Mark (not his real name) was making so much money it was almost silly. “Can you believe this?” he said to me a few weeks ago. “Last year I made $800,000, this year it’s bound to be over $1 million. Seems like a great time to sell!”
Mark’s ability to make money is no laughing matter. He has been building his company for six years, but the last two years he has really hit his stride. But Mark is tired. Working 10 to 12 hour days has worn him down, along with the pressures of raising a young family. Mark tells me he is ready to slow down and focus on an idea he’s been developing that would require less time and pressure.
Problem is, Mark is unrealistic about what his company is worth. Even more problematic, I’m not confident Mark’s profitable company can be sold, at any price. Mark was not happy when I explained this dilemma. “Mark, a business has to be transferrable to be sold and given that you are so important to the ability of the company to function, you have not built a transferable business.” He quickly said, “I’m making great money, and I have a great team, why wouldn’t somebody pay for that?” He was obviously not happy about the direction of the conversation. I tried to be gentle, but honest. “Mark, you have a great team, I’ve met them all. They are sharp and any buyer of your company would be happy to have them on their team. However, your team only serves the clients you bring in. Without you staying connected 10+ hours a day, there is no client base for your team to serve.” The punchline I added, which he understood, “Who buys a company when the revenue generator leaves after the sale?”
Mark has some work to do to get his company ready to be sold. He needs to make his company’s revenue stream independent of him. Mark must demonstrate over time that the revenue stream is not dependent on him. That won’t happen just by putting someone in charge of sales. Yes, that might be the logical first step, but a buyer will want specific evidence over time that that new head of sales is indeed driving the revenue stream.
To his credit, Mark acknowledged this was a problem that needed to be fixed. “How long does it take for a buyer to get comfortable that a new head of sales, and not me, is the one driving revenue?” he asked, to which I replied, “that depends on many factors, it’s impossible to give you a definite answer, but at least twelve months, the sooner you start, the sooner you’ll get there.”
If he follows my advice, Mark will have a transferrable, and hence more valuable, business, and he’ll be able to unwind from 10-hour days and have more time for his wife and two young children. That’s of greater value than anything he’ll put in the bank.
Tennessee Valley Group
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- The Conundrum of the Profitable, Yet Unsellable Business - February 1, 2025
