Have you ever thought about selling your business? Not just on the days that your feeling overwhelmed and ready to “ring the bell” and be done with this crazy rollercoaster of entrepreneurship. I’m talking about really maximizing the opportunity of cashing in on your years of hard work on your terms. We have all dreamt of that day at some point. To financially maximize your exit, it is important to start the intentional process as early as possible. Here are a couple of tips to consider as you look forward to the eventual sale of your business.
1. Start prepping to sell the first day you start your business
I know it might sound crazy, but it’s not. A business is an income producing asset. That is it. Sure, it can help serve your purpose and passion in life. But the bottom line is that it has a market value, and as the business owner you have the most influence and control over maximizing its value. Unfortunately, many entrepreneurs wait too long to think about preparing to sell and they can miss out on value at the time of the sale. The best time to start thinking about and preparing your business to be sold is the first day that you start the business. This pushes you to ask yourself questions about what you want out of the company. Like when you want to sell it, for how much, and even how to structure the company. You might enjoy doing and be good at one time projects but if the marketplace values lower margin (MRR) Monthly Recurring Revenue, then you might need to build a strategy to gain more MRR clients from the beginning.
Thinking about selling your business from day one puts you in a good mental state and can help you begin setting your company up for maximizing a sale from the beginning. Instead of waiting until the day or year that you are ready to cash out, go through the mental exercise of working through structuring your business to maximize the gains of a sale, at the beginning of your businesses life. You won’t regret it.
2. Every dollar counts. Reduce unnecessary spending, reduce debt, and eliminate personal expenses
Of course, turning a profit is important to all businesses. Although some of us, especially in small businesses, utilize our business for other passthrough benefits that might diminish our profitability on paper. It’s best to have two to three years of really clean and profitable books before putting your company up for sale. Therefore, cleaning up your books a couple of years prior to a sale is very valuable. Eliminating personal expenses and perks from the business will help as well as scrutinizing any and all spending. Basically, asking if every expense either leads to more business, or is necessary to maintain existing business. You might change your policy from buying new equipment when something breaks to simply repairing it or buying used replacements versus new. Additionally, reducing your debt posture. Most of the time, when you sell your business you will have to pay all the debt that you have in the company at that time. So why not reduce or if possible, eliminate your company debt beforehand. It takes profit and discipline, but it will be worth it.
And that brings me to my final point…
3. Find out what your future buyer will value
Knowing the profile of your probable future buyer is super helpful. Then you can build something they will want to buy from you. It may sound simple but it’s logical and it works. Find out who is buying your type of company in your industry. Are they private equity firms, national competitors, or another small business? Find out what and who they are buying, how they like the companies to be structured, and what they value within the companies…and then go build it! I currently have multiple relationships with potential buyers of our company, and I have no intention to sell anytime soon. But they give me insight into what they will want when I am ready to sell. Another great way to find this information is to find a local business broker and buy them lunch. Pick their brain on what they are seeing in your space and what the buyers are looking for. You can also gain insight into how your industry values companies and what multiples they are paying out. For instance, in managed IT services, which I am currently invested in, once we hit around seven million in revenue our value can almost double. It opens us up to a larger potential buyer with deeper pockets as well. I highly recommend finding this knowledge about your industry as well. This way you can maximize your efforts along the way. It would suck to grow your business for a decade and find out that you could have put your efforts in a slightly different direction and added a huge multiple on your value.
4. Fire yourself
Ok, maybe don’t completely eliminate yourself. But de-emphasizing your personal role in the company as the owner can greatly increase the value of your company. So many small businesses rely heavily on the business owner to be a success on a daily basis. The only way this is not the case is by intentionally building a management team and operational processes. Admittedly, I’m not the expert at process building but I love growing a team. I tend to delegate the actual process development and focus on finding and leading the people. For a buyer, having a management team in place greatly decreases their risk by spreading out responsibility to the entire team. Being heavily dependent on the owner or any one person can be a liability and decrease the value of the company. Honestly, even if you don’t want to sell your company, this is a good idea.
Every entrepreneur one day can hopefully cash in on the equity of their years of hard work in growing their business. I’ve had the pleasure of experiencing this as well, and hope to do so many more times in my life. It can be very rewarding! There’s a long list of actions you can take to maximize the value of your business and these are just a few. But if you look at these few ideas above, they aren’t merely ways to maximize the value. They also have ancilary benefits for you and your business. Lowering your debt…sounds healthy to me. How about building lessening your business’s dependence on you, the owner? Who wouldn’t want a business where you can go on a two week family vacation and not have to worry about your business falling apart? This business consultant in Tampa encourages you to start small…but start now. It’s never too early to start preparing your business for a sale.
Read our other blog on Overcoming the Fear of Failure in Life and Business