Why it’s never too early to begin preparing your business for sale

by Startacus Admin

Advice and tips from entrepreneur and investor Gez McGuire on selling your business...

For the vast majority of us, starting a business is all about gaining more freedom and autonomy in our lives. While in the initial stages the focus is on managing the transition from employment or education into business ownership and developing a steady stream of clients or customers it’s never too early to consider how you are building value into your business. What may initially have been best categorised as a lifestyle business can quickly take on a value of its own, becoming an attractive investment proposition if the right steps are taken.

Contracts & accounts

Contracts are king when it comes to most businesses, particularly those in the service sector. Getting contracts in place from an early stage demonstrates a steady and verifiable revenue stream for investors. Similarly, a full history of trading will help both parties come to a mutually agreeable figure, so it’s important to keep accounts up to date from the start. Having a separate bank account for income and expenditure, whether you choose to setup as a limited company or a sole trader, will make this much easier to keep on top of.

Avoid complacency

Once you’ve hit that one to two-year threshold it can be tempting to maintain things as they are. Earning more than you were in fulltime employment with the added freedom and sense of achievement you get from being your own boss you can find yourself starting to tread a well-worn path. It’s at this point however that you can start building value into the business, ensuring it’s a valued entity in itself and not just an extension of you.

Having the mindset of building a business that can one day be sold helps to professionalise your approach and also makes it easier to take a long-term approach to growth. Having an endpoint can also help heighten that sense of freedom through the knowledge that once sold you can continue to grow the business as part of a larger entity or move onto something completely new.

Systematise

To make any business saleable you need to ensure that there are systems in place, so that if you were replaced, the business itself could continue to run. Every business is different in this respect but according to Michael Gerber, author of the E-Myth (a must read for all small business owners), this is the key way to grow your business, whether you plan to sell or not.

It’s not about headcount

It’s a common misconception that in order to increase value you necessarily need to increase the headcount in your organisation, conversely the opposite is often true. A lean highly profitable business even if it has just one to three full time employees can often be a much more attractive proposition to potential investors than a multi-site operation with a headcount of 50 or more.

Making the most of technology

One of the ways of ensuring the lowest possible headcount is to take advantage of new technologies and systems. There are now CRM packages out there for instance that can help start-ups generate sales and conversions that would previously only have been possible if they’d employed of three or more full-time business development managers. As with new personnel, however, every purchase needs to be carefully assessed in-line with current income and expenditure to ensure it’s the right decision for both you and the business at that time.

Add value and reduce risk

When it comes to selling, one of the best ways of adding value and reducing risk is to structure a sale around both your needs and the needs of an investor. Arranging it so that you have a closing payment followed by deferred payments over a number of years will often mean that you’re able to achieve a higher overall value for the business than you would through a straightforward cash purchase.

Even though preparing for a sale may not be the first thought for most owners when setting up a business, getting the right systems and approaches in place early can help foster professionalism and turn a lifestyle business into something that can provide a life-changing sum of money, if managed in the right way. A desire for added freedom and autonomy in our lives is one of the key driving forces for most of us when first deciding to go it alone and this can be extended right through the lifespan of a new venture with the right exit strategy in place.

Gez McGuire is a serial entrepreneur and investor. He works with businesses throughout the UK to facilitate purchases. Gez owns a successful digital advertising business. He has committed to growing through acquisition and is looking to partner with likeminded owners in the marketing and advertising sector.

To find out more visit www.gezmcguire.co.uk, or email gez@mcgdigitalmedia.co.uk

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Published on: 7th March 2020