All Owners Exit Their Business
At some point in your life, you will exit your music school. You’ll either exit by choice, or you’ll exit due to circumstances. Perhaps you’ll want to exit to retire or spend more time with family. Perhaps you’ll start a new business that you want to focus on. This was one of the reasons why I sold my school after 17 years. Perhaps you’ll open up three locations and ultimately decide you want to sell one location to lighten your workload.
As many of you know, I work for Ensemble Music Schools, an organization that purchases music schools. I speak with school owners all day long interested in selling their business, which has given me a unique perspective on music schools.
One reason that some people sell that I never even thought about is declining health or, even worse, death.
These can be uncomfortable topics to think about, but it is important to ask yourself what would happen to your school if you were to become incapacitated.
7 Things To Do Before You Sell Your Music School
1. Good Systems
I spoke to a music school owner the other day that was having health issues and no longer had the energy and focus required to run her business. Fortunately, her business was not only profitable, but she had good systems in place, so the school could pretty much run by itself.
2. Plan Your Business Succession
I’ve spoken to spouses of music school owners that passed away that wanted to sell. It never occurred to me that I should have a worst-case scenario plan in place if I passed away while I owned my business. What an amazing gift to leave for your family during a time of distress—a profitable business that they could choose to continue running or sell.
3. What Your Business is Worth
The reality is all music school owners will exit their business one day. It’s never too early to ask yourself how much you’d want to sell your music school for.
Another critical question to ask is how much your business is worth. Understanding how much your business is worth today can help you decide about your future.
According to smallbusinessworld.com, the typical value for a small business is 1.5 to 3 × seller’s discretionary earnings or SDE. Your SDE includes what you pay yourself and any other financial perks you benefit from, such as your school paying for your car, gas, travel, and entertainment. Your seller’s discretionary earnings are all expenses associated with you, the owner.
At Ensemble, we use a similar formula. Our multiple is more in the 2 to 3.5 × range.
4. Find The Right Buyer
What initially attracted me to my position at Ensemble Music Schools is that I recognized that the presence of this organization was a game changer in our industry. Sure, other companies buy music schools, but what’s unique about Ensemble is that when we buy a school, we keep its name, brand, community, and culture intact so much so that families in our schools quite often aren’t even aware that their school’s ownership has changed hands. From their perspective, everything is the same.
This was not the case when I sold my music school. I sold to my school’s manager. My school was called Dave Simon’s Rock School. Of course, my school’s new owner would remove my name, his former boss, from the business. I would have done the same thing. It was still difficult to see my school, brand, and musical legacy vanish with a single signature. I knew selling was the right thing to do, and I was happy with the sale price, but it was still hard to do.
5. Evaluate Existing Offers
As I was going through the negotiation process, my business mentor pointed out that in my 17 years of owning my school, only one person, my manager, offered to buy it and that I might never receive an offer again. Ensemble launched the same year I sold so they weren’t on my radar and I wasn’t on theirs.
Ensemble is also unique because we aren’t a one-time buyer like the guy who bought my music school. If a local buyer offered to purchase your school today and you said no because you weren’t interested, that buyer would most likely not be interested in buying your school if you wanted to sell 10 years down the road. Since Ensemble buys schools across the US, we are a potential buyer of your school 5 to 10 years from now.
6. Generate Enough Revenue
The presence of Ensemble Music Schools sends a message to all music school owners. The message is “Your business has value”. Perhaps even more value than you release. Ensemble doesn’t present a now-or-never opportunity. We create an off-ramp for owners whenever they’re ready to exit. Schools must meet certain criteria for Ensemble to present an offer. We typically become interested in schools generating at least $450 to $500K in revenue.
You could use this number as a goal to set for yourself. Perhaps selling your school isn’t something you would consider doing in the near future. Perhaps your school is doing around $350K a year in revenue. You could use the Gary Vaynerchuk motivational mindset to grow your business.
Gary says his dream is to buy the New York Jets one day. Clearly, he doesn’t own the jets because he hasn’t acquired the level of wealth needed to buy the jets. Gary even admitted that he might not buy the jets even if he had the money, but he uses this goal to motivate himself to scale his business.
7. Envision Your Desired Outcome
You could use this same motivational mindset to help you focus on growing your school to meet the Ensemble criteria. Even if you never sell to us, your business would benefit from your focused efforts.
This ties in with the message in The Magic of Thinking Big by David Schwartz. You simply need to think in a way that cultivates success. Success becomes more attainable if you can envision the outcome.
There was a music school owner in my city that I would compare notes with and talk shop. By the age of 70, she was ready to retire. She had around 500 students in her school. I guess she was generating around $700K in annual sales. She looked for a buyer for years but couldn’t find one. By 75, she just shut the school down and walked away. She made nothing. Ensemble wasn’t around in 2017, and she shut her doors for good. She would have been a likely candidate for us.
Your music school is more than just a paycheck for you. It’s an asset. It has a value that you can extract one day.
If you’d like to learn more about what’s involved with selling your music school or how Ensemble might valuate your school, you can visit welovemusicschools.com. It’s never too early to plan for your future.