23 Apr 5 Signs You Have Built a Business That’s Ready for Buyers (and a Bidding War)
Published in Entrepreneur, April 18th2019
Authored by Lucas Miller
While some entrepreneurs are content to stick with a single company that they’ve built from the ground up, others are constantly on the lookout for something new.
For example, take New Zealand entrepreneur Rod Drury, who established and sold companies Glazier Systems, AfterMail and Xero for millions of dollars. Consistently building successful brands that you can sell for a profit is an exciting way to make a living.
So, if your goal is to be a successful serial entrepreneur, you must develop the ability to recognize when your business is ready to sell. Here’s what to look out for:
1. You have demonstrable systems.
Each business has its own unique practices and systems that it uses to keep everything running smoothly. While there will naturally be changes when someone new takes over the company, the transition can be much easier when you have a well-documented set of systems in place.
As David Finkel explaiined in a blog article forInc., “Think of your [ultimate business system] as the organized collection of tools (spreadsheets, word docs, scripts, checklists, samples, software tools, templates, etc.) in a searchable, accessible and editable way.” He noted that he was talking about a “cloud-based collection of file folders or enterprise software” with access controls.
“In the context of selling your company,” Finkel wrote, “a prospective buyer can now see that the knowledge to run your company and perform each of the critical tasks is not in the head of any key employee, but rather it has been absorbed into the systems and internal controls of the company.”
That way the prospective buyer can see that editing, refining and using those systems is part and parcel of the company culture. And that’s appealing.
2. You know the numbers.
As exciting or innovative as your product or service may be, buyers tend to be far more interested in your bottom line and your company’s ability to adapt to market changes. This means you need to know your numbers inside and out.
As Dana Tobak explained in an interview for Mashable, “Knowing the potential full cost of your decisions is important. Don’t assume you’ve properly forecasted all your costs and customers. What happens if the price of your biggest input goes up? What happens if it takes double the time to bring a product live?”
Sellers need to understand the full range of potential outcomes, Tobak continued.
Overall, prospective buyers will want to see how your company is prepared for different situations. Knowledge that a solid plan is already in place will make the business more sell-able.
3. The company can get by without investor funding.
Many startups require outside funding to get off the ground — but if you want to be attractive to prospective buyers, you must be able to demonstrate that the brand can be sustainable on its own. Demonstrating that there is consistent demand for your product or service will go a long way in alleviating the potential concerns that a prospective buyer might have.
In an article for Hacker Noon, Nitesh Agrawal illustrated how serial entrepreneurs must have the mindset of bringing in revenue as quickly as possible if they’re planning to sell in the future.
Tanisha Robinson, CEO of Print Syndicate, wrote Agrawal, earned $4.25 million in venture capital to fund her company’s expansion, but she didn’t rely on financial infusions like those to support her staff of 140.
‘If the capital market dies and nobody can raise any money, we’ll still be here,” Robinson told Agrawal. “Her company,” he wrote, “which designs novelty clothing, accessories and home goods did $4 million in sales in 2013, its first year!”
A company that has proven it can stand on its own is thus far more likely to start a bidding war. Disney’s $71.3 billion acquisition of Fox came from just such a bidding competition, which was largely fueled by the relative good health of and demand for Fox’s properties.
4. Your business has “curb appeal.”
Looks aren’t everything in the business world, but they can make a significant difference in making your company more appealing to prospective buyers — especially if you have a brick and mortar location.
In a phone conversation, my personal mentor and medical entrepreneur Kristofer Chaffin, told me that, “Buyers don’t want to come in and feel like they have to give everything a makeover. A well-designed website shows that you have a powerful digital presence. An organized office with quality equipment shows that you’ve invested the time to make your business an attractive place to work.
“These little things add up — buyers don’t want to feel like they’re investing in a ‘fixer-upper.’”
5. You’ve done your homework.
It’s one thing to want to sell your business. It’s quite another to truly be prepared to sell and spark a bidding war. Doing the groundwork in advance will help you feel confident that you are getting fair compensation for all your hard work.
In an interview with Fundera, Michael S. Blake advised, “If you are serious about selling, have your business appraised. When you make the first move to sell your business, you should be prepared to offer a selling price. An appraisal will help you set that price based on market facts, rather than gut feeling.”
In short, when you truly understand what your business is worth, you will be better prepared to make an attractive pitch.
Few things can be more exciting than seeing a bidding war erupt for a brand that you built yourself. But you can’t just suddenly decide that you’re ready to sell your business and expect to turn a major profit.
By understanding the indicators that your company is truly ready to sell, you will be able to get the results you desire as you prepare for the next phase in your entrepreneurial journey.
Are you curious about how sellable your company is and what you would need to tweak to sell it when you’re ready? Then it’s time to get your Value Builder Score via the questionnaire on our website. It takes about thirteen minutes and your responses are kept confidential.