Six Keys to Making Your Business Sellable
Only a small fraction of businesses that are put up for sale actually end in a successful deal. It’s a sobering thought for business owners, but the simple reality is that most businesses aren’t designed to be sellable. Instead, many business owners make a number of mistakes from the very start that help decrease a business’s chance of being sold when the owner is ready to leave.
Knowing how to make your business sellable, though, can help you avoid that problem. In fact, we’ve compiled 6 keys to knowing how to create a sellable business that owners of companies in any industry can use to help build the right exit strategy.
1) Carefully Define Your Customers
Many businesses know that defining their target market is an absolute must, but what you may not know is that you need to take things one step further if you’re going to make your business sellable. You need to be able to define your target customer, then build every aspect of your business around that customer. Wondering why? Without that knowledge, you’re building ineffective and unfocused marketing campaigns and wasting resources. Potential buyers will be able to see that in the paperwork. Not sure how to get started? Naturally, you’ll want to think about demographics (like age, gender, income, industry, etc), but you’ll also want to think about psychographics like what makes them tick, what they look for online, and what they’re really looking for when it comes to a solution. Beyond that, understand what their problems are, how they best want to be served, and what they think value really looks like. Building this profile –called a buyer persona– to help guide everything you do means you’re going to hold a true differentiator between you and your competitors who are making a rough judgement of the market.
2) Create Multiple Streams of Recurring Revenue
While you can certainly build a sustainable business by selling a single item to a single customer in a one-off transaction, the reality is that you’re going to build a far more sellable company if you base your business off of recurring revenue. The subscription model is now the norm, even for household items in some cases. Amazon now can set you up to receive laundry detergent every three months, for instance. This is the idea that you can bring in predictable revenue at regular intervals thanks to a product or service that pushes customers to buy at regular intervals – with each new release, with every new quarter, or once a year. When you can show data like this to potential buyers, you’re going to have a win-win situation on your hands. Obviously, the subscription model simply can’t be applied to some industries, but as we’re seeing (like with Amazon and household items/groceries) it can be applied to more businesses than we all thought. If you’re looking into how to make your business sellable, then trying to build recurring revenue streams is a good place to look.
3) Ensure Your Products or Services Build on Each Other
Your products or services should complement one another if you really want to build a sellable company. To ensure that happens, be positive that you’ve targeted the right areas of your customer’s life and developed add-ons that interact with or enhance your original offering. For example, imagine you sell video games. Options for in-game purchases mean additional functionality for the game and could mean additional dollars of revenue. Companies have built entire new revenue streams off that model, and ideas like that are the ones investors truly want to see.
4) Don’t Be Your Company’s MVP
Of course, it’s your company, and it would be nice to feel like your business could never function without you and all of your hard work. But when you’re the best salesperson, the best leader, the best hiring manager, and simply the key to making everything succeed, then nobody would want to buy your business if you’re planning on leaving it after the sale. As a result, that means you may never be able to walk away from your company. Potential buyers will see that as a serious problem. If you are your main competitive advantage, then your company’s value severely decreases without you at the helm. Build teams that are great with the necessary functions within your company, and you’ll build a sellable company that investors really want.
5) Build a Business That Focuses on Repeat Customers
This is different from the subscription model we talked about earlier. Are your customers coming back to you every time they need your product or service? It’s far cheaper to retain an existing customer than it is to attract a new customer, and even without a subscription, if they’re coming to you on a regular basis, you’re going to find that you are a more attractive purchase to an investor than you might be if your customers are one-offs.
6) Document Everything!
There is no more important key when it comes to how to make your business sellable. When you finally decide to sell your company, you have to be able to show buyers that you’re a good investment. Period. Part of that will be the documentation you’re able to provide. Obviously, you ideally want to show a solid, regular profit. Make sure that there are no upcoming capital expenditures. Even if you aren’t turning a huge profit each quarter, ensure you’re a low-risk purchase with lots of growth potential. Run cash flow analysis to show what you’ve done, and work with a great team of accountants to have your financials on hand at any possible moment so that when you’re ready to walk away, you’ll be ready to provide the data to demonstrate what a great option your company is.
If your goal is to someday sell your business, the key is to act like you’re planning on selling it one day, and do act like that from day one. Think like it, even if you don’t say it. Businesses that are truly thriving don’t just have the revenue to prove it, they have the ability to smoothly move from one owner to another and still succeed. To learn more about how to make your business sellable or for more tips on how to strengthen your company, contact us today.