Thread by @Principles00

Take a look at the listings below.

8 figure payouts are not as uncommon as you think.

Most business owners make at least 50% of all the profits from their business when they sell it.

Let's discuss what you need to do to prepare to sell your business for a payout like this:👇

Most businesses are valued on a multiple of the profit, or more specifically, Seller’s Discretionary Earnings (SDE)

For example, with $10mm of revenue and $1mm profit, your valuation could be:

5x multiple = $5mm
10x multiple = $10mm

The key is to max out your multiple and SDE.

Let's talk about how to increase your multiple first.

I believe the four most important factors for determining your multiple are:

1. Size and age
2. Defensibility
3. Distribution
4. Growth

1. Size and age

The bigger your business is and the older it is, the more likely you are to get a higher multiple.

Young and small businesses are just worth less.

2. Defensibility

When a business is profitable, others businesses will copy it.

So how can you create value that cannot be easily replicated?

Here are some ways:

- Patents
- High recurring revenue
- Organic traffic and loyal community
- Partnerships with influencers

3. Distribution

Avoid concentration risk. Do you only sell via Facebook ads? That's troubling.

Diversify your sales channels to reduce risk.

Do you only have one manufacturer/supplier?

Diversify.

You must reduce the points of failure.

4. Growth

No one is going to pay a large multiple for a stagnant business.

Growth means a higher valuation.

You need to be able to sell your potential buyers a story that your business has ample room to continue growing.

Keep increasing revenue and profits for more value.

Now let's talk about the other part of the equation: SDE

SDE is your net income plus certain add-backs.

Remember: SDE x Multiple = Your business's value

So make no mistake.

What you add back to your net income can allow for an increase of 6 figures or more in your sale price.

How do you increase your SDE?

You need to find add-backs in your business.

What exactly is an add-back?

Add-backs are benefits to the owner that are not seen on the net income line alone.

What do they include? Let's find out:

Here's a list of examples:

1. One owner’s salary
2. Owner health insurance and retirement contributions
3. Amortization: cost of intangible assets over a period of time
4. Depreciation: reduction in value of asset over time as it ages and is affected by wear and tear

(cont'd)

5. Charitable contributions
6. Events, travel, etc. not part of marketing expenses
7. And much more.

You should work with an advisor and accountant to identify add-backs.

Each add-back is worth 4 to 10x to your business sale price, so don't leave money on the table.

So related to this, if you're looking to sell your business at some point in the future, it is absolutely critical to make sure your books are in good shape.

Your finances should be tracked by a professional bookkeeper ($100 to $2,000 per month).

Do not mess this up.

Hopefully, you have a better sense of what you need to focus on to sell your business.

Knowing how the sale process works will allow you to better prepare for that massive payout in the future.

Good bookkeeping and a focus on growth will set up you nicely for an exit!

If you enjoyed this thread, you'll probably want to check out the rest of my content on online business here:

Give me a follow for more in the future!

And if you want more in-depth training, check out the link in my bio.

https://twitter.com/Principles00/status/1367912624218865666?s=20