In the world of business, success isn’t just about making money. It’s about creating value, building trust, and enjoying the journey. The host of The Deep Wealth Podcast and post-exit entrepreneur Jeffrey Feldberg speaks with fellow entrepreneur and now M&A advisor Jonathan Baker on the lessons and insights for business owners everywhere.
In today’s post, we’re uncovering the secrets to a smooth and profitable business sale. Our expert guest, Jonathan Baker, shares invaluable insights on what makes a business attractive to buyers and how to prepare for this pivotal moment
Building a Niche: The Power of Specialization
“Specialization means that you are getting really good at one thing,” says Jonathan Baker, a man who knows a lot about helping marketing firms find success. Jonathan, who works with firms through his advisory practice, Punctuation, highlights the importance of having a niche. He learned this from his father, who had an ad agency. Jonathan explains that businesses should “focus your message and develop deep knowledge in a specific category.”
“We grew that it’s now at six locations, 200 employees over the years,” Jonathan says, reflecting his achievement. But it was his experience with mergers and acquisitions (M&A) that really sparked his interest. “A failed M&A engagement where we were left at the altar… got me very interested in M&A,” he shares.
Jonathan joined his father’s firm, Punctuation, where they specialize in helping small to mid-sized marketing firms. As Jonathan puts it, “We advise marketing services firms, but a lot of the stuff that we do and talk about is applicable to any professional services firm.”
Being specialized helps in two ways. First, it lets businesses charge more because they offer something unique. Second, it makes them attractive to buyers. Buyers want expertise they can’t build themselves, and being specialized opens doors to strategic opportunities.
Profit Matters: Understanding Your Numbers
One of the big takeaways from Jonathan is the importance of profitability. He says, “One thing is for sure: the absolute nature of your profit matters.” This means businesses need to show strong, consistent profits if they want to attract the right buyers.
Jonathan highlighted a frequent mistake business owners make: undervaluing themselves. “Owner’s not paying themselves enough. They don’t understand that a buyer’s going to look at their replacement cost,” he warns. This can skew valuation and lead to disappointing offers.
Business owners also need to prepare their books. “Professionalize your bookkeeping,” Jonathan insists. Clean and organized financial records build trust and reduce risks during a sale.
Jonathan talks about the importance of having clean financials and understanding basics like EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). He gives this simple advice: Make sure your books are in order. This helps build trust with potential buyers. After all, trust is the currency of business transactions.
Selling a business can be an emotional rollercoaster. Jonathan warns, “Don’t want to be doing this yourself because you also have a business to run.” He suggests keeping the sale at arm’s length to avoid losing leverage. Having an advisor can serve as an emotional buffer.
It’s easy for business owners to imagine retiring on a beach, but getting too attached to a deal can hurt negotiation power. Let an expert handle those high-stakes conversations so you can keep running your business smoothly.
Time is Your Friend: Prepare Early
Jonathan emphasizes that business owners should start preparing for a sale two to three years ahead. “Valuations go back about three years,” he notes. This timeline allows businesses to show consistent growth and have three years of clean bookkeeping ready for due diligence.
Preparing early doesn’t have to be overwhelming. It’s about setting goals and knowing where you stand. Taking the time to understand your business’s strengths and weaknesses can make a big difference when the time comes to sell.
Jonathan says that the key to success is early preparation. It might take two or three years, but it’s worth it. “We’re showing trends in the right directions… two to three years out,” he suggests. This timeline allows you to make necessary changes and improve valuation.
Don’t forget about emotions. “It’s more personal and it’s a bigger number,” Jonathan warns about the emotional toll. He recommends having someone to manage the process and provide an emotional buffer.
The Human Element: Why People Matter
In a world buzzing about AI and technology, Jonathan believes humans still play a critical role. He acknowledges that AI will help with profitability by saving time but insists, “You’re not going to just rely on AI.”
Whether it’s relationships with professors during college or connections made in your industry, people matter. They offer insights and opportunities that technology cannot replace. Jonathan encourages entrepreneurs to network and build relationships, citing his own lack of focus in this area during college as something he would change if he had the chance.
Buyers have their own checklist when looking at businesses. “They want to feel good about the company’s ability to make money in the future,” Jonathan explains. Consistent profit margins, long-term contracts, and reducing buyer risk are essential.
They are also drawn to things they cannot build themselves. “It could be a senior leadership team. It could be access to, again, a particular client base,” Jonathan shares the variety of attractive features.
As Jonathan says, “Focus, position your business well, and separate yourself from the day-to-day.” Begin creating a narrative that showcases your X Factors, or unique assets. These can help create excitement and drive up your business’s market value.
One of the most important steps is choosing the right professionals to support your exit strategy. Jonathan suggests, “industry specific accountants [who] can also do benchmarking work” because they understand what investors expect.
Finally, don’t wait until the last minute to prepare. Take Jonathan’s advice—start now. Make goals and plan out your financial growth. It’s your business, your hard work, and by preparing right, you’re setting up for success.
Final Thoughts: Have a Plan and Stick to It
Jonathan Baker’s journey is filled with lessons for business owners. From honing in on a niche to planning finances, his advice is practical and actionable. He reminds us all that preparation is key and keeping the human element alive in business is as important as ever.
Whether you’re thinking of selling your company soon or just beginning your entrepreneurial journey, take these insights from Jonathan Baker to heart. Create a plan, learn to trust the experts, and remember that your wealth is not just about money. It’s about the value you create and the lives you impact along the way.
Are you ready to see what awaits your business with the right preparation? Remember, the sale of your business is more than just a financial transaction. It’s your legacy. Make sure it reflects the hard work and innovation you put into it.
As Jonathan says, the journey isn’t just about making other people rich. It’s about being on the side that makes decisions and does good in the world. So take a page from his book, and start shaping your business for success today.
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