As an entrepreneur, you may be looking to start a business for the long haul. But you may also be one of the many who start businesses with the idea in mind that you will eventually sell it. There is nothing wrong with this approach, but one size does not fit all. You have to know what you are getting into before you take on this approach in order to be successful.
The Dos and Don’ts
It may sound simple enough to get a business started and then simply throw a for sale sign up, close the deal, and walk away with a fat stack of cash. But if it worked that easy (trust me, I’ve done it a few times already), everyone would be doing it. In fact, it takes a lot more planning and patience than that in order to see it through.
Here are some of my top dos and don’ts when it comes to growing a sell-able business:
· Don’t. If you start a business just to “pump and dump,” you may be in trouble. This strategy of growing fast and selling fast often undermines strong business fundamentals since the long term considerations of the business are ignored. Savvy investors won’t want a business that is going to be dead on arrival. Unless there is a strategic reason to acquire your business, you will get very few bidders.
· Don’t. It is important to not have the business dependent on you. Instead, your business will get premium dollar if you can walk away from it and it continues to grow on its own. This makes your business very “plug and play” for your prospective buyer, and that will get you a premium.
· Do. Take the time, sometimes it may even take years, to make sure your company has as many of the attractive factors in place as it can. These factors include 1) Consistently growing revenue and profits; 2) Protected intellectual property; 3) Long term, favorable client contracts; 4) Patented systems, products and/or technologies; 5) Rock solid infrastructure. No so ironically, these are also all the things you want to have in place even if you do not want to sell your business.
· Do. Get a broker or investment banker involved. Selling a business on your own is doable, but the ongoing negotiations can be distracting and can be emotionally draining. And with your efforts concentrated on something other than running your business, your business may start struggling at the exact time you are trying to sell it. That’s never good! A broker or investment banker will handle a huge portion of the negotiations and will probably get you better terms than you would on your own. Plus, they will become a much needed buffer when the negotiations get intense.
· Do. Always get multiple bidders. When multiple suitors are looking to buy your business. you are likely to have a bidding war on your hands. I have seen instances where businesses have gotten 20 percent or even 50 percent more than the first offer when there are multiple companies bidding on your business. That is always a great thing for you!
Planning Wisely
Growing a business takes time, patience, and sticking with it in order to see it through. You absolutely can sell it, but you need to make sure you have followed the right path to get to that point first. If you haven’t, you may not even be able to make a profit from the sale. So take the time to grow it right, and then work the selling phase. If you do, you should come out ahead!
By Mike Michalowicz, Author of The Toilet Paper Entrepreneur
