5 Steps to Create a Saleable Business
Whether you want to sell your business or not, you should build a saleable business from the beginning.
Often we find the biggest challenge for many small business owners, is they only start thinking of selling their business when they get to a point where they’re tired or they’ve had enough and want to get out. This is probably the worst time to sell your business.
If a business owner has become tired, usually, the performance of their business is a reflection of this and they’re not going to get anywhere near the best price for their business that they should. The easiest business to sell is a good business, so the goal should be to create a good, profitable and strong business.
We believe the best buyer to sell your business to is a corporation. A corporation has an Acquisitions Manager whose job is to look for businesses to buy that are good and profitable as most corporations grow by acquisitions.
Depending on the type of business, we often find that when clients achieve a turnover of around ten million dollars they will be approached by corporations looking to acquire their business. The goal is to be ready for this by having a well-run and profitable business.
The 5 steps to take in creating a business that is ready for sale
- Look and act like your potential purchaser. This means you already have a three-way cash flow and budget and run your business along corporate lines. Ensure you have your business set up with an Advisory Board and a management team and have targets and KPIs that make your team accountable in achieving the business plan. The more your business looks like the potential buyers business increases the amount they will be willing to pay.
- You must have a 5 year plan. There needs to be plenty of positives to your business whether you sell it or not.
We had a client approach us to discuss selling their business and after an evaluation we put together a 5 year plan that included the targets and numbers to get them there. After that 5 year period the business sold for 5 times the amount that was previously offered.
No one wants to buy a business that’s tired, they want to buy a business that’s going somewhere.
- Develop an operational system that doesn’t rely on you, the owner. The less a business relies on the owner, the more a business is worth. The key is to make sure you’ve got effective systems in your business that don’t depend on you.
- Ensure you have a management team that can execute the business deliverables without you. The more effective this team works, the more valuable your business.
We’ve come across corporations that will pay 25 to 50% more just because there is a management team in place..
- Finally, a strong team of advisers can position you and the business in achieving the above 4 points to maximise your sale and exit prize and more importantly, exit terms.
Keep in mind that hiring a team of professionals will come at a cost however, if you put together the right team, you’ll get a return many times over your investment, but be careful if you cut costs here because it could cost you millions.
To summarise, buyers are looking for good and profitable businesses. Businesses that have a good business model, a good management team, good contracts, and don’t rely on the owner with plenty of opportunity in terms of growth.
The better business you create the more valuable your business will be.