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Foreign. Back to locally owned. And when I say welcome back, I'm actually welcoming myself back too. I haven't posted an episode in almost two months now. And part of that is because I recently moved. And if you've ever moved, you know that that is a lot of work. And then the townhome that I was living in, I decided to turn that into a rental property. So I had a lot of work to do to get that ready. You know, it was a huge amount of work. And right now I sold my business a few years back. And the company that I'm building now is. It's just me, I'm flying solo. So everything falls on me to get it done. And learned a couple things from that. And one is that I am horrible at getting things done. I hadn't realized that because I had a great team around me for so long that help me get things done. And so that brings me to the second point is if you've got a great team around you, when they see that you've got a lot on your plate, they jump in and help. Just go ahead and thank them, be grateful for them, and go ahead and thank them because they are keeping you from doing everything yourself. All right, enough talk about that. Let's talk about something else that I've been working on. It's a little shift in the focus of my business. I still have a great goal setting program that I use to help companies reach their goals. But. But the shift of focus is to work with small business owners to help them redesign their company. So when the time comes for them to sell it, they have a really valuable company to sell. And the reason that I started focusing on this is because I found out that and this is a crazy statistic, but only about 1% of all local small businesses actually ever sell. And they either fail or when the time, they just go out of business and liquidate their assets. And there's nothing wrong with that, but it sure would be nice to get to the end of the road and to be able to sell this incredible thing that you have going on and walk away with it with a nice check so that your retirement enables you to live the way you want to live, or at least live the way that you've been used to living. And so if you might be saying, all right, maybe this episode isn't for me because I'm not thinking about selling my business, well, I want to stop you, because redesigning your business so that it can sell one day makes your business so much more easy to run, makes It a better business for your employees and it's a lot more profitable. And of course, in the end, you have something really valuable that you can sell. I just wanted to put that out there. So this episode is covering the five mindset shifts that you're going to have to make in order to take your company and make it ready to sell. All right? Shift number one, and it is a really big one. And almost everything else hinges on this shift. So it is taking your company from being dependent on you, the owner, to it being optional for you to even show up. So, you know, basically if you. And this is going to sound harsh, but if you. If you don't show up and your business falls apart, then you don't have a business, all right? You have a job and you have other people around you that need you to do their job in order for them to collect their paycheck, but you don't really have a viable business. You have a job. Think about it this way. You know, when you go into Starbucks, the owner of Starbucks is not pouring coffee and serving it to you. When you go. When you buy something on Amazon, Jeff Bezos isn't sending you the product, right? You're not buying, buying a Tesla from Elon Musk. You know, there's a salesman there. All of those things that I mentioned, nobody's ever seen the owner, right? But those places operate fully without the owner. The owner has his presence or her presence is never there. So you have to start thinking like a business owner. And part of that is difficult because most of us don't really know how business owners think. And we sort of get this impression from movies or TV that, you know, the business owner comes in and he's this arrogant jerk and, you know, starts ordering people around and does is heartless and cuts jobs and does these things. And that's our impression, you know, so most of us think, I don't want to be that guy. And we want to be the guy that comes in and works hard right alongside of our employees. And they love us. But that's not realistic either. Um, so really owning a business and thinking like an owner. There's a great book out there and I'll put it in the show notes. This book is life changing for anybody, any business owner that's read it. It's called the E. Myth by Michael Gerber. And the idea is that a real business is built on what he calls systems. And the best example of this is to think of McDonald's, right? So when you go into McDonald's and order your food. The employees back there, they don't hire a chef or they're not teaching people how to cook. They're just teaching people to follow directions, right? You don't have to know anything about cooking, anything about how to work a cash register. You just have to know how to follow directions in order to get that food cooked and get it delivered. And so that whole idea of having a system, what it does is it helps McDonald's produce the exact same burger. Whether you're buying a burger in California or Florida or Texas or Tijuana, you're gonna get the same exact burger no matter what. It's gonna be the same crappy burger, but it's producing a predictable result every time. And so the problem for most of us when we own small businesses is that we want our company and the product that we make or the service that we offer or the experience that we're in love with what we're giving to people, right? We've created this thing, and we want to be a part of how it gets made and how it gets delivered and how people receive it. And part of that is because we think we've created something better than anybody can create, and then we think that we can do it better than all of our employees. And so we have to be there in order to make sure that our employees do it the way we would do it. And. And that the customers love it when the employee delivers it because it's exactly the same way we would deliver it. And so I say all that to say we have to take our ego out of the equation as business owners. And so that is the mindset shift that you really need to make, helps you go from this business that's dependent on the owner to this business that doesn't need the owner to run. The mindset shift you need to make is take your ego out of it, all right? Make this about the business and not about you, Right? So you probably going to have to, you know, have this total overhaul of how you operate. And what you have to do is think, how can I not create something that's better than anyone else can make it? But how. How can I create something that I can teach to anybody? If you really want to build a business that runs without you, you have to start thinking that way, all right? So you got to start thinking, how can I build a system? Not a better product, not a better service, not how can I do this better? And maybe. Maybe the way you do it is extremely teachable. And. And if that's the case, Great. But maybe the way you do it is not teachable. Maybe you're going to need really specialized people in order for people to follow this system. And so then you don't have a good system, right? So what you've got to do is create a system that you can teach to anybody, a high schooler, maybe that's why Chick Fil A is these high school kids are running it. It's not because those kids are great. It's because the system that they have created for their cooking, their drive through, you know, every, every part of it, they have a system for. And it's a great system. So you have to rethink. I'm not saying you have to redo everything that you do, but you have to create a great system and start thinking about what that looks like. And so here's how you can figure out where to start. Go ahead and take a three day vacation and when, and see what happens when you're not there. All right? See what falls apart. Now if you are already when I said that feeling like I can't do that, I can't take a three day vacation, turn my phone off and you know, and come back, it's gonna be a huge mess. That right there tells you that your company is way too dependent on you. All right? So, but do that and whatever breaks down first, then that's where you know you need to start building systems, right? Because think about it. Does anybody really want to buy a business where it's not going to work unless you, the guy that they bought it from, comes in, works every day. People want predictability, customers want it, your employees want it, you want it. So why would anybody buy a business that can't run without you? That's what systems are for. When you build systems into your business, you make it so much easier to run and it's better for your employees and you end up with a more profitable and more valuable business. So here's what you want to do. You take that three day vacation, you figure out where you need to start and then just start. It doesn't have to be perfect, you don't have to create the perfect system, but just start and see what's not teachable, see where people get off and then that's where you're going to tweak it and make it better so that it starts, you start doing some things that you don't need to be there to make sure they get done exactly the way you want them done. Because remember, creating these systems is, it's not only Gonna make your business more valuable. But as you're building systems and creating them and then building a business built on them, they allow you more freedom. And you know that you don't even need to sell your business in order to have that freedom that systems provide. All right, mindset shift number two. You've got to move from verbal instructions to documented systems, right? It's a natural flow from the first one about becoming less dependent on your presence as the owner. I want to tell you right now, it's a lot of work, all right? And there's a way that you can do this to make it less work. But I don't want to start you there. But I do want you to understand this. Everyone talks about scaling their business, right? But here's the truth. You can't scale something that can't run without you. And the only way you're going to get it to run without you is to create systems. Now, I want you to imagine this, right? Let's just say you. You've created a video, and you make a copy of it, give it to a friend, and then that friend makes a copy of it and gives it to another friend. And then they make a copy, give it to another friend. Well, three or four friends down the line, you've got this blurry, shaky sound cutting in and out this video that's nowhere near what the original is, right? And you probably see where I'm going with that, right? You train someone, and then they train someone, and then they train someone, and by the time you get three, four people away from you, that guy. And it's not his own fault he's not doing what. What he's doing isn't even close to what you've trained the first guy to do, right? So that's why creating systems is so important. And I learned this the hard way. I was getting frustrated that people weren't getting trained right? Then I realized, this is my fault. So I started documenting everything that we, you know, that. That we did in the company. But I didn't start by documenting everything. I just took. I owned a carpet cleaning business, and I just started with carpet cleaning, right? And I created a system for that. And then. And then from there, I created systems for a lot of the main things that we did. But then I ended up creating systems for everything that we did to get a certain spot out. Everything had a system. This is exactly what you do. This is a system for greeting the customer, for how you park the van, a safety check system. Everything had a system so that it could so that I didn't have to be the guy teaching everybody. These were systems that were created that could be taught by anybody because it's a documented system. Some companies call them sop. Right, Standard Operating Procedures. But you create detailed systems for everything in your business so that you can get the results that you want. And everybody's teaching everybody how to get those results. Now, I'm going to tell you this. At first, your people are not going to like it because it feels constricting, right? But that's just a false feeling because what it really does is it frees them up because here's what happens. When they are able to do their job and they don't need you to tell them how to do it. They feel empowered. When they feel like they can teach someone how to do something and it's going to be exactly what you want done. There's no insecurity around it. You're helping your employees feel empowered because they know there's a simple and right way to do it and that they can exceed at their job. And so when you create that mindset, here's the thing. You don't have. You don't just have employees anymore. You've got this team, right? So the mindset shift that you have to make is to go from seeing systems and policies and procedures as limiting to seeing them as empowering, as giving people the chance to do their job, be great at it, and not need you to be a part of the process. And once again, that's. That's taking your ego out of it right now. Before you spend a lot of time creating these systems, here's what I want you to do. Pick one thing that you do often, and you do, you've done it a hundred times, and write it down step by step. Don't get too detailed, you know, step by step, the bullet points. Don't overthink it. Then take somebody on your team who's never done that before and get them to do it, to follow it. And you're going to see where it's unclear, done things incorrectly, where you've left some steps out, and that'll be your teacher. From there, then you can create a final product on the system. But don't make the mistake I did by creating a bunch of systems and then try to get people to follow them. And there was so many holes in it. It was hard to follow. They were unclear, steps were missing. The best idea is to get your people involve them. And one of the best ways to involve them is to get them to create the systems. They're the ones doing the work every day, right? So you're going to get them to write it down and then you follow it or get somebody else to follow it, get them to build it. And here's the thing, people will own what they create. So you're not just saving yourself hundreds of hours, but you're getting ownership. And that ownership of creating systems creates a company culture that becomes really healthy. And I've got this meeting that I go over with the clients that I coach on how to run a meeting to introduce this to your employees so that you get buy in. And that's really powerful. Now, one last thought is every time you write down a process, right, a system, a procedure, remember, you are one step closer to freedom, or you're getting more freedom at least, and you're getting a more valuable business. And you're creating this culture, right, of empowerment. So it's a lot of work. I'm not going to sugarcoat it. And it takes a lot of time. You have to be patient and you got to be persistent. But once it's in place, think about this. You're no longer running a business. You're running a system that runs your business. And the great thing about that is that from that point on, improving your business is as simple as improving the process, right? So you're not reinventing the wheel, you're just fine tuning the engine after that. And hey, if you are going to sell it someday, well, somebody's going to want to look under the hood and, and see that engine running. And you're going to have the confidence to stand back and just let them look at it. Because you know that engine purrs, right? If you don't create systems, then you know what they're going to see is something that's spitting and sputtering and just about, you know, and keeps stalling out. And nobody wants to buy a business like that, right? They're going to have to knock it down and rebuild it from scratch. All right? Shift number three is going from a gut feel to financial clarity. Now, if you don't know your numbers, then you really don't know the health of your business. And here's the way I want you to think about it. When you're watching a sports team, what's the one thing that is in the arena from any angle, any seat, you're going to be able to see this. Or if you're on tv, this is on the screen the entire time. It's the score, right? The scoreboard. No matter where you're at in the game, those numbers are important, right? They're there to help the coaches make better decisions. And if you don't know your numbers, then I guarantee you you're not making good decisions or you're not making as good a decisions as you could make if you knew your numbers. So right now, as I'm saying this, I'm like, dave, you're a hypocrite. Because there was a long time that I was in business where I didn't know my numbers. The phone was ringing, we were landing big jobs, I was hiring new people, and everything seemed to be working, had a lot of activity. But at the end of the year, I was more in debt than when I started. And then the next. That happened the next year and the year after that, and I kept thinking, well, we're, you know, we're building the business. But, you know, wasn't the case. I was just avoiding learning how to read the financials. And I did that because I knew in my head I had this general sense of where we stood because revenue was coming in. And I think, well, you know, we got that big job. We've got these checks. I'm waiting on. Payroll is X amount of dollars. So, yeah, we're doing fine. But listen, QuickBooks or any accounting software is pretty complex, and it's really comprehensive in all those things. All those numbers that are reflected are there for a reason. And you can't do what accounting software does in your head. You just can't do it. And after seven years of busting my butt only to be more broke than I was the year before, I don't want to work that hard for that. So I decided I need some real answers. And that's when I got serious about reading my financials. Now, I didn't become an accountant, and I was not telling you that you need to become an accountant. But just start with getting to know what's called your P. L. Your profit and loss. There's five numbers that you're going to need to know. Your gross revenue, that's everything that you're bringing in. Your cost of goods sold, that's every cost that's directly related to your product or service. Then there's the gross profit, which is your gross revenue minus your cost of goods sold. And then your fixed costs, which is everything that's the same every month. Your rent, utilities, insurance, subscriptions, all that stuff, right? It doesn't. It doesn't just go away. Even when you don't sell a job that's all there. And then your last number is the net profit. That's after everything is said and done. That's the net profit is all the way down at the bottom. That's the profit that you made or didn't make. Right. That's where they get the saying the bottom line because it is actually the bottom line on a P and L. And so once I started tracking those five things consistently, things changed. I was able to see where we're not spending money wisely, where we could cut, renegotiate, streamline some things. I started planning for taxes instead of being blindsided by them. And as a result, I was able to almost double my take home pay. I built up financial reserves in the company and we were operating debt free. And of course, first time in seven years. I didn't dread tax season. I didn't like it. I never liked it, but I didn't dread it because I had an idea of what I owed. So, you know, nobody is, you know, no one's ever going to want to buy a business that's not profitable, right? So you got to know if you're profitable. How are you going to put a value on your business if you don't even know if you're profitable or not and, or if you are profitable, how profitable you are? Are you? Because that's going to determine how valuable that business is. So this month I want you to focus on just tracking one of those five numbers. Start with the gross revenue, check it every week, every day would be great, probably not necessary. And then the next month move on to cost of goods sold and then your gross profit and so on and so on. And I guarantee you you're going to start feeling a lot more in control as you know your numbers, right? Because that's what financial clarity does for you. It's, you're not going to be guessing anymore. You're not hoping that everything, you're going to have enough money to pay everything at the end of the month. No more thinking. Yeah, I think we had a good month. What you want is financial clarity. You want those numbers to tell the story of how you're winning or how you're profitable. You want them to be the scoreboard that says, this is how we're winning. Anyway, you got to know your numbers. All right, let's get into shift number four. And that is going from employees to an empowered team. Now the mindset shift that you got to have is that you're not hiring people to work for you, you're hiring people to work with you, right, You're. You're creating this place where people can discover their talents and they can live those talents out. You're offering a place for people to find meaning in the way that they earn a living, and you're honoring who they're trying to become. People are showing up, giving you their time, their talents or energies. And so you're showing up and creating a place where they can flourish, right? So you got to recreate your mindset on that. And what you're putting together ultimately is a team of people that not just runs the company without you, but they run it like they own it. Part of this mindset shift is going from hiring people based on job qualifications to hiring them based off of being a good fit for your company. Because, you know, there's some great tools out there for hiring people, and we use them all personality assessments, we review their past performance, talk to their previous bosses. We did paid working interviews, multi person interviews, and all of that really does help. But at best, it just helps weed out the people that aren't right. It doesn't really guarantee that you're going to find who you're looking for. And in a small business, here's the thing that I've learned. Skills are not the main concern. Fitting into the culture is the biggest thing, right? So at first we were hiring people who had experience at cleaning carpet, because that made sense, right? They know what they're doing. There's less time that I can ramp them up and get them out there doing the work. But what I realized is that hiring people for their skills, it didn't always work out because actually I had to untrain them before I could train them. What I really needed to do was to find people that believed what we believed as a company. And I needed to find people who were coachable, who were going to follow the process that we were creating, and someone who would treat the clients that I had with the same care and pride that I would. Because here's the thing, that stuff is not all that trainable. The technical stuff, I could teach to anybody. But teaching people to care and to fit into the culture, you can't train that right? So you gotta find it right? And as the culture grew stronger, our team got tighter. And with systems in place, we were forming a culture where everybody's values aligned with one another. So we were creating this company of people with aligned values. And values became the most important thing when it came to hiring. And then the people that we hired, they learned how important the systems we created were, that that was part of the culture. And following that process was they weren't doing it because it was what they were told to do. They were doing that because they valued the process. And then once your values are clear, your team starts spotting misfits before you ever even have to, and they start protecting what's been built. And you know what buyers really want when they look under the hood? They don't want to see just great sales numbers. They want to see a team that operates like a team. A team that's proud that they don't need you as the owner. A team that knows that the business runs better without you being there. So ask yourself, what is your company culture? Or do you even have one? Or what would your employees say? It's like, do you have a company mission statement? Because that is what. Where you're stating what your values are. That's. It makes it clear to everybody. Is your company culture a really positive one or a really negative one? Do your employees care about one another or is it just sort of an everyman for himself? So I'm going to give you a little simple formula for creating this, and that's you start with your values and you build systems around the values, and then that creates. That helps employees turn into a team. And that team becomes a team of people that feel like they own the business, which ultimately ends up being, you've got a business that's less dependent on you. So a shift that you can make is to think about how you write your job ads or your KPIs or your job descriptions and maybe rewrite them based on your values. Because the end goal isn't to have employees that are easier to manage. It's to build a culture where people show up like owners. Because a team like that, it's not just valuable to you, that's a team that any buyer would gladly pay a premium for. So don't ask yourself, how can I get better people? Ask, how can I build a culture that better people want to be a part of? All right, so the fifth and final shift. And honestly, these are not all the ways that you need to shift your mindset if you want to increase the value of your company so you can sell it. But. But they are five of the most important, probably the five most important. But this final and fifth one is going from risky to recurring revenue. The lower the risk, the higher the value. And here's what I mean by that. No one wants to buy a company that is risky, right? They want to see that they're going to be able to invest their money in it and get their money back out, right? So the lower the risk, the higher the value. And, and so if you've got a company that is maybe has a 50% profit margin one year, but other years it's down around 5% or some years you're even losing money. If it's all over the place and unpredictable, that makes it high risk, right? And so you want to lower the risk. So there's three main ways that you can lower the risk and have recurring revenue. All right? So one of them is to show that your revenue is spread evenly across your customer database, right? So let's say you do a million dollars a year in gross revenue, but 500,000 of that is comes in through three clients, right? And then the rest is spread over a couple thousand clients. Well, that's high risk, right? Because if any one of those clients or if all of them should decide to take their business somewhere else, then you've lost a substantial amount of revenue, right? You're probably going to have to lay off staff. You've got equipment that isn't generating any revenue but still needs to be paid for inventory that's just sitting around. It's a nightmare, right? So having all your revenue or having a good portion of your revenue coming in through one or three clients is high risk, right? Buyers see it that way. So the second way that you can lower the risk is to develop recurring revenue that is on contract, right? So if you, if your business sells a subscription either to a website or to, let's say you mail a product every month, or someone is getting your services every month and they're on a subscription or a contract, that is very low risk. Okay? So anything you can do you to get recurring revenue under contract or on a subscription is going to lower the risk, right? And then some businesses, they're really not set up for contracts or subscriptions. But what you can do to lower the risk is to track your customer loyalty. What I mean by that is you're showing that you have repeat business and a good portion of your business comes in through repeat business clients. When I sold my company, over 80% of our revenue every month came from repeat and referrals. And what that means is that 80% of our business came from customer loyalty. And why that's so valuable is because your marketing costs to your existing customers is so much lower than marketing to try to attract new clients and loyal clients are. They're just a lot easier to deal with because they've already been through your process they already know it. The transactions are usually quicker and smoother and in. What it really tells a buyer is that this revenue that's coming in is coming in. And it's built on customers who are not just loyal, but they've built a relationship with you. And then they're happy to introduce you to other relationships, to their friends, their family, and sometimes to professionals that have access to the kind of clients that you want to serve. So customer loyalty ultimately ends up leading to fewer slow months, more predictable revenue, and a higher lifetime value per client. Which is why customer loyalty helps lower the risk and raise the value of your company. All right, so there you have it. The five shifts that make a business sellable. Just to recap, from owner dependent to owner optional. From verbal instructions to documented systems, from guesswork to financial clarity. From employees to an empowered team. And from random revenue to a risky revenue to recurring revenue. And here's the bottom line. You don't want to wait until you're ready to sell to start working on all this stuff, right? And I'll tell you why. Because the very same shifts that make your business valuable and sellable, they also are what makes it easier to run. It gives you freedom because you don't have to always be there to operate it. It makes it more profitable and it makes it a better place for your employees to work. And hey, if you're wondering where your business stands and how valuable it would be if you tried to sell it, I put together something just for you. I put together a short online assessment that you can take and find out your three biggest gaps that you're going to need to fill and a 12 month plan of action. And I got a link in the show notes for you to click on. And take this assessment. And keep in mind, it's not a full, full valuation, but it is an assessment that gives you a general idea of where you stand. And hey, I work with local business owners just like you, helping them step back and zoom out and take a look at their company from a top down look and, and then see what needs to be built so that they can build companies that they're proud of and companies that run without them and when the time is right, sell them. So take the assessment. And here's what I love about this assessment. You're not just going to get a number, like some sort of score at the end that you really don't know what to do with or it's not going to tell you that you're some type of archetype. Again, not helpful and then I just get your email address and then email you a bunch of stuff. You're going to answer questions and then I go over your answers. You're going to set up a time with me and I'll go over these answers with you. And I'm going to help you, tells you your three biggest gaps, how to fill them, and helps you get a 12 month plan together. Right now, this is a $300 assessment, but I'm giving it to my listeners absolutely for free. So just click on the link in the show notes and hey, until next time, remember, don't just build a business that pays your bills. Build a business that gives you five freedom. And one day, when the time is right, you'll be able to sell it and walk away with a nice paycheck for your retirement. All right. Thanks for listening. And you got this.