You might not be ready to sell your business today, but that doesn’t mean you shouldn’t start preparing now. Making your business attractive starts long before your decision to sell. Consider these eight ways to make your company sellable.
What is Bo’s big revelation? That half of entrepreneurs who sold were miserable at the end of the process. The secret to joining the satisfied 50 percent and leaving as a rich man is identifying the key factors that make your business sellable well ahead of time.
8 Factors for Making Your Company Sellable
Financial performance - The majority of companies are valued based on how much they sell and how much profit they earn. While some smaller companies do land huge deals, most are discounted for being higher risk. For that reason, the article suggests that perhaps “bigger is better.”
True, becoming more profitable may be easier said than done. However, it’s not always as hard as it seems. This post reveals some relatively simple ways you can boost profitability in your company.
Growth potential - Investors don’t just want to know how successful you have been, but how successful you are going to be. Ideally for a buyer, your company’s best days are yet to come.
The key to boosting growth potential is having a model in place that gives your business the ability to scale. Without that, potential buyers have a tough time seeing your business’s upside. This article in Forbes outlines several steps you can take to scale your company.
Wide client base - Huge clients are fantastic for growing your business quickly, but if they comprise more than 15 percent of your business, it could scare away potential buyers.
I can’t blame them either - what happens if that big fish leaves, removing a significant portion of what makes your business profitable? Acquire enough other business to cushion the blow should anything happen to your big clients.
Cash flow - According to the article, the companies that can finance their own growth internally end up being viewed as the most valuable. If a buyer would need to invest more cash than the purchase price to drive the company’s value, it’s going to make for a difficult sale.
Be efficient with your money. Hold onto cash, grow steadily, and focus on efficient cash flow to generate the best offers.
Recurring revenue - The best way to leave your business sustainable without you at the helm is by creating recurring revenue. This ensures the company isn’t overly dependent on personal sales techniques to drive success.
Companies with recurring revenue tend to attract buyers who are seeking long-term, low risk ventures. Always make sure your product or service is renewable and addictive. This article discusses some ways to create recurring revenue within your company.
Unique value proposition - Commodity businesses have lower margins and thus, bring lower value. Buyers want a business that has a competitive advantage over their competition.
Ensure that your competitors would need to dedicate a significant amount of time, money and effort in order to match your model. Even better, don’t let them believe they even stand a chance.
Customer satisfaction - The article sums it up well: “Grow your customers and you’ll grow your value. It’s that simple.” And it really is.
Unhappy customers are the sign of a company that is ready to decline at the first sign of competition. Burlingham suggests using Fred Reichheld’s Net Promoter Score to indicate your customer loyalty to prospective buyers.
Strength of management team - Buyers don’t want to feel like you’re the only person who can make your well-oiled machine turn. If so, who’s going to be able to drive success when you’re gone?
That’s where having a strong management team comes into play. Show prospective buyers that they aren’t investing in you - they’re investing in your business, which will continue to succeed long after it leaves your hands.
Keep in mind that priming your business for selling takes time. None of these eight factors can be accomplished overnight, so start planning now. It will ultimately make your business stronger today, and more attractive in the future when you’re ready to sell.