Building a business to sell is not the path a lot of entrepreneurs consider — but more of us should. With the market continually changing, it is a practical approach when you want to explore other industries as well. Some entrepreneurs like the fast-paced early phases of a company’s development. When the company has reached a certain level of maturity, it may be appropriate for them to move on to a new project.
Selling a business is never a simple process, but building it to be sellable cuts the work it would take in half. And even if selling your business is not your end goal, it doesn’t hurt to be prepared. Here are nine straightforward tips to consider for building a business with an exit strategy in mind.
1. Don’t forget your goal
When you decide to build your company with the purpose of selling it, your mindset needs to change. As your perspective changes, you can move with commitment towards your goal.
Set a timetable for the sale, then analyse the progress of your business in light of that timetable. During this process, you will be able to discover obstacles and make necessary changes. Distractions are normal of course but keep the goal in mind: your business is creating a business to sell to someone else. Thus, monitoring your progress and having the ability to make the necessary changes is essential to your goal.
2. Do your research and analyse
Make it your job to know all there is to know about the market of the business you are building. The best investment is likely to be in a well-established and growing market. A new market will enhance your exposure, but a dying industry will provide diminishing profits and may not attract a buyer when the time comes to sell.
Analyse your processes and search for methods to improve operational efficiency, decrease expenses, and control inventories without interfering with company operations. Update your marketing strategy and look for ways to increase sales, such as entering new markets or offering new products and services.
3. Establish standard operating procedures
Establish your standard operating procedures (SOP) as early as possible and update them constantly. Your SOPs should cover all your operations. These will enable your business to function independently from you so the new owner can hit the ground running. With strong SOPs in place, your operations are likely to have fewer mistakes, get ahead of problems, and run smoothly.
Your SOPs are not only beneficial for your team; they are also worth their weight in gold to potential buyers down the line. No matter whether you plan to sell, having well thought out and documented SOPs enable your business to be independent and self-sustaining.
4. Invest in your people
A solid team behind a business is definitely appealing to potential buyers. Buyers in general would prefer not to start with an overhaul of your workforce.
Invest in your people by providing training, career development plans, and by creating incentive programs for them. The more you invest in your team, the more they will drive the success of your business. Richard Branson points out that the way you treat your employees is the way they will treat your customers. So when you invest in your employees, chances are they will invest in your business too. And ultimately that could be one of the factors that leads your potential buyers to consider buying your business.
5. Develop a strong brand identity
Just like your personal identity distinguishes you, your brand identity is the magic ingredient that differentiates your company from the competition.
A strong brand identity works wonders to elevate your business. It makes enough noise in the marketplace to attract people to your business. And the more customers are attracted, the more the value of your brand increases. Maximise the use of social media, your website, and advertising. Request testimonials from customers to build up your brand reputation.
6. Make your finances your priority
One of the most important things to remember when building a business is to separate its finances from your personal finances.
You should maintain a separate account that handles all of your company transactions for clarity’s sake and to save yourself time when it comes to selling your business. Keeping clear financial records is critical, which is why having your own separate company bank account is a smart place to start.
Consider hiring an accountant or company consultant to help you review your financial reports and tax returns. Make a list of the stocks and equipment you wish to sell together with the firm, including any intellectual property and intangible assets. Ensure that all papers are structured and presented in a way that is beneficial to the purchasers. You should not leave out any crucial information; you should be as clear as possible so that buyers know what they are getting. By doing this, you’ll save yourself a great deal of time and deal with future problems more efficiently, and you’ll provide a coherent, cohesive account of your past and future business.
7. Create a stable cash flow cycle
A strong cash flow cycle allows you to invest in expansion. A positive cash flow can allow you to expand and improve your business in many ways, including building additional sites, investing in research and development, upgrading infrastructure, enhancing technology, giving more training, and acquiring new assets and inventory. Having extra cash flow allows your company to function in a strategic, proactive manner, rather than a reactive, defensive manner.
You must have strategies in place to assess and maintain a positive cash flow on a regular basis. Otherwise, you’ll have to sell assets or borrow money to pay your obligations. Consider your options for conserving or increasing your monthly cash flow to avoid running out of funds. Your business will surely attract more buyers if it has a healthy cash flow cycle, as this would prove that it is well worth their investment.
8. Keep investing and improving
When you cease investing in new equipment, maintenance, and process upgrades, you begin to reduce your company’s future worth.
While you may be unable to influence external variables such as the exchange rate or what your competitors do, you can always develop and improve your operations.
9. Understanding the “multiples”: know your business value
Valuing a business is not always an easy task; you may want the assistance of a valuation firm to establish the real value of your company. Using a third-party agency to value the property can also provide legitimacy to support the asking price.
Additionally, it won’t hurt for you to know and understand about the “multiples”. The term “multiples” has a special meaning in corporate finance. A multiple is a method of comparing two metrics to gauge one aspect of a company’s financial health (relevant numbers). Because businesses differ, multiples and ratios are employed to compare them rather than utilising precise figures. Learning about these figures will enable you to gauge or come up with a more accurate estimate of the valuation of your business.
You have to consider factors such as financial performance, brand reputation, the size of your customer base, and the size and age of your business. You should know that a single component cannot have a substantial impact on business value multiplier calculations. Taking these elements into account will increase your business’ value multiplier.
If you’re thinking of selling your company, don’t wait until the last minute to acquire a business appraisal. Your business worth won’t grow if you wait until it’s time to sell to find out how others see it.
You may avoid making this mistake by understanding how a buyer views the worth of business. Attend seminars and speak to business sales and acquisition specialists to learn more about the field.
In the end, whether you decide to sell your business or not, knowing and implementing these tips will have a positive impact on your business’ success.
