fbpx
Insights

How founders can make their startups more attractive to buyers

- November 14, 2014 3 MIN READ

There are a few things you can do to make your business more attractive to a buyer, but the first thing to know is you can’t implement these strategies overnight.

If you want to get the best price for your business when you sell, you need to plan ahead.

As part of your business’ succession planning, you should have an idea of when you want to exit and start preparing your business in the two or three years leading up to this date.

Buyers look at all sorts of things when they think about purchasing a business, but really it comes down to three things:

  1. How much profit they believe the business can generate;
  2. How quickly they can get a return on their investment; and
  3. How risky they perceive it to be.

Do some research into what sort of other businesses in your sector have sold, and which other businesses in that sector might want to buy you out in the future. Have a think about what their business priorities are – they might want to expand into a particular geographic or they might want to move into a specific product, service or market segment.

If you have a clearer idea of what potential purchasers are looking for, you can start making your business more attractive to them.

Try to form a relationship with these potential buyers in the years leading up to the sale, either through a partnership or joint venture, or just by staying in touch and asking them what sort of business they’d be interested in buying down the track.

The first thing a potential buyer is going to want to see is the books, so make sure that your financial affairs are in order. If a buyer can’t be confident about the numbers you present, they’ll shy away from your business or offer you a much lower price. Get some small business accounting software if you don’t already have some and make sure you have a good system of financial record keeping.

You’re probably confident that you own physical assets for your business, such as vehicles and plant and equipment, but don’t forget the intangible assets.

Do you own your brand and your intellectual property, such as your recipes if you’ve got a food business or some software you’ve developed that is crucial to your operations? Buyers will want to be sure they’re getting everything they’re paying for, so nail down these details as well.

In the years leading up to the sale of your business, put a lot of focus on growth. If buyers see that your revenue has been increasing over the past three years, they’re going to perceive the potential for further growth in the business and pay accordingly.

Buyers will be put off if they see that your business is too reliant on a single major client – one which makes up too much of your revenue. They’ll obviously perceive the risk that if the business loses the client its profits will sink. Make an effort in the lead up to the sale to diversify and find new clients so a purchaser can see a good spread of customers.

You also want to be able to demonstrate to a potential purchaser that they’ll easily be able to step into your shoes and take over the business, so you have to make sure that your business isn’t too reliant on you alone.

Think about the key things your business does – you know how to do them because you’ve been doing them for years. Turn these processes into systems and document them, so anyone could take over. This will also make your business easier to expand for a potential buyer.

Also, if you have staff, delegate more responsibility to them so that the business can continue without you. And you might want to lock in key staff with an incentive scheme so a purchaser can be even more confident the business will continue without you.

If you start planning well in advance and implement some of these strategies, selling your business shouldn’t be too difficult. You won’t have to work too hard to persuade purchasers to see that you’re offering a quality asset and you’ll probably attract a better price.

In summary, if you ensure that your business is always ready for sale and that you can supply a potential buyer with all the information they need in a timely manner then you will reduce the chance of missing out on an opportunity to sell your business for the right price.

The information contained in this article is general in nature and does not take into account your personal situation or you business’ circumstances. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from an accountant or other qualified professional.

Popular in the network