Secrets to Selling Your Business for Maximum Profit: Lessons from Drew Rogers

Does this sound familiar? You’ve been told that simply putting your business up for sale will attract potential buyers and maximise its value. However, you’ve experienced the pain of taking this ineffective action and not getting the desired results. Your business is a valuable asset, and it deserves a strategic approach to optimise its value and appeal. Let’s explore proven methods to prepare your business for sale and attract the right buyers who recognise its true worth.

Sure. So the analogy that I use is that if I’m selling one of my properties, it’s really easy to contact three. High street estate agents. They come over to the property, they spend about half an hour there, they’ll give you a figure, and then you decide. You put the property on the market and around, say, three to four months later you’ve got the cash in the bank. That’s really not the way it works with your business, as all of your listeners will know. And I had already been listening to various podcasts and reading books and articles on what you have to do when it comes to selling your business. And I knew that my first thing that I was thinking about was my business had to tell a story so what was my story right from the beginning, from the early phase to the growth phase, to where it currently was? And I knew that I had to show that my business was going on an upward trajectory and explain what was going on behind the sales and all the data metrics. So I followed a number of steps to be able to value the business and prepare it for sale. I basically divided the company into separate divisions. So we’ve got finance, sales, marketing, website. brand, product, et cetera. I collated all of the data and metrics for each individual department to come up with a plan to improve those metrics. I set myself a target of twelve months for me to look at each part of the business, improve each department and make it ready for sales and sort of open up the doors, as it were. And one of the things I also focused a lot on was systems and processes, because as a sole founder, I was in the business as much as I tried to be out of the business, I was very much still in the business. And I knew that by implementing and sort of having all the systems talk to each other and making sure that all of the processes were as automated as possible, I could then remove myself from the business and reduce the amount of manual tasks because what I wanted to do was create that turnkey operation so that the new acquirer coming in would be able to make profit from day one

Okay. You had a look at the structure of the business. You created an obvious structure for the business. It sounds like you followed traditional lines of what you may have seen in a corporate with separating the finance function, the marketing function, and effectively the operations. And then the website and brand looked. At all of those. So, as the CEO of the business, you spent some focus time on each of those areas so that they could be run without your hand on the wheel, so to speak. And they would just provide you with the information and reporting information so that you could tell that each of those areas was doing what it was planned t do for the year. Did you have a business plan?

I did have a business plan, but when we think about a traditional business plan, I had one at the very. beginning when I set the business up but actually for me personally, I think they’ve almost become redundant in a way, unless you’re raising finance, whether that’s VC or going to your bank. I feel that business moves so quickly these days. And it wasn’t really to my benefit to make a five year business plan. But actually, when I knew I wanted to sell the business, that’s when my plan came into fruition, as it were, because I knew the targets I needed to achieve within each division of the business before I was able to present a sales pitch deck. So I knew that I wanted to improve my conversion rate, gross profit, net profit, number of sales, average spend per user, newsletter retention, and so forth. So I looked at all of these individual metrics and I knew that I had targets to achieve for each one. Something that I was also doing in order to prep the business for sale. At the same time was thinking about the potential acquirers user persona. So thinking about how I would pitch the business and what type of company would buy my company. So I knew that it was going to be a bolt on to someone’s existing business. So perhaps someone that wanted to get a foothold in the UK market or someone who wanted to branch out into academic languages because we had, I guess three different demographics at the time it was B to C, B to. B and B to A so business to academic. So we would have students who were learning in universities, schools, colleges that wanted to take languages exams. It could have gone to someone also that had an English language school. They focused specifically on English, but they wanted to get a foothold into foreign languages. So as soon as I had the buyers persona locked down, I was then able to think about the ideal acquirer and I think that really helps because otherwise you’re not sure who to approach when it comes to selling your business you’re not sure who your target market is. So I would say that that was another important component for me when I was prepping the business for sale.

Yeah, look, that sounds like very advanced thinking to me. Like if every business owner did that, they broke down their business, had a look at each of the functions in the business, structured the metrics so they could go, how do I know when this function is performing well? And have some key measures measures of effectiveness, KPIs, whatever you want to call them and have those being reported to me so I can keep an eye on them, then I can just run that from arm’s length, mentor the business, guide the business, be a CEO. Then the bit that I really like there, as you said, my translation of what I heard is what you start to do, then step back and go, okay, it’s no longer the product language learning is the product of the business. But you step back and then just said, hey, look, my business is now the product I now need to sell my business. And I’m only ever going to sell this product once I need to get it right. So how do I do that? Who’s going to buy this? What’s my customer profile? What are they looking for? What’s going to be attractive to them? Which I think is quite advanced and it comes under the guise of exit planning. And did you do this from who pointed you in that direction? How did you know what were the sort of things that you need to look for to shape the business up? What the different demographics would want to see different? Did you have someone helping you with this?

I didn’t really have any help. This was information that I’d gleaned from years of being an entrepreneur. This wasn’t my first business, but also just from watching YouTube videos, listening to podcasts, reading articles, books, because I knew from people in my network and those that had sold their businesses that it’s a very particular activity, it’s a very particular transaction. And from my research, I’d found out that only 20% of companies are actually sold. The other 80%, I guess they just closed down or they don’t get passed on to the next generation if the owners are parents.  So you don’t really know what happens to the other 80% in terms of the statistics and the research that’s out there. And I knew that I put so many years of work into this and the time and I’d invested, the money, the resources, I wanted something to show for it. I could have been impatient and just closed the business down, but I knew there was a lot of assets there. I could have found someone else to manage it while I pursued other ventures. But I wanted a clean slate. I wanted a clean break and in order for me to be able to do that, I was the best person that could actually lead the company to sale because I was the solo founder. I had 100% shares. I was the one that knew the business inside out, and I knew the type of people that would buy it. Because there were some acquisitions in my space, and I studied and extracted as much information as I possibly could in terms of those acquisitions. And I actually also valued the business myself in the sense that even though I contacted it was about three to four business brokers to get a company valuation, they had quite varied figures that they came back to me with. It’s not an exact science and they talked about the valuation multiples. They talked about perhaps the type of buyer that would be interested in acquiring my company and the accounting metrics and so forth. But it wasn’t very, very in depth. And the business brokers, they didn’t specialise in languages. They were selling anything from restaurants to gyms to tech platforms so I would spend quite a bit of time presenting my business and data to them but they didn’t really know the mechanics. They didn’t really know under the hood and that’s why I used those three, four valuations. But then I spent quite a bit of time looking through my own finances and prepping my accounts. And then what I did, I had a look at the figures that I could definitely count on that you couldn’t dispute such as PNL, cost of goods, net profit per hour, gross profit per hour, average spend per customer, retention rates, conversion rates, and so forth. So that was undisputable. But then on the other side, and this is something that’s really key for service based businesses is how do you value the intangible assets, such as your brand, your reviews, your social media we had an NPS score of 83 which was good, but how do you price that? So, for me, it got me thinking about the digital assets. What’s the value of my digital assets? So that’s the website that’s the technology, the platforms we were using, the trademark the content, the resources. So I had another list of different metrics that would then help me arrive at an approximate valuation of the business.

Brilliant. And listeners to the show will know that we love exploring intangible assets and how do we move intangible assets from goodwill into the forefront and actually be treated as assets rather than just, well, we don’t know how to value this, so we’ll just bundle it up as goodwill. We had a guest on the podcast a while ago who talked about and used the correlation between selling your house and he said, Look, Darryl, if I come and look at your house for sale and I stick my head in the attic just to have a look around. And I see that you’ve got a couple of gold bars stashed there. I’m not going to remind you that you’ve left the gold bars in the attic. I’m just going to go, oh, look, there’s a nice little asset and I know how to use that. And if you’re telling me that what you want for the house, then I’ll factor in. I can use those gold bars as. Well and I’m not going to tell you about it. He said that’s the same with what your intangible assets are. If you’ve got brand, if you’ve got trademarks, if you’ve got process, if you’ve got people buying your process rather than buying the individual teachers or providers or service providers in your business, that’s a beautiful intangible asset. Let’s bring that to the front and. Promote it so that we get the value. So I love what you’re thinking there and extracting intangible assets and then specifically preparing all of your financials and instead of just looking backwards, you had all of this report and information about your client retention rates, your client acquisitions, your cost. I’m guessing you had information about the effectiveness of your marketing as well and the various channels to market and cost of client acquisition. All these things that really analyse the operating metrics of your business. So that when someone comes to do due diligence and I haven’t even touched on the due diligence questions yet, but when they come and start sniffing around. You can go, look, here’s all the justification of here’s the revenue. Here’s the revenue growth. Here’s the patterns of the business over the last few years. And here’s all the evidence and all the reasoning why I suspect that they will continue to remain the same, though there will be no change to those patterns once I leave. And the more you can substantiate that argument, the more your price, you’ll maintain a premium price.

That’s correct.

What about timing, Drew? Did timing play a role in your exit decision making?

Definitely. It was really key, actually, because when I decided to sell the business, it was just before COVID hit.

Did you know about COVID was coming somehow?

No, but I knew that we had offices and we were offering face to face lessons, but I knew that it would shift 100% to online so COVID was an accelerator for that. Which was really good. But obviously the initial shift was, what are we going to do? How are we going to get the sales coming in? But I didn’t want potential acquirers to think that the business wasn’t doing well and that COVID was the motivator for me to sell. So I was definitely up against the clock and I had to prove that that wasn’t the case. And even though sales did dip during COVID I think it did for a lot of businesses. We then put measures in place to mitigate that and it was fairly easy for us, I would say, to move online and teach online. Did we lose some customers? Yes, but it was a small percentage because they loved the face to face interaction of learning lessons. It was a social thing for them. But I was prepared to lose those customers because the tutors loved it. They didn’t have to travel anywhere, especially in London. They didn’t have to lug around their books and laptops going to different locations to teach. So it did wonders actually for our profits. And actually we saw then that sales were increasing month on month. So that was really good for us to be able to document that. But when I had the initial evaluations. From the business brokers, I knew I wanted to achieve more and I could get more for the business. But the sale actually came about because I had someone in my network and I asked that person if they knew a business broker that specialised specifically in language sales. And to my surprise, that person said that they were interested in finding out more about my company. And we’d met a couple of times before that. We had a similar outlook, similar points of view and ethics when it came to languages, the service that you provide customers and your reputation and so forth. So actually what happened was we had a conversation, but as this conversation happened roughly at the same time as I was in the process of getting these valuations coming in, I decided that it wasn’t the right time to sell the business then.

Okay.

And so following on from the valuations. I committed to spending a year or so. Doing everything I needed to do to make the business really saleable so someone could turn the key and it’s ready to go. It’s all there. That’s when I knew that’s when I knew I’d be in a position to sell the business. So I kept in touch with the person and twelve months later when I was ready, I had another conversation and I said, I’m ready to sell. Are you still interested before I put it on, let’s say the open market, and they were this particular person had several language companies here in England and abroad in Europe. I presented a sales pitch deck to give a high level overview of the business going through the different areas of finance, sales, marketing, team brand testimonials systems and so forth. And the process from then on was relatively smooth. We negotiated the price and that’s when we began the due diligence process and then the deal was done. So I’ve skipped a couple of steps there, but just to give you an idea, but it was around, I would say six, seven months for this process to go through. I say it was fairly smooth. And the reason for that was because one, we knew each other, two, they were in the industry and that’s where the user persona comes in. This particular person was my user persona. So I think maybe I got lucky, I don’t know. That was partly design, but partly luck. But because I felt that we really respected each other, we had a reputation with a language industry business and that was important. She was my user persona. Her company was my user persona. It almost took that hard slog at the beginning where you’re getting to know each other. It’s a bit like dating. You’re getting to know somebody. What’s that person like? Where are they from? What’s their background? What do they want? I felt like we skipped that initial process because we already knew of each other and because of the user persona. So that was a really big lesson that I learned along the way.

Okay, so what we’re hearing is the ultimate outcome is that it all went to plan and you got lucky. But the harder you work, the luckier you get, really. A couple of things I want to pick up on and explore, if I may, Drew. So you mentioned that you turned your business into an online product. So does that mean you had some online platforms which and maybe I’ll make some assumptions here and let me know if I’m right or wrong, but. I think you mentioned about productising and just creating some IP. So was that creating an online platform that created more dependence on you and the business, or on the business rather than the individual tutors and then the tutors being able to effectively, easily walk away with your clients?

Yeah, it’s a great question. One of the pillars that was really important for me when I was prepping. The business for sale was, it’s so much harder to sell a services based business. You’re relying on people, you rely on customer interaction. And we were, I guess, a marketplace, an agency. And even though we had some contracts with B to B clients, we didn’t. have that with B to C. It was essentially sort of customers learners coming onto our website, booking a package, and then they would rebook when they ran out of lessons. But I knew that in order to increase the valuation of the business and also to automate our processes and systems and to make it more appealing for a potential acquirer, I needed to productise the service business. So I did that through various changes that we implemented. So the first one was monthly membership subscriptions. So these were self serve group classes. We had typically focused on one to one lessons, but there’s more energy, there’s more tasks involved in setting that up. But with monthly membership subscriptions, someone would just come onto the website, self-serve, they would pay for the package, and it was a recurring subscription month after month. The onboarding was completely automated of course, we were there for live chat or if they wanted to call us or email us, but essentially it was self-serve. So we increased the use of instructional. Videos in our knowledge base. We improved our templates. We incorporated a methodology. So we had what we called the language lab methodology. So this was a framework that tutors would use to teach their students. We also signed up to an LMS. A Learning Management System platform. This was completely cloud based and this was an app, a platform where students would meet, tutors and lessons could be scheduled there were assessments, digital grade books and messages and so forth. And we also added on extra bolt on services that could be purchased from our website that were products rather than services. So these were sort of things like materials and revision courses and so on. So these were the main activities that we incorporated so that were part of the ecosystem, so that we were veering more towards product rather than service.

Okay, so it sounds like you also achieved the holy grail of a traditional service, pure service based business into a membership economy or subscription service, which is a subset of membership, supplemented that with traditional hard products which were value bolt-ons to the client. So you made more profit out of each client and each of those additional sales were just easy add-ons, click from a basket, great work. So that’s how you productised and made the revenue more secure and client life because we know one of the things to increase valuation is to improve the client longevity and retention of clients and how much you sell each client. So nice work there. You mentioned about that you had a buyer lined up or you went to go to market to find a broker. But you almost stumbled upon an interested party there, felt like you were aligned and it felt like a perfect fit for your business to plug into theirs. How did you agree evaluation for your business and how much, I guess negotiating was there because a lot of what we hear out there is what you really want to do is get some competitive tension for your business, where you’ve got one or two or more businesses competing and bidding against the value of your business. How did you agree on a valuation?

So I put my valuation to the acquirer. We had, of course, some back and forth. But I think that because we were in the same network and in the same industry, there was credibility to my valuation and the work that I had done in terms of the sales pitch deck, the story behind the business. The values of the business, the systems and processes, the products, obviously the services. But it wasn’t fully dependent on the service aspects of the business. And of course, the increase year on year with turnover and our metrics meant that actually it was a really sound valuation. Funnily enough, as we were going through the negotiation and the due diligence, our turnover was increasing, our profits were increasing, which of course for the acquirer was good. It was great news. That’s exactly what they want to hear. Right? But for me, in my mind of course, there was an element that was thinking the business is worth more now. Next month the business is worth more but during this period and remember, it’s still COVID. We’re on the back end, I guess of COVID but we were still talking about COVID there were still shifts and transitions that were happening, political circumstances, the war in Ukraine. These were factors that at any one time the acquirer could have said, actually it’s not the right time, because they were affected in certain ways because they were having residentials that they did with a business. And these are things that can affect all sorts of businesses, even if it’s not directly related to European activities and what was happening in Ukraine at the time and is still ongoing. But I knew that I didn’t want to change the goalpost. It wasn’t ethical for me to do that. But because of that and because the business continued to hit its targets and actually exceed them, this meant that the trust continued to be there and it was a win win situation and that was something I really focused on you want to have a win win situation. For me, it saved time because the sales process could have been a lot more elongated and it also meant that the due diligence process was a lot smoother because I had presented to her everything she needed. It was very transparent, the metrics, the KPIs we were using Xero, the accountancy platform, so all of the data was there and she also understood the trends in the business, the seasonalities, for example, in the summer it became a little bit quieter, but then after that, towards Christmas, the New Year, exam time, it got even busier. So it actually worked in my favor. Even if I’d gone through and said, the price has increased or we need to take this into consideration, it wouldn’t have really been the right decision for me because that didn’t sit right with me, that didn’t feel right with me. And actually it worked out so much better because I didn’t have to pay broker fees, I didn’t have to put the business for all to see on an open platform. I preferred doing a private transaction. So therefore, when it comes to the negotiation, it’s give and take. It really is, yeah.

So you agreed a fixed price, by the sounds of it?

Yes.

So you said a valuation. You talked about multiples and profit multiples before, but by the sounds of it, you had a look at the business, took a snapshot and said, here’s the price. Because you agreed the price and it was fixed, you knew the buyer, the due diligence went fairly smoothly by the sounds of it. How long did the due diligence period take?

It probably took about, I would say. Three months or so.

Yeah. So fairly quick due diligence period. And when the buyer was looking at your business, because you had prepared it so much and you’d built some online platforms, are you aware, Drew, of how much of your IP and systems and processes and infrastructure, if you like, they were buying or how much of it was just your product and extended into a new marketplace and access to new market for them?

It was definitely the systems and processes that we had in place. It was a package, it was a smooth operation that they purchased and they knew it because I was very particular with all of the data that I’d aggregated, all of the financials sales pitch deck. I was transparent with everything. There was no point me hiding anything and because I was so transparent. Yeah, absolutely. So that’s why I felt that everything. Was very credible right from the beginning because that’s the way that I wanted the sales to be. That’s how I wanted the process to be because if you’re not, then it can really push you back. It can push you back months, if not years because you’ve got to start the whole process again. Yeah, and I think because we had that understanding also from my perspective, the understanding was that the business will segue really nicely into her business, into her companies, and into her operations and with her team. So the handover and transition period then went pretty smoothly actually. We had a plan to inform students and customers, clients, everything on social media. It was sort of really prepared as much as we possibly could and that was alongside all the training manuals and the platforms and everything I put in Dropbox and the instructional videos and the conversations that we had. And the other element to this was I continued to work in the operations of the business, but as an external consultant. So I wasn’t employed by the business but it was as an external consultant. And continued to coach some of the clients. That’s it. Yeah, and it was something I wanted to do as well for me to have gone from running a business more than full time, I put a lot of hours into it.as any entrepreneur does. And it would have been a really brutal shock if I just completely stopped. So I had expressed an interest in continuing and I did for a period of time and that was really good. It provided reassurance for everybody, but it was something I genuinely wanted to do because I really enjoyed it. So it was nice to end that way.

So they’ve got your IP, they’ve bought your IP, they’ve bought your brand. They’re in all likelihood going to extend your systems into other areas of the business. Drew, I’ve got one last question for you and you’ve shared your story brilliantly and you’ve basically been a textbook scenario for what other business owners should do in preparing their business. But you said earlier on in our conversation that you went and got three valuations from a broker, from various brokers, and then you ended up not using the brokers because I think you said there was a large variation. Which can happen with brokers because, as you said, it’s part art, part science. Valuing a business and identifying what a. Buyer wants to pay. But without giving any numbers away, are you able to tell us the price you did or the value, the number you did sell for? How did that compare with the range of three initial valuations you got from. The brokers or how the methodology they used?

Sure, it was more or less double, actually. So it’s a considerable difference. But I would say that’s also because I had the plan to increase turnover in sales, and obviously that has a knock on effect on the valuation, for sure. But it was actually really insightful to have these conversations with business brokers. So for me, specifically in my situation. It wasn’t the path I chose because of someone in my network essentially approaching me and saying, I want to buy your business. Let’s speak, let’s sign an NDA and let’s see where the conversation takes us. So I think a lot of things aligned for me in a way that I never thought would happen. So there is nothing wrong with using. A business broker, I think very specialised in what they do, and they do that day in, day out, so they know a lot about the market. But it’s a bit like an agent. You can speak to a real estate agent and you can choose someone who has a nationwide presence, or you could choose someone that’s on your high street and has had that branch and knows the area and has been there for, say, 20 years. So there is a difference. There’s a difference in price point in terms of the fees that they charge as well. So I think it’s really dependent on your situation as a founder, a CEO, as an owner of the business, if there are any other parties that are involved. I had 100% of the shares, so. It was just my decision. But if the sale hadn’t gone through with the lady that I was speaking to I would have probably contacted people within my network and approached them in a discrete way because I knew that they were interested in growing their business and the growth plan was via acquisitions. But I think also business brokers, they definitely have a place in the ecosystem. With the level of experience that they’ve got. So I think it just really depends on your circumstances.

Absolutely. We would recommend that for most businesses in the marketplace that we work with, in preparing them to be exit ready, they’re typically that mid market, small to medium, mid market businesses. There’s a lot at stake. This is the biggest investment that most business owners or most people will have in their lives. We would always recommend work with a wealth manager, work with a tax planner to minimise the tax you’re paying. Work with a broker or an M A advisor to work with you to take the emotion out and their guidance. You’re only going to do this once. For most business owners, you may as well get the right help, get a lawyer involved, an m a lawyer who understands all the risks to you. Once the business is passed on, you don’t want any other exposures. Get that team around you. Of all the people that we’ve spoken to, 99% will say, surround yourself with that right team.

Yes.

So, Drew, look, I guess look, there really is just one last question. I guess I lied earlier, but there’s one more thing that I guess is really worth sharing with listeners with us today, and we’ll wrap up on this one. And that is, what is it that you know now that you wish you’d known at the beginning of the process of getting your business ready?

I wish that I had thought about the exit right at the beginning, and that’s the one piece of advice that I would give, because let’s think about the analogy of a property. We can get a valuation on probably one of the biggest assets you’ll ever own in your life. We can get that in an instant, really. But with your business, sometimes we can leave it longer than we want. And when you’re ready to sell and you’ve got, say, another year or two’s worth of work to do, you don’t want to lose all of that energy. You don’t want to lose that momentum. So it’s best to catch that as soon as you possibly can, but get those systems and processes in place. Know at a ballpark how much your. Business is worth every year or so, because it is an asset. You spend so much time on it. And in it, it is an asset. And I think that’s really important, an. Important figure to get right in your head.

Brilliant. Drew Rogers, thanks for sharing your exit. Insights with us today. Really appreciate having you on the show.

My pleasure. Thanks, Darryl.