"Can I Sell My Business for $500K?"

0:00Hey Alex. Man, this is exciting. Thanks so much to you and Layla for what you do. I run a disability sport provider in Australia. It's a government funded scheme, price capped, high compliance requirements, can't bill in advance. Last year we did 1.5 million in revenue, gross margins at 30%. This year, scaling back to focus on target audience cuz I was just accepting money from everyone and it was a nightmare. Um so we're aiming to do about a million dollars this year.

0:26Currently though, breaking even due to debts from stupidly starting another adjacent business, manpower shortage. My goal though is to productize my service to distinguish myself from the commoditized industry, then work to sell the business and go into something that isn't price capped. My question is, what would revenue, net margin, and the org chart need to look like in order to sell it and is it worth it?

0:52>> Yeah, so from a sellability perspective, I mean you could sell any business. The question is who do you want to sell it to and at what kind of price or multiple? So you kind of have to reverse from the goal. Like I could buy your business today for zero dollars just to put it hypothetically extreme. So what more specifically, what kind of outcome do you want? >> Yeah, so I'd love to sell it for $500,000 and if I could do that in the next 2 years, that would be incredible. >> Well, that's a lot I mean that's that's a lot easier.

1:19Um So, do you have any revenue retention or is this all one-off? >> As in for the clients that that stick around? >> Well, I mean is the service a recurring service or is it a one-time service? >> It's a recurring service. So, is it sticky in that do you keep people from last year to this year? >> Yeah, about people stay for about 12 months. >> Okay, so it's not sticky because they leave. >> Right, yeah. Okay. Yeah.

1:44>> Okay. So, that is the thing that will make the business more viable. Also, it'll make something it'll make it into something you might not want to sell. Which it like the goal to build a sellable business is build something you don't want to sell cuz it makes a lot of money. That's the goal. Um okay. So, $500,000 Uh you said you had 30% gross margins. What are net margins? >> Net margins right now is pretty much nothing. So, I started a >> Yeah. >> I started another business, and yeah, that sucked up everything.

2:10>> Well, okay. If you hadn't started the other business, what would the margin have been if you hadn't blown all the money? >> 12.5%. >> Okay. Which is actually, you know, if your gross margin's 30, doing 12.5 is is not bad relatively. I do think that 30% gross margin's very hard to make a business work there. Um And so, when you are price fixed, you have two options available to you. All right? Option one is that you sell insurance plus, which is like, we'll do the stuff that's covered by the government and other stuff if you want it, which some people are willing to pay out of pocket, and that can make a material difference in the net profit of the business. So, even if 10% of people are willing to pay, you know, 50% more, it doubles the profit of the business.

2:51Right? >> Yep. >> So, that's op- that's Yeah, okay. >> Oh, sorry. That's where So, what I found is that we've just accepted work from anywhere and everywhere, and so, it's been difficult to try and find staff cuz somebody leaves, and then it's like, I've, you know, I've got a hiring target, but then I realize I'm hiring really only one person. So, if somebody else leave, you know, it doesn't solve the problem. So, looking at productizing, so, rather than molding ourselves to everybody's infinitely complex life,

3:21>> Yeah. >> it's saying, this is the problem that we solve. This is what we're going for. Um so, the idea would Yeah, okay. So, I'm on the right track there. >> Yeah, scaling roadmap, one to three. You have to start templating your solution. >> Yeah. Okay. >> So, you you kiss a lot of toads, which is what you did. You kiss a lot of toads, you figure out a bunch of these suck, and then you figure out a couple of these are good, and then you realize that they don't have different problems, they have the same problem, and you can solve them the same way. So, you create the template, which is what you're doing right now, which is fine. Um but I said there's two strategies to get out of this. All right? So, strategy number one is that you can do insurance plus, or whatever, you know, government's government sponsored plus, uh which is when you ask again, it's a sorting question right at the front of the sale, which is are you here to get this the best solution to this problem, or the only one that's free?

4:01Right? And that way some people will say they want the best, and the best is that listen, we'll give you the free thing plus these other things, which we do at, you know, whatever cost, and then you can charge with a much better margin. That's option A. Option B, and you can do both these together, by the way. Option B is when you have a price capped business, you have to create margin from the floor. Which means that you have to cut all expenses, um like everything. Uh which templating is a big, you know, big part of that solution.

4:29Um but it's like you have to think from like you want to do something called zero cost budgeting, which is imagine you had no expenses, and then you build only what is required. >> Yeah. Okay. So, part of This is leads me to the next question, which is that I find it frustrating from the point of view that it doesn't matter how good I make the service. Obviously, there's the insurance plus approach.

4:55Um but I feel as though a lot of the people in this area their family like so they come from a family, and many people in the family have a disability as well. So, they don't have a lot of uh cash left over. >> Yeah. >> So, it's like I would want to work in a space where I can charge for the value that I provide, rather than just being price capped. >> Yeah. >> I mean, you talk about serving public sector versus private sector, so yeah.

5:22>> Yeah. So, if I was to I mean, I have thought about moving, starting something else, maybe in the same industry, but working with businesses. But I don't know whether this is just me going, "Look, it's getting hard, and I need something else out of it." or whether I'm assessing and going, "Look, based on what I now know about business, I would like to be able to set my own prices." >> It's a tough call, man, because right now it's it's a push or pivot question, which is relatively personal um in terms of you know, the risk that you're willing to take on. Um you want to sell this for $500,000, but basically to sell this for $500,000, you're going to need to make it make at least 250 in profit, probably I mean, maybe more than that. Um which I I don't think is that hard for you to do if you did the plus model and ate up some margin from the bottom and you didn't have the distraction and the cash that went out. Right? Because you did 12 and 1/2% on a million or a million five, right? Um so you had $200,000 in profit on that year, correct?

6:19>> Yeah, and so does that include my my wage or not? >> Yeah, it does. Seller it's called SDE, seller's discretionary earnings, uh which typically small businesses like yours, they trade there. Uh they trade on SDE, not EBITDA. Um and so but typically when you're trading for these types of business, you're going to get one, two, three times earnings maybe, and it's usually going to be a somewhat structured deal because it'll just be somewhat structured. So they might say like, "Okay, uh you know, you get to 250,000 a year, I'll buy the business for 500, I'll give you 200,000 up front, and then 300,000 over time as long as the business stays at this level or whatever, right?" So um the better the business is, the more the multiple is, the more you'll command because it's still supply and demand on the business side. Like the the product becomes the business, and then the demand is what what investors want to buy it, and it's going to come down to the nature and the quality of the business overall. Right? But I would say that you would you would for sure get offers at 500,000 if you did $500,000 uh in profit in the business, um and depending on how reliable it is. Now, if you can show that these people are going to consistently keep paying you over if you can get it to like two or three years, then the business is going to grow no matter what, which ultimately would make it both sellable and accomplish your goal.

7:26So, there's a number of ways we can solve this, but if I am you, if the goal was 500 grand, then I would just say, "I'm going to do cost plus on the front end. I'm going to do I'm going to eat up margin on the back. And then I'm going to try and see what I can do to get people to stay 2 years or 3 years. Like if you just accomplish those three things, you will likely recreate the margin you had and then you'll be able to sell the company.

7:51>> Yeah, awesome. Okay. Cheers. >> Yeah, cheers brother. Appreciate you. If you like this video and you're a business owner who wants to break through your current revenue ceiling, I just did every lesson from scaling 10 businesses past 10 million and three businesses past 100 million into a completely free scaling roadmap that I've used to go from zero to one, zero to 10, and zero to 100 plus. And so you can click here and you can check it out. Again, absolutely free and since you're a business owner, appreciate you and enjoy.