The key reason to start a business should be to sell it one day, and the way to become truly wealthy is by buying, building and selling businesses. Generally speaking, you won’t achieve great wealth by owning just one company, you’ll need to buy, build and sell business a few times over.
Ideally, the only time you’ll want to hold onto a business, is if you are planning to franchise or license it but that that is a different case altogether, with different considerations, processes and requirements to what I am discussing here.
A good strategy to adopt is to hang onto your first business for its passive income while you acquire and build up your next business. At this point, your first business should be at a place where it can successfully run without you. This generates a passive income and alleviates the pressure when selling, thereby allowing you can take your time finding the right buyer and negotiating the best deal possible.
It is important to understand that you will need to be a good negotiator if you are going to sell the business yourself. You are aiming to get the best price possible and to achieve this, the business needs to be at a point where the buyer just has to move in and start trading – everything must have been set up already. There are a number of factors that influence the ability to sell your business and the price that buyers will be willing to pay for your business. These factors are as follows:
Strong Consistent Cash flow
One of the most important factors that impact on the “salebility” of the business is the ability of the business to generate strong consistent cash flow coupled with good margins and ideally a large percentage of repeat business
Here a potential acquirer will look at which assets are owned by the business, be they in the form of products, patents, registered brands, investments, shareholdings in other businesses that are also part of the sale as well as physical assets (movable and immovable).
People, Process and Systems
Every business needs systems and good people to ensure that you have a “COMMERCIAL, PROFITABLE ENTERPRISE THAT RUNS WITHOUT THE BUSINESS OWNER.
“Scalability” of the business
The purchaser, will always want to ensure that the business is scalable so as to ensure that they can extract further value from the business after the business has been bought. Failure to build scalability, may result in the purchaser having bought additional revenue and not future leverage from the acquisition.
Culture of the Organization
This is often an area that is overlooked. Research will tell you that around 80% of acquisitions fail because of the inability to fully integrate the respective teams into one cohesive operating unit.
The key to ensuring that your business is saleable, is to start working on the above five areas from the start and to develop these areas over a period of time. Too many business owners wait until they want to sell the business before analysing how “saleable” their business is. The reality is that most acquisitions take place when you least expect them to take place and therefore you need to prepare your business for sale from the beginning. That way you are better prepared when an exciting offer does come your way as well as being able to maximise the selling price.