In the final episode of 'The 7 S's of Business Success' podcast series, we cover scaling, selling, and scrapping your business. Gain insights on boosting revenue, strategic selling, and pivoting operations effectively. Whether you're a beginner or a seasoned entrepreneur, this episode offers key guidance for sustainable growth and successful transitions.
In the third and final instalment of ‘The 7 S's of Business Success’ series, we delve into the crucial final steps of building a successful business: scaling, selling, and, if necessary, scrapping.
Whether you’re just starting out or looking to refine your strategy, this episode offers invaluable insights to help you confidently navigate these pivotal phases.
In the episode, you’ll learn…
Scaling Your Business (Step 5): Discover how to boost revenue through automation, expand your market reach, develop new products or services, and strengthen your teams. To ensure sustainable growth, learn to identify and manage risks like overextension and quality control issues.
Selling Your Business (Step 6): Understand how to sell your business to realise capital, plan for retirement, or reduce risks. We cover strategies to enhance your business's value, engage professional advisors, and navigate challenges such as valuation discrepancies and confidentiality breaches.
Scrapping the Business (Step 7): Learn when and how to pivot or wind down operations due to financial challenges, market shifts, or other critical issues. Mitigate risks through robust financial management, adaptability, and operational efficiency to minimise losses and maximise opportunities for reinvention.
Tune in to equip yourself with the tools and insights needed for long-term business success, whether your goal is growth, exit, or transformation.
Resources Mentioned In This Episode:
>> WT244: The 7 S's of Business Success: From Seed to Scale [Part 1]
>> WT247: The 7 S's of Business Success: From Seed to Scale [Part 2]
>> WT37: Interview With John Warillow
>> 'The Wealth Coach’ Book [Amazon]
>> WT103: Employee Ownership Trusts w/ Chris Budd
Next Steps On Your Wealth Building Journey:
>> Join the WealthBuilders Facebook Community
>> Become a member of WealthBuilders
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Christian Rodwell (00:02.018)
purpose of Wealth Talk is to educate, inform and hopefully entertain you on the subject of building your wealth. Wealth Builders recommends you should always take independent financial, tax or legal advice before making any decisions around your finances. Today's episode is brought to you by Wealth Builders Membership, a proven step -by -step process that helps you achieve financial security within two to three years. find out more, head to wealthbuilders .co .uk forward slash membership.
Welcome to this week's episode of Wealth Talk. My name is Christian Rodwell, the membership director for Wealth Builders, joined today by our founder, Mr. Kevin Whelan. Hello, Kevin. Hi, Chris. Good to be with you again. I'm still in the business mode, are we? We are. We're finishing off our little trio of episodes where we're focusing on the seven S's. Back in episode 244, we kicked things off, also gave away a free checklist there for anyone at the early stages wanting to validate their business.
Back to the episode, I'll link in the show notes. And then a couple of episodes ago, we covered, steps three and four. So perhaps just quickly recap for anyone who's missed that. The seven S's of business was number one seed. Number two was start. Number three, stability. Number four, systemization. And then today we're going to be covering number five, which is scaling. Number six, selling. And number seven, scrapping.
Yeah, well, know, scrapping just fits in there. I want to caveat the scrapping with there's always a value. I was talking to a friend recently who had a lovely Mercedes 250 sports car, basically sold it for pennies in the pound because of the Ule's low emission zone in London. And it's because nobody in London wanted to buy it. And it's a lovely little car.
Timing is often quite a key consideration, Chris, as it was with the Ulez thing in a car, but the same applies to a business and sometimes it's forced upon you. So when we get to scrapping, I'll talk about what some of the circumstances are that can force people to have to sell for pennies in the pound, not for a premium. Because the whole idea of scaling and selling is to get a premium.
Christian Rodwell (02:25.118)
Because you take the biggest risk when you're moving towards scale. First of all, you have to have the ambition, don't you? know, want to do that. And we'll often talk to business owners. The very first question I asked them is this business designed to be sold? Is it designed for scale or is it designed to be a lifestyle business? And you have to know that because if you talked about in the last test, which was stability,
When you get to stability, you know you've got consistent cash flow. If you've got consistent cash flow, then you can reinvest that temporary cash flow, the money that's coming that you have to earn each month again, you so you've got the stability of it's coming in, like a wage comes in, and then you redistribute the proceeds or some of that, you you
the money out in the most tax efficient way. And we often talk about the directors draw the DRAW, which in brief as a reminder Chris is the D stands for directors pension or SAS. We've talked so many times about the super tax efficiency and power in SAS are being relevant life, getting the business to pay for not just your future retirement life, but also to protect your family.
A, build assets. So almost be a money magnet trying to create recurring income if you can in your business, but recurring income outside of your business for sure. And that when you ask most business owners when they want to sell, they always say it's about five years. Then you've got three to five years to get any business owner to a place of not just stability in their business, but stability in terms of income security.
whether they ever sell the business irrelevant. You know, the business has got them to that place of financial stability, financial security as we call it. And then more often than not, if you've five years, you could probably even get a business owner to be wealthy, W being for well -being, you know, taking care of yourself and health and wealth and well -being generally. And there's so many ways a business
Christian Rodwell (04:51.074)
can extract value for the business owner without detracting from the value of business. don't know, Chris, if you, I know we've got a little thing we use very early on when people join wealth builders and when we talk about a little bit on the side. Remember that? Yes. We're not going to talk about that today, but when you sell a business or when you're getting to a place where you're considering whether your business will be sold, you have to pay attention to
something called the SDE, which is Sellers Discretionary Earnings. And most people don't know about that. If you've got a healthy pension, a director's pension, a SaaS, if you're paying yourself from the business, then that money doesn't affect the value of the business. Because if you sold it, you're no longer going to be paying that, are you? So you're not going to be putting the 60 grand in your pension. You're not going to be doing the drawings. You're not going to be taking.
some of the income out of the business anymore. So it's not really affecting the value. So therefore it's really important if you are taking money out of the business, create a separate business, the lifestyle. If you've got lifestyle business in particular, because you'll never be able to sell it. That's a bit of a tragedy for the coaches in the world and in many cases, those who are delivering the service are often doing that out of passion, aren't they?
They're doing it because they love to do it. They want to be a counselor. They want to be a coach. They want to be a guide, whatever they want to be. They're delivering it from a place of the heart, not necessarily from the place of, want to scale this to sell this to make a lot of money. But you know, there's definitely ways that business owners can think about getting some value from their business, but not every business, Chris, wants to go through the trials, the tribulations
having to deal with fundraising and crowdfunding, venture capitalists and their particular need for an early repayment. I think we heard from Louise, you remember Louise Hill of GoHenry, she was saying that how much pitching she had to do, hundreds and hundreds and hundreds of pitches to get funding. And they got funding from private people, from crowdfunding, and then in the end,
Christian Rodwell (07:14.158)
from other companies and that scale came from international joint ventures, know, joining forces with companies in France and Italy, joining forces with companies in America. So the scaling is a real big deal and you've got to put all of your energy into doing it if you really want to make a success of that. And I would say most businesses are not going to get into that arena. They want to
in a place where the business owner can get a meaningful income and get some value from it, but it isn't going to be dozens of millions. It could be millions, but nonetheless, the route isn't through scale. It's through just getting the business into a really good shape and then working out the different ways that business exits can take place. All businesses have to exit at some point, don't they? I often talk about my father dying early and the business exited when he did.
So I've been there and seen what happens when businesses don't put the infrastructure to be able to sell, let alone to be able to scale. So I guess let me suggest some reasons why a business might want to scale. So it could be to increase the customer base market reach, which can lead to more revenue and profits. could be economies of scale. So, you know, being able to negotiate better rates and market influence, more power with suppliers.
But of course, all of these come with risks, don't they? And if you haven't got the right infrastructure, then you might overstretch yourself. And that could lead to either sort of personal burnout for the business owner or just, you know, stretching the business resources too far. Yeah, all of those things, you know, economically apply, but I think in the hearts and minds of the people we tend to serve, which are the owner managed business community. And actually most of those are owned by baby boomers, know, millions and millions
People in the, you know, born after whatever it was, what, 19, up to 1964, you know, in the baby boom generation. That means, you know, most of those businesses will have to be exited at some point. More often than not, there's no planned exit strategy. The exit strategy falls upon them. But if we do want to talk about the different exit routes, we talk about that and then talk about the reasons why owner manager businesses tend not.
Christian Rodwell (09:41.976)
to have a planned exit and they tend to, well, kind of fall into the hands of other people and sometimes by look, sometimes by design, but there's a whole business now of trying to help in a win -win environment, the baby boomer generation who come from a place of value and integrity who want to continue to have their business serving.
their customers, their clients, their staff members and so forth. They just don't want to see the business die just because they're coming to the end of their willingness to be the runner of the business. And there's a whole business around engaging with those business owners and finding a win -win solution, particularly if their finances are well sorted. Your mortgage is paid off, decent incomes.
built some assets, whatever those assets are, even if they haven't followed the wealth builder principles in practice, but they followed them in kind of broad outline, they probably got, you know, some properties somewhere, whether it's for letting or for their own enjoyment, they've probably got decent pensions and decent investments behind them and so forth, then the win -win solution can be found and there's a whole new raft of younger business owners.
taking over the businesses that are currently being managed and run by baby boomers, but more conventional things. Should we talk about those? Let's do that. Let's look at the success, which is selling. there's a great book. We've referred to it for the E -Myth revisited. Mike Liger always talks about starting with the end in mind, but of course, many business owners are focused on what's right in front of them. And, you know, the exit of the business is often, you know, only
And you thought about right at the end, perhaps when it's too late. Yeah. I mean, there's another great book I would commend to anyone called Built to Sell by John Warlow. A really good book and talks about almost the levers you have to pull to get the maximum value for your business. And we had him on the podcast. don't know how long ago that was. Chris, what comes out
Christian Rodwell (11:57.406)
It was a few years back, but I will hunt it down and make sure we put the link in today's episode. And it was a really good episode to do go and check that one out. And then you as a podcast as well, called built to sell where he showcases business owners who do sell and what they did to make that happen. And in some cases, what went wrong and in many cases, the what went wrong or solitary lessons as well, you know,
Anybody in business makes mistakes along the way. can't not. That's what business is all about. You can't read about business. You've got to be in business. You you've got to have that. I suppose that experience of being an entrepreneur to know what it really is all about and the school of hard knocks and all that, you definitely get punched in the face a few times when you're in business, undoubtedly. The play on words I use is you need to be paid, don't you, for your blood, sweat and your years. And I
It's important to consider, well, if you can plan it well, what would a good plan look like? And a good plan is always going to be to work out what's the biggest lever you can pull to get the highest value for your business. Because all businesses are valued in some way. And usually they're valued as a multiple, a multiple of something, a multiple of revenue, a multiple of profit.
And most multiples are driven a bit like markets. So there's a market for mortgages, there's a market for interest rates, there's a market for property, there's markets. But the real skill, and we know this in wealth building, is to be outstanding in a niche in a market. So if you can create an outstanding niche, brilliant. If you can become a master inside your own niche, then that's a key component of that. The second is recurring income.
Finding a business wherever possible where there's a greater degree of recurring income than temporary income or we talked a minute ago about how you can turn temporary income into permanent income by buying assets with the cash flow, but if you've got a business that cash flows already with recurring income businesses, and we talked about that last time, didn't we? The different ways to create recurring income in your business. That's the big sleeper because what an acquirer wants
Christian Rodwell (14:20.59)
They want predictable revenue, predictable profit, predictability. And in truth, wealth is all about certainty, creating certainty in an uncertain world. And so an acquirer is too. An acquirer could be another business, somebody who sees the logic of some synergistic relationship competitor, could be a venture capitalist organization, you know, where they see they want to buy the business now, do something, make a connection.
all sorts of different ways that venture capitalists do that, but then they want to sell the business within typically no more than five years. And these things are all going to put pressure somewhere. So then the pressure is almost always on the value, on the multiple. And you get the biggest multiple if you've got predictable income. And John, I can't remember the exact figures from John's book, but something like eight times more, if I remember
If you've got a high degree of recurring income in your business compared to a temporary one, because if it's recurring, it's predictable. They can see it. The acquirer, whoever they are, can see it. They can measure it. They can watch it. They don't have to doubt it. Whereas if everything's lost in the midst of your books, you're making profit, but they don't know exactly where. They don't know exactly where the hidden things are. Yes, they all
due diligence, but that doesn't mean they trust it. And more often than not, if you're selling a business without recurring income, the business might be valued, but that might not be the price you get. You've heard of, with properties, know, you're haggling and gazomping and all those sorts of things that go on and there's no difference in business valuation. And of course, the big challenge is you haven't got the comparables. You know, if I'm going to buy your house, Chris,
somebody sold on that street and I can look that up on Land Registry, can look that up with a piece of software. It's more difficult to do that because when an owner -manager business is sold, there's no record of that. There's no record, there's no central record of a sale price. The only time you really see the record is when the business owner puts in a claim for the old version of entrepreneur's relief. You and you can see what the business sold for when they pay their taxes, but that's not public knowledge. You're never going to get to find that out. In fact,
Christian Rodwell (16:47.522)
Part of the deal whenever you sell a business is a sign an NDA, a non -disclosure agreement, and you're not going to be able to have that dialogue about those things. So the biggest and highest premium is going to come from an acquirer where they want that predictability of income for whatever reason they want it, either inside the current business they've got or some kind of venture capital, because they believe they can do something else to increase the value. No different.
to buying a house and improving the value on it. They see themselves as doing that. That's where you're to get the premium. I would say go for the premium. If you can, get the highest and best reward for that because even if you built your wealth independently, but you can get a capital injection, a liquidity event often called, and you can get a good tax break on it, 10 % tax, for example, then it's a good result.
It will bolster and boost your wealth and give you the experience. And maybe you want to do that again. You you can then create a process to look at businesses. Now you've been through the sale. We know there's a London marathon, right? And the London marathon, and I went down there to support one of our team members running. And you can see everybody's completely knackered, right? By the time they get the end. And they get their medal. What if you could just run the last 385 yards up the mile?
You don't have to build it. You don't have to go through the trials and tribulations of recruiting everybody. You just buy and sell it. And there are genuine ways that you can do that. You can spot businesses when we get to the scrap stage and see there's a way that you can actually get the medal without actually doing the work because you're looking for the baby boomers who've left it too late and didn't do what we're now talking
And the second one is to sell, you almost have to have a planned exit and it's to sell it to the internal management team, sometimes called a management buyout. So the people who you've recruited to manage the business want to manage it and they will often raise money in order to buy the value of the business out. Now, they're not going to give you a premium, but if they're confident about the business, always a good sign if they are, then they can raise that money.
Christian Rodwell (19:14.134)
and pay you out of that. And they, of course, they know what's going on in the business. So they're much less likely to be holding you to have to work in the business for a long period of time, sometimes called an earn out. You get some money upfront and then some money down the line. And often that money down the line doesn't happen because the owner can't handle the stresses and strains of now being.
employed or in a business working for somebody else when they were the master of their own destiny beforehand. The third is an interesting one, Chris, is you don't sell the business for a capital value, but you essentially use the income that's flowing into the business and you use that as an exit. So in other words, you engage in something called an EOT or an employee ownership trust.
There's a whole growth of current anyway, government support around wider engagement in staff members being involved in the business. You know, having a stake in it, a like John Lewis partnership, that kind of idea in broad terms. And lots of businesses have gone down that route where for very, very good reasons for win -win for staff, win -win for the owners, they didn't necessarily need a capital value.
but they wanted an income value. They want to continue to be paid an income from the business. And with an EOT, employee ownership trust, the owner of the business, you can sell all or part of their business, can get all of the proceeds, all of the future income out, completely tax free. So you can almost look at this and go, well, what do want to do? Do I want an exit from an acquirer? Do I want an exit from the venture capitalist? Do I want to sell for a capital value with
with my management team? Do I want to pass it into the hands of a really well organized team and get a tax free out, a long term income but I don't need the capital value? All of those things can have a big role on how you want to exit your business. So I would always encourage a plan and decide how you want to exit rather than be forced to exit or sometimes having to hand it over to your kids.
Christian Rodwell (21:41.94)
We see family businesses and family are always different, aren't they? So I've definitely seen family businesses where there's ructions and disagreements after the businesses have been passed into the siblings, different siblings, different wealth dynamics, different attitudes. You there can be challenges down the line, always can be. And you're never going to get a premium. Your kids are never going to write you a big check, are they? They're just going to take it over.
Family business, yeah, that's another option. And certainly there's some brilliant family businesses where the culture and the practices and the elder statesmen or women in the business retain some kind of directorship or some kind of involvement, but it gets more and more and more over time. So there your exits, Chris and the main, and your premium acquirer, your management buyout, your EOT, sell it to your family.
or you can not really plan to sell it but somebody approaches you because they know they've spotted you as being the baby boomer, let's say, with the business that you can't just, you can't get the value for it or your health is gone or some other challenging circumstances have come upon you and you're just never going to get the premium and you don't have time.
You don't have a five -year plan anymore. You might have a five -month plan or a year at most. That's when I wouldn't say scrapping is the right word, but selling to somebody who probably is really more likely to give you pennies on the pound or indeed just like the EOT, but without you getting the tax benefits, can creatively pay you out of the ongoing income from the business.
And as I say, that's definitely a growing trend. And in fact, very soon Chris will have a gentleman on the podcast who will be telling us all about that and how he identifies those businesses, not to take advantage, but to generally find a ethical win -win that solves the needs of the business owner. But the business owner is almost always not at the best possible place. But recognizing that, suppose, just like people sometimes sell properties, don't
Christian Rodwell (24:06.072)
for probate reasons or for divorce or for death or for illness or for relocation. There's all sorts of reasons why people get put into some kind of stress and this is what happens with business owners too. And the pennies and the pound offer or the income as part of giving you an income from the business is never going to give you the same level of income as another alternative. So the worst case, worst case, worst case
You just die and the business goes, which is my dad's story, isn't it? My dad's business was scrapped because nobody could take it on. was no passing on. There was no skill. There was no diligence. There was nothing. So basically it died and whoever else took over the idea didn't reward my family for that idea at all. So that's a genuine scrapping and you know, that's the worst of all evils really that one. Well, there we go.
The seven S's of business success from seed to scale. We've covered all seven now. business is one of our seven pillars of wealth. We teach wealth builders how to generate recurring income. And there are seven asset classes that we focus on and business. It's pillar five. Hence why we've been covering that in more detail for those that are existing business owners and those, course, that are right at the beginning. We're there to help both.
And within our wealth builds community, we have people at all stages, don't we, of those seven S's. And, you know, we love to help people, in particular you, Kevin, always with that CAT scan ability to find the recurring income opportunities that might be, you know, being overlooked. And recognise the signs though of the business owners that I speak to and try and give them an exit route, at least to be financially independent of the need to be in their business. So if they love it, they can continue to do it. If they don't love
They can find one of the exits that work that gives them some value, but they're never going to have a compromised life. Imagine if you put all your eggs in your business basket and most people put too many eggs in one basket, they? They have all their eggs in their pension or all their eggs in property and interest rates go up or all their eggs in the business and the business gets devastated by COVID or illness or something. There's some change in circumstances which you simply cannot predict.
Christian Rodwell (26:30.978)
Your life is then just compromised forever after that. You just don't have enough income coming in to be safe and to be stable for the rest of your life. And surely, if you're to put yourself into the lion's mouth, you're going to do something that's so infinitely more risky. The amount of hours you put in, the amount of risk you have to take, the amount of dedication is so much more when you run a business.
Because you're creating all the structures for yourself, you don't have that structure provided like you do in a job. I'm not saying anyone is better than the other here. I'm just saying they're different. It's harder to become wealthy in a job than it is in business, but there's many devastated business owners who put too many of their eggs. didn't build the pension on the side. They didn't build a property portfolio on the side. They didn't do anything else on the side. And as a result, they don't get a result at all.
that is going to sustain them moving forward and certainly that deprives the next generation of a legacy as well. So, look, I applaud business owners as the backbone of society. They really do an incredible job of employment and risk taking and entrepreneurship and invention and all those things. And I applaud business owners everywhere I meet them because I think they do an outstanding job. But I do wish they'd put as much time in the planning of the exit.
than they did when they planned the entry. even that sometimes is accidental as we know. Well, if you're a business owner and you'd like to find out more about how you can diversify your income streams, also protecting your revenues, then do get in touch with us. Head to the Wealth Builders website and book in a free discovery call with our team. And we'd love to speak to you further and see how we can help. Yeah, you could signpost the book as well, The Wealth Coach, where we definitely talk about that. And I'll probably...
create some free chapters in due course, but for now, The Wealth Coach is available if you are a business owner who wants to read a little bit more. And if you buy the book and you have a call with me, I'll give you money back because, you know, to me, it's really about serving people for the long term, not worrying about getting 20 quid for a book. That's not my motivation at all. Now I'll put a link to The Wealth Coach book in today's episode. And if you enjoyed listening...
Christian Rodwell (28:57.622)
And do share this with a friend and help us spread the word. And Kevin, you and I will be back with more Wealth Talk. Same time, same place next week. Until the next time. See you.
Christian Rodwell (29:11.362)
We hope you enjoy today's episode. Don't forget that we are constantly updating our resources inside the WealthBuilders membership site to help you create, build and protect your wealth. Head over to wealthbuilders .co .uk slash membership right now for free access. That's wealthbuilders .co .uk slash membership.