Welcome to another edition of the Inside BS Show. My name is Dave Lorenzo. I'm the godfather of growth.

Our job here at the Inside BS Show is to help you, family business owners, grow your business and protect your legacy while you do it. And today, we're talking about how you know if you're ready to sell your business. That's right, how do you know if you're ready to sell your business? Now, this is coming up today because I just had a conversation with a business owner, a client of ours, and he's thinking that he wants to sell his business.

So I have four questions about emotional readiness that I always ask, and then we talk about business readiness, and I also do a quick gut check. So let's talk about emotional readiness first. You're ready to sell your business emotionally if you're no longer energized by the growth, by the customers, or by the mission of your business.

You started your business because you had a passion for something. Now, when I asked the person I was speaking with today, what do you have a passion for in your business? He said, the money. And I said, what about the customers? And he went, ugh.

And I said, okay, how about growth? And he's like, yeah, I want growth because I want more money, he said, but I don't know, and he's in his early 70s, he said, I don't know that I still have the energy to go out and take on competition like I used to. This is a really fiery, competitive guy. So he has, in a way, lost his passion.

He is not really thrilled with working with his customers anymore, but he still wants money. He loves the money. So there's that emotional element to it.

What are you thinking about in terms of what's next for you? That's the second question I ask. And if they don't have something that's next for them, if they don't have an idea of what's next for them, I get a little concerned because if they end up coming to the table, if there's a buyer and they come to the table, they may back out if they don't have a next thing to go to because the prospect of sitting around their house all day or playing golf all day or going to Hawaii and then coming back to nothing is not something that most entrepreneurs, most business owners do well with. So what's next? Are you thinking about your next chapter? This is the second question that I ask them.

And if they don't have a good answer to that, they're probably not ready to sell their business. The third question, the third thing I ask them is, are you no longer the best person for the job? So has the business outgrown your skills? Has the business outgrown your interests? If it has, if you're no longer the best person for the job, then you might consider stepping away. If you are the best person for the job and you're the only person for the job, that's a problem.

You probably don't have a business that you can sell. So this is a question you have to be able to answer. Then are you more focused on preserving your business or are you more focused on expansion? If you're concerned about avoiding risk, you probably need to move on.

If you're concerned about growing and expanding, you probably are good and you probably can stay where you are. So risk worries are probably a sign that it might be time to get out. Growth concerns are a sign that you're still hungry.

And that's really the question, are you still hungry? So let's look at the business now and there's several points to this. Do you have recurring revenue and stable cashflow? The buyers, people who are going to buy your business, they want predictability. They want recurring revenue, they want stable cashflow.

If your revenue is 50% predictable, that's good. If your revenue is 80% predictable, that's better. Is your role optional? If the business can run without you for a week, for a month, for a year, you got something you can sell.

If the business can't run without you, we got to fix that. You got to challenge immediately. So is your role optional? Can the business run without you specifically? If it can, we got something we can sell.

Do you have clean books? And is there strong financial reporting in place? You know, Nicola and I say all the time, there's nothing sexier than nice tight books. If your books are clean and you're satisfied that your books could withstand scrutiny, if you could go get a loan and your books could withstand that scrutiny, then okay, you might have something you could sell. If your books are not clean, we got to fix that.

Do you have documented systems and processes? If you were with us on yesterday's show, and I'll put a link to it down in the notes, you heard about standard operating procedures. This isn't just something that I preach. It's something that you need.

Do you have standard operating procedures in your business? If you do, you got something to sell. If you don't, we got to fix that. Is there a defined growth path? Do we know where the business is headed in the next three months, in the next three years? If we don't, and you don't have a plan for that, we need to put together a plan for that because the next business owner who comes in is going to want to execute on your plan because right now you're the expert.

Do you have low customer concentration? One of the things I look at right away is quality of earnings and quality of revenue. And that means that you don't have more than 20% of your customers in any one industry. You don't have any more than 20% of your customers in any one geographic location.

And you don't have any more than 20% of your customers dependent upon one project. You also don't source any more than 20% of your materials from one place. So concentration of customers, concentration of suppliers, really big thing.

If you have more than 20% in any of those areas, we got to look at fixing that. Do you have any skeletons in your closet? Are there any pending lawsuits? Are you exposed to any lawsuits that could rear their head? Do you have any compliance issues with regulatory agencies or all your licenses up to date? Do you have any personnel issues? If you do, have they been addressed? Are they gonna come back to bite us? Those are things we need to think about. Those are things we need to look at.

Then finally, there's three questions that I always ask. If someone offered you a fair price today for your business, would you be excited or would you have regrets? Think of a number in your head that you would take for your business. Let's say somebody doubled that, would you jump at it or would you hesitate? Because if somebody offered you double the number you have in your head and you wouldn't jump at it, you're not ready to sell.

Could you leave your business for 90 days and return and the business won't have missed a beat? If you could step out of your business for three months and the business would run just fine without you, you've got something you could sell. If it wouldn't, you gotta fix it. And is all of your potential wealth concentrated in this business? If the answer is yes, then you've gotta look at the distributions that you're taking and potentially maybe spend a year taking better distributions, build the business up so that you can take better distributions and move some of your wealth out of the business initially and then sell the business because you wanna diversify your wealth.

You don't wanna have all of your wealth tied up in the business. That means you're not taking healthy distributions out of the business so that you can invest in other things and diversify your risk. These are things to think about.

If you're in a family business and you're thinking to yourself, wow, maybe I should sell it. Now, should you sell it or pass it on to the next generation? If you have a next generation, all of these things are still gonna be important because you wanna set the next generation up for success. But if you're thinking about selling the business, answer these questions first and if you answer them positively, if you answer them in the affirmative, you might have an opportunity to sell your business.

If any of these answers are negative or if you hesitate about any of them at all, look at the reasons why you're hesitating and go back and fix those. I'm Dave Lorenzo, I'm the Godfather of Growth. This is the Inside BS Show.

We'll be back here again tomorrow with another edition of our show. Until then, here's hoping you make a great living and live a great life.