How SMBs Can Multiply Their Worth | Jay Abraham

On this episode of Strategic Edge, business strategist Jay Abraham explains how small and midsize business owners can transform their companies from income generators into valuable, sellable assets. He outlines practical strategies for increasing business valuation, even for companies generating under $2 million annually, by focusing on systems, scalability, and long-term positioning.

Abraham emphasizes the importance of predictable revenue, reduced risk, and maximizing customer lifetime value to make a business more attractive to buyers or investors. He also highlights the value of early exit planning, strategic acquisitions, and professional advisory support in building a business that can generate multiples of its current income. By shifting from short-term thinking to asset-building, entrepreneurs can create long-term financial security and unlock significantly greater wealth opportunities.

Key discussion points:

•  Why business owners should focus on building assets, not just income 
•  Creating scalable systems and predictable profit streams 
•  Reducing risk and increasing value through diversification and structure 
•  The importance of early exit planning and strategic positioning 
•  Using acquisitions and integration to multiply valuation 
•  Leveraging advisors to optimize financials and prepare for sale 

Transcript

Welcome And The Big Question

Jim Fitzpatrick 0:32

Mr. Jay Abraham, welcome into another edition of Strategic Edge right here at ASBN.com. Thank you so much for taking the time out of what is a very busy schedule, helping companies really all over the world growing their bottom line and growing their business. So thanks so much for joining us.

Jay Abraham 0:48

Yeah, it's always a pleasure. You know that. I'm very fond of your audience.

Jim Fitzpatrick 0:51

That's great.

Income Stream Versus Sellable Asset

Jim Fitzpatrick 0:52

So, Jay, many entrepreneurs uh focus on increasing revenue year to year, but you often emphasize building a business that has real asset value. What are the key differences between a business that just generates income and one that can be sold for a meaningful multiple?

Jay Abraham 1:10

Well, let me address, let me divide and conquer. I mean, if you're running a company that's 20, 30, 40 million dollars, you already know that the biggest value in that business, it unless it's uh generational and you want to keep it in the family, is going to be its value if you sell it uh either strategically or to private equity. So you're already aware of it, but you may not be aware that you can multiply the multiple it is worth. We can get into that later. But since the vast majority, 80, 90 percent of the entrepreneurs in in America and the world are are under probably $2 million, most of them don't think about a business having sellability. Uh they just think about it being a vehicle to make uh ordinary income and use that, we call it the uh illiquid assets of the earning power to invest in liquid assets that they can basically, you know, their stock, their stock portfolio, uh T bills, things like that. But if you are a small, medium-sized business who's never thought about it, with a with a relatively simple shift in how you view what you are creating, you can take whatever the income the business throws off to you every year and turn it into an asset that when you're tired of it, uh when you want to go up the food chain and be more ambitious at a higher level, you've got a vehicle someone will pay you three or five times one year for. And you can do that over and over again. We wrote a book about how to how to earn the income of a lifetime every two or three years, and it was predicated on that whole thing theory. But what I see is most small businesses they don't even think that they're gonna have much value when they sell. They don't even trying to create it for that, they're creating it just out of out of grit. But if you basically do a couple of things, if you and this is true of any business, but a little one is even even better. If you can show that you have a a uh a predictable uh growth or predictable above average growth uh uh trajectory, meaning you're growing at above the industry, if you can show that your profit level uh is better than the industry, if you can show that your uh revenue is less uh less uh uh threatened by concentration risk, meaning you're getting it from many more sources, if you can show that you have systems, processes, and procedures that are not dependent on you, even though you are currently the you know the leader, the strategist. If you can show that you have a competitive advantage, and a lot of littler businesses don't have a they don't have a defendable uh patent, they don't have exclusivity, but what they can have is a much greater than their competitor lifetime value. And when you have a lot more profit you are earning ongoing from a buyer, from a distribution channel, you then have a lot more what's called allowable in acquisition costs, more capital you can invest to bring people in the front door. And if you have a success model that nobody else does, even if you're a small business, you can basically create an asset as opposed to just an income stream while you're working it. Right. An asset that people will eagerly pay you three, five, sometimes even more, depending on who it is, or you can create a business that you could easily either borrow against because it's got great predictability, or you can sell uh you can sell uh minority interest in because it's got that kind of a predictability and value. And uh you can just do all kinds of things that have always been available, but smaller businesses never think about.

Jim Fitzpatrick 5:09

Right, right.

What Raises Valuation Multiples

Jim Fitzpatrick 5:10

For small and mid-sized business owners that are watching this, what are the top drivers that most influence valuation multiples? Things that can dramatically increase what buyer we pay for in a company?

Jay Abraham 5:23

Well, I want to tell you the answer, but I'm gonna tell you the smaller businesses have the great advantage that they can make their case to small business buyers, and those buyers don't necessarily exist. You can create them when you show that you have an asset that has high predictable sustaining income. But the first thing is is methodology that sustains income. Second is not being one shot, having any kind of residual. So when you bring somebody in the front door, whatever that expense is to do it, sales, advertising, lead costs, trade shows, you're able to monetize it over and over and over again. The other is uh is uh is a model that is a business model that has a lot more uh a structured system process procedure that are not dependent on you. The other is is a trend uh line. If your trend line uh far exceeds the industry, so the industry is growing at 10 and you're growing at 22, the industry is making 15 percent, you're making 28. Now you've got all the, you know, it's it's you talk about a perfect storm, it's a perfect positive storm to go to somebody and say, you may not think about it, but this business that makes $500,000 a year, should make multiples of that over time because I've set it up so it's going to grow and it's going to thrive, not because of me, but because of the system in place. Yeah. And when you've got that, now you know your whole motivation is different. Most people who are small businesses, their attitude is I'm gonna work until I'm exhausted, I'm gonna work until I die, I'm gonna work until I can't, and then I'm gonna try to figure out what to do with the business if anyone will buy it. And kind of distressed mindset, you get a terrible multiple or no multiple.

Jim Fitzpatrick 7:23

Right.

Jay Abraham 7:24

I mean, there's there's a woman that I know that I've been helping, and she buys uh schools that that help autistic and um and Asperger children, and there's 300 of them out there that she said they'll give them to her because they're people that have built them and there's not a really standardized buyer for them because it's they're a bunch of fragments. But you you you can open up and you got two different advantages. One, if you do it for yourself and you're not national or international, you're local or regional, you can take the same model and get a hold of other businesses very cheap and overlay it with your model and make them much more valuable and aggregate them because in at scale, the multiple even multiplies. The second is if you get your business structured to where you can command a multiple of five or seven or nine, which means five or seven or nine times what you make in it in a year, which means almost a decade of income at once, you can also acquire other businesses like that, put them into yours for a very low multiple, and then basically play what's called arbitrage, where you can sell the combined for this higher multiple as long as you then integrate and implement your systems and processes and procedures. I don't know if I'm being too abstract.

Jim Fitzpatrick 8:47

No, no, no, no, not at all. I a number of people that I've spoken to that have uh ultimately sold their business or in some cases closed their business, even though it was a profitable business. Um, we we see a lot of that. Uh, I understand that there's some uh 500,000 businesses for sale at any given time in the U.S., but only less than 20% of them actually get sold, which is just astonishing. When should when should a business owner start to think about selling? Because I think

When To Start Exit Planning

Jim Fitzpatrick 9:18

all too often business owners uh wait too late to start to have that mindset and to have that forethought to say, one day I do want to sell this, but then they get right down to the the finish line, they have no more time left, and they you know their accountant says, You really should have started to think about this five years ago or three years ago. What's your take on that?

Jay Abraham 9:38

This reminds me, uh, I'm gonna tell you a story. This reminds me of when I was 19 and I had a job selling life insurance, and it was a really interesting company, and we'd knock on doors and we would present our life insurance proposition. And more often than not, somebody would say to you, Well, if I die, and we would say no, it just went.

Jim Fitzpatrick 10:00

That's right. Let's correct that. Not if I die.

Jay Abraham 10:06

If uh you know, in in in the best, uh the best uh scenario it's when you open the first day. But I mean the moment you hear this is when you should do that because there will come a time where your business will need to be transitioned somehow.

Jim Fitzpatrick 10:27

Right.

Jay Abraham 10:29

If you don't engineer it for sale, then you're gonna engineer it for closure.

Jim Fitzpatrick 10:35

Right.

Jay Abraham 10:36

And if you close it, that means let's say you've been doing this for because again, I'm talking about the majority of the businesses, they're two million and under. You might have been doing this for 20 years and it might have paid a nice income, and then it might have let you invest passively. But would isn't it a tragedy if when you're done, you've got nothing else to show and no more revenue it can generate because you did not take the time to structure it so it'd be a valuable asset that would basically pay you more when you were done than when you were doing it. And you didn't explore all the ways you could use that vehicle to acquire even more wealth. And if you're young, uh you do it now and you just keep you just keep upgrading. You you basically position yours for either sale or acquisition sale. Yeah. Use money to do it again and again and again, and that's how people create true wealth.

Jim Fitzpatrick 11:31

That's right. And the old adage is when's the best time to plant a tree? It was 20 years ago, the second best time right now. Yeah. So for business owners that are listening to us have this conversation, start to be thinking about this and take action to say, hey, if I sell this business, even if it's two years from now, five years from now, eight years from now, whatever the number is that works best for you, think about it right now and put those things into action, right?

Jay Abraham 11:56

And ask yourself this question. If I sell it today, what's it worth to someone?

Jim Fitzpatrick 12:01

Yeah.

Jay Abraham 12:02

But it and let's say the answer is very little.

Jim Fitzpatrick 12:05

Yeah.

Jay Abraham 12:06

And the next

Aggregation And Multiple Arbitrage

Jay Abraham 12:07

question is what do I have to do starting today to make it worth quite a lot? Yeah. A lot is relative, but I mean, right now, there are so many people out there that if somebody made it known to them that there was an entity, a business, that had a high predictability of making them a half a billion dollars a year. Right. And that that business could be acquired for a figure that the owner would carry because it doesn't really matter if you're keeping it, as long as you have controls in place. So that instead of stopping it and getting nothing, you're making a half million now. You you show them how they can buy it by giving you that half million, and you give them ways that they can grow it even because it's trending up. And you can basically create buyers, you can create demand, you can do all kinds of things because most of us never, no small businesses never think about that.

Jim Fitzpatrick 13:02

They they don't. They really don't. And there's uh there's so many different ways to structure a deal. Um, you know, if if I would rather have, I don't know, 100,000, 200,000, 50,000, whatever the number is per year for the next five or 10 years if I sell my business, uh, versus just locking the door and walking away and saying, well, it's been it's been a good 20 years. But uh but that's a mindset, right? That you've got to say, if I'm gonna sell my business, I've got to be open to different structures of that sale.

Jay Abraham 13:34

And and a much more um evolved way of thinking is if I figured out for my business, and as I said, if my business isn't international, how many other businesses like mine are in the same position? If I got control of them for almost nothing, I could make them worth quite a bit by putting the same system, process, procedure, thinking on it that I did, that I re-engineered into mine.

Jim Fitzpatrick 13:59

Yeah, that's right. That's right. Yeah. So so there's business owners out there today that would love to, you know, retire in five years. They'd you know, whatever,

Deal Structures And Creating Buyers

Jim Fitzpatrick 14:08

as I said before, whatever their number is, maybe it's three, maybe it's five, maybe, maybe it's ten. Now is the time to start thinking. And in doing that, it's important for them to bring those professionals into the into the realm, right? In into the the into their business to say, please take a look at it. Well, how do how do we structure this in such a way that uh we feel comfortable showing the profits, showing the top line revenue, what the EBITDA on the business would be. Um, right?

Jay Abraham 14:36

But it wouldn't see that it it can't be that expensive and that difficult because it's not that complex. A two million dollar business is not like a hundred million that has divisions and profit. It'll be a piece of cake, but I think what you will find in the majority, it's not a negative, it's just clinical, the majority of them aren't structured for sale. They're not structured to be to have much value, they're not structured even with a clear, um, a clear uh target of when and and and what they're gonna do with it. But if you think about the big idea of this interview with me is that whatever your business makes you now, it could get it could pay you three to ten times that if you make a few strategic shifts when you decide you no longer want to own it.

Jim Fitzpatrick 15:25

That's right. That's right. And that's a beautiful thing. That's uh that could be a number that you could retire very nicely on, right? If you make the if you make those steps now. And uh for business owners too that are out there, and you've seen this, Jay, I know, working with uh all sizes of businesses and owners out there that uh, you know, they think, well, because they show a loss on their taxes, you know, who's gonna want this business because I expense a lot of things or I take a lot of things out of the company, maybe it's a car or you know, whatever the case might be. Um don't be frightened away by that because there can still be a way to show handsome profit. Your taxes don't have anything to do necessarily, right?

Clean Numbers And System Thinking

Jay Abraham 16:09

As long as as as you you build it so it's clean and honestly accurate, right? You know, they back all that out when they're showing what it's really earning. And then somebody might buy it because they want that, somebody might buy it because they want the income. The point is, if you have a business, you know, I have more sophisticated methodology if you want to multiply the multiple of a 20, 50, 100, 100 million dollar business, but I'm talking about where the huge swath of entrepreneurs live, and it's in this two million and under. Yeah, and they don't really think really, they they hope, you know, their strategy is hope and pray, which is not engineer. You know, there's there's there's a fascinating quote by uh uh W. Edwards Deming, the person who came up with uh optimization, highest and best use theory process improvement. He said almost every failure is not a people failure, it's a system failure. If you don't have a system in place to make your business an asset, not just a temporary income generator, you've created you've worked your heart out, and all you've done is hopefully have a nice paying job.

Jim Fitzpatrick 17:26

That's right.

Jay Abraham 17:26

With a job, maybe you get a little retirement, but unless you're part of a of a growth-oriented tech company, most jobs don't end up giving you much at the end.

Jim Fitzpatrick 17:35

That's right. That's right. I

Build The Team And Final Takeaway

Jim Fitzpatrick 17:37

I agree. I agree. Jay Abraham, bringing bringing the good stuff once again for business owners that are out there listening to us have this uh this conversation and uh be listening to Jay talk about this. These that you may be sitting on an asset that you could retire on very nicely. And to Jay's point, um, you know, take care of that. Start to be thinking about that now and taking care of the necessary steps so that one day you can turn around and say, wow, out of this, you know, $2 million a year business, I'm I'm able to sell it for $4 million, $6 million, $8 million. Who knows whatever the number is? But uh take those steps now. Bring those coaches in, bring those accountants in, bring maybe an attorney in to say, hey, this is my plan. If I want to exit in 36 months or 48 months, whatever it might be, let them know that and have your team start to be thinking along those lines. I think you're gonna be very surprised with what you find. So, Jay Abraham, once again, thank you so much for joining us here on the Strategic Edge. It's it's great having you. This is the this is the kind of content that we want to be delivering to our viewers every uh every month. So thanks so much.

Speaker 18:46

Thanks for watching Strategic Edge with Jay Abraham, exclusively of an ASBN.