Building a Business to Sell: A Strategic Approach
As a business owner, it’s essential to consider the long-term goals of your company. Are you running your business solely to generate income, or do you also envision it as an asset that can be sold in the future? Ideally, the answer is both. Having a clear understanding of your objectives can significantly impact the decisions you make and the strategies you implement. In this article, we’ll explore the importance of building a sellable business and provide guidance on how to make your company attractive to potential buyers.
Why Build a Sellable Business?
A business that is easy to sell offers numerous benefits, including the ability to exit on your terms, maximize your payoff, and gain more freedom. A well-structured and well-run business can command a higher sale price, providing you with financial security and peace of mind. Additionally, a business that is built to sell is often easier to manage, as it is less reliant on the owner. From a tax perspective, selling a business can also be beneficial, with the first £1m of the gain from the sale eligible for a reduced capital gains tax rate of 10%.
Key Benefits of Building a Sellable Business
Some of the key benefits of building a sellable business include:
- Maximizing Your Payoff: A well-structured, well-run business sells for more.
- More Freedom: Selling your business brings financial security, which in turn gives you options to consider ideas such as retirement or starting another enterprise.
- Less Hassle: A business that is built to sell is easier to run, as it is not so reliant on the owner.
- Tax Benefits: Selling a business can provide tax benefits, such as a reduced capital gains tax rate.
Steps to Building a Business Buyers Want
To build a business that is attractive to buyers, it’s essential to follow a strategic approach. Here are some steps to consider:
1. Know Your End Goal
The first step in building a business that you can sell is figuring out what success looks like. Ask yourself:
- How much money do you need/want from the sale? Having a financial objective in mind can help you focus on annual targets to achieve your exit goals.
- Do you want to stay involved after selling? Some owners like to stay on, while others want to walk away as soon as possible.
- Who might buy your business? Considering potential buyers, such as trade sale, competitors, private equity, family, or an Employee Ownership Trust, can help you make informed decisions.
2. Get the Structure Right
Buyers want a business that’s well-run and easy to take over. Make sure you have:
- The Right Structure: A people structure in place with clear reporting lines, and staff that are aware of their objectives and responsibilities.
- Efficient Operations: Strong systems and processes can help reduce inefficiencies and make your business more attractive to buyers.
- A Strong Management Team: A business that runs without you is more valuable, so having good people around you is essential.
3. Sort Out the Finances
Buyers will dig into your finances, so be ready! This includes:
- Keep Clean, Transparent Records: A strong documented history of your business’s performance can give potential buyers confidence.
- Boost Profitability: More profit equals a higher sale price, so make sure you’re doing all the basic housekeeping activities that increase profitability.
- Tidy Up Debt: Buyers don’t want to take on your financial baggage, so it’s essential to manage your debt effectively.
- Know Your Value: Regular valuations can help you know you’re on track to achieve your exit goals.
4. Build Strong Business Assets
Your business is much more than just the finances and the business model. To make your business stand out, focus on:
- Brand Reputation: A strong brand adds value, so ensure everything in your business reflects your brand.
- Loyal Customers: Repeat business is gold, so focus on building strong relationships with your customers.
- Intellectual Property: Trademarks, patents, and unique processes can be valuable assets, so lock them down and register them.
- Revenue Streams: Relying on one income source can be risky, so consider diversifying your revenue streams.
5. Remove Yourself from the Day-to-Day
If your business falls apart without you, it’s not sellable. Fix that by:
- Documenting Processes: Make it easy for someone else to run things by documenting your processes and systems.
- Building a Solid Team: Train leaders who can operate without you and ideally with someone as your deputy.
- Automating Where Possible: Less reliance on manual work can make your business more efficient and attractive to buyers.
6. Plan Your Exit
Selling isn’t just about finding a buyer. Think about:
- Exit Options: Look into the various exit strategies, such as selling outright, part of the business, merging, or selling to an Employee Ownership Trust.
- Timing: Timing your exit is crucial, so consider selling when the market is strong and your business is growing.
- Expert Help: Get advice from financial and legal professionals or contact a business mentor to guide you through the process.
7. What Happens After the Sale?
Once the deal is done, what are the next steps?
- Handover Period: Be prepared to help the new owner(s) transition, as you may still need to be involved for several years.
- Investing Your Earnings: Take financial advice on how to invest your net sale proceeds, which may be your pension.
- Your Next Move: Have a strong plan in place, whether it’s retirement, starting a new business, or consulting.
Conclusion
Building a sellable business requires careful planning, strategic decision-making, and a deep understanding of what buyers want. By following the steps outlined in this article, you can increase the value of your business and make it more attractive to potential buyers. Remember to stay focused on your end goal, get the structure right, sort out your finances, build strong business assets, remove yourself from the day-to-day, plan your exit, and consider what happens after the sale.
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