Last Updated Aug 5, 2010 3:32 PM EDT
I had built my consulting business up to $5 million dollars in annual revenue with a profit margin well into the double digits when I decided to sell it. I went to see a friend who sells companies for a living to see what he thought my business was worth. He asked a series of questions and at the end of the meeting turned to me and said that, in his opinion, my business was unsellable.
At first, I couldn't believe it. This was my life's work -- seven years in the making -- and this Wall Street whiz was telling me it was worthless. I pushed for an explanation and he showed me that the business depended too much on me personally and my revenue was too unpredictable.
After that memorable meeting, I spent four years reengineering the business and it was eventually acquired in 2008. Based on my experience, here are three signs your business is on the wrong track:
1. You don't know where your next deal is coming from
Acquirers pay for a future stream of profits and if you can't predict where your future revenue is going to come from, they may get cold feet.
When I was in the consulting business, we would start every month from scratch. Each month we would beat the bushes to win projects. Some months we got lucky and far exceeded our plan, other months projects dried up and we had next to nothing on the books. It was a wild roller coaster ride and the worst part was approaching the beginning of the month with nothing in the funnel.
The Fix: Shift your business model to focus on recurring revenue through contracts, subscription revenue, consumables, and other sources that will bring some consistency to your numbers.
2. Employees keep disappointing you
If you think your employees are incompetent, it can be a sign that you're asking them to do something they are not qualified to do. In my consulting business we would take on just about any project -- no matter what technical skills were required. The result was that my team never built up any practice in a specific area because I was constantly zig zagging from one kind of project to the next.
The Fix: Assuming you have smart, loyal, and motivated employees, give them a chance to become experts in your particular niche by keeping your service / product line narrow.
3. You don't feel like you can take a vacation
To be a valuable acquisition target, your business needs to be able to run with out you and if you don't feel like you can afford a vacation, it's a good sign your business relies on you too much.
The Fix: Start small by taking a day off and seeing what falls through the cracks. Repair the cracks and try two days off. Repeat, each time increasing your number of days away until you can take a 12-week sabbatical without impairing the performance of your business.
What are the biggest indicators you see that a business is in trouble?
photo courtesy of Flickr/Kaiban