When leading tech blog TechCrunch was sold to AOL a few years ago, founder Michael Arrington hit the jackpot to the tune of around £12m – not a bad return for five years’ investment.
While most of us can only dream of reaping that kind of payoff, thousands of entrepreneurs build businesses not to pass on to their children several decades down the line, but to sell for a profit. It’s a proven model: establish a niche, create a thriving enterprise, sell up and move on.
So what’s the best way to build a business to sell – and what can you do to ensure the best chance of a successful sale further down the line?
1. Work like you’re in it for the long haul
Even if your plan is to flip the business as soon as you can, you need to treat it like a long-term investment. Focus 90 per cent of your efforts on the business itself, rather than the exit strategy. If you build a great business, you won’t be short of potential suitors when the time comes, but you won’t attract interest with a business that falls short of the mark.
2. Think big right from the start
Most acquirers are looking to buy businesses they can scale up. Which means you need to create a well-run organisation from day one. Ideally, you’ll have an adaptable product or service, clean accounts, autonomous management and a growing customer base – all the elements that make it easy for someone with the vision and resources to take it to the next level.
3. Keep things simple
The easiest companies to sell are those whose financial arrangements are straightforward. If you have lots of investors or shareholders with different ideas, it could present problems when you come to split the pie. In the same way, you need to make sure you keep personal and company finances transparent from the beginning. Buyers will discover inconsistencies during due diligence and any complications could threaten the deal.
4. Do your homework
Make it your mission to know everything about your market. The best investment is likely to be in an established and expanding area. An untested market will increase your exposure, while a declining sector will deliver diminishing returns and may not attract a buyer when the time comes to move on.
Read more about selling your business:The hardest sell: A guide to selling your companyBizdaq: A new digital way to sell your businessGrowing at pace: How to go from startup to global player in under four yearsBuying a Business5. It’s not all about you
If you want to flip your business, you’d better make sure it doesn’t depend too heavily on you. Any buyer will want to see a business that’s operating independently of its founder, so train your efforts on guiding and growing your company, rather than miring yourself in the day-to-day details.
6. Build your bottom line
You’re more likely to find a buyer of your business is demonstrating profitability and growth. While some investors might see the potential in a business making small wins, you’ll get a better deal if you can show a solid track record and recurring revenue streams. A hard-working business with reliable returns will have plenty of admirers.
u20287. Make some noise
Develop a strong brand as you grow your business and try to get as much media coverage as you can along the way. A recognisable brand aligned with powerful business values will only add to the value of your company when you bring it to market.
Jonathan Russell is CMO of Bizdaq.
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