the same industry or a similar one, there is a wealth of knowledge at your fingertips. You can harness the intelligence and experience of others who are in or have gone through the trenches like you. This allows you to transform your ideas into tangible business options and implement them faster.

3. Helps You Find the Right Team

It is a myth that great firms are started by a single brilliant person. To grow your professional services firm, you need the right team of people working alongside you. Networking and building professional connections will help you find these individuals. 

When speaking with boutique owners, I remind them that it takes a team to realize a dream. You need to pick your business partners as carefully as you choose your spouse. 

Scaling Stage

Scaling a business requires time, effort, and plenty of advice. This is when you will need to put systems and procedures in place to continue on the path of profitable development. During this time, you will define your core values and develop your firm’s client experience. Essentially, it is your firm’s make-or-break period. 

Leveraging a mastermind community when scaling a firm is extremely important. Learning from peers and mentors helps you find the right people and strategies to scale your firm even further. This is a time for continuous education and accessing collective knowledge. Scaling a business should never be a solitary task. The more support you receive through networking, the more successful you will be. 

Selling Stage

Networking continues to be beneficial even for entrepreneurs looking to sell their boutique firm. Creating a business exit strategy needs to be done with consideration and thought. Speaking to your professional network can open up opportunities for new exit strategy perspectives. Perhaps a connection will even introduce you to a potential buyer for your firm. 

Why You Should Join a Small Business Networking Group

Joining a small business networking group or a mastermind community like Collective 54 will help you grow, scale, and sell your firm bigger and faster than ever. We offer peer-to-peer mentoring, small group learning, and our C54 Business Exchange to encourage member’s firms to hire one another. Many of our members succeed by tapping into  business networking opportunities within our community. 

The importance of networking in entrepreneurship is clear — it empowers you with the tools, knowledge and relationships you need to drive your firm toward success. Boutique founders and owners who join mastermind communities are given the guidance they need to earn more, work less, and sell faster. 
For more insights on how to capitalize on networking to grow your business, join our mastermind community or purchase The BOUTIQUE: How to Start, Scale, and Sell a Professional Services Firm.