OK, so this idea may sound crazy. You’re grinding away with a list as long as your arm, trying to cover all the parts in setting up a new business, and you’re being told to prepare it for sale?! Yes, this may be the last thing you would expect to hear right now in your new business journey.
Let me explain. At some stage, you will likely look to sell your new business, as long as it’s successful. I’m not suggesting that this is next week, next month, or even next year. This could be many years down the road. The key point here is that at some stage, you may want to sell your business and by setting up systems and processes now, you will not only make it easier to sell your business, but you will likely get more for it because of what I’m going to explain in this article.
When you go to sell your business, you will need to prepare and present a whole lot of information to potential buyers in what is known as the Due Diligence stage, and so having this information on hand will make the process a lot easier for everyone.
Likewise, when you set the value for the business, the systems and processes which you have in place will add to that value.
The additional benefit of this method is that good systems and processes also make your business run better and more profitably over the time you own it, so there are no downsides to doing this from the beginning.
The first thing to set up is your financial systems and reporting. I suggest using online accounting software which can link with your bank for seamless recording of transactions. You may also choose to work with a bookkeeper who can give you advice on financial planning, profit, as well as all the IRS tax requirements for your business. CapForge is a good option for this as they provide all these services under one offering.
Revenue and profit are super important. Without good revenue and profit your business will struggle whilst you own it and it will be harder to sell later on. It is the key thing that buyers look at and it plays the biggest part in setting the sale price because most businesses are valued on a multiplier of net profit. To use an example, let’s say you run an ecommerce business that earns an average of $6,000 net profit per month and is valued at a multiplier of 30x monthly profit, which would mean a total sale price of $180,000. Focus your business on making good net profits, especially in the 12 months leading up to when you plan to list it for sale.
The next thing is to set up a system for ordering and storing your intellectual property. What I mean by this is an online cloud-based storage of your business files, photos, backups of data etc., so everything is stored in one location and ordered into folders which makes things easy to find.
Documentation of the processes in your business is another important thing. Remember that whilst you know how to run your business, everyone else doesn’t. So, preparation of some form of instructions is a great asset to have because not only is this gold to a potential buyer, but it also provides a form of “insurance” if you fall ill and need someone to manage your business temporarily.
Performance monitoring is another key aspect to set up. This is not only the financial performance of the business in terms of profitability, but includes other statistics too such as traffic, customer retention, website performance, etc. All these factors should be monitored by you anyway, each month, to ensure your business is going well, but this information is again very important for a buyer looking at your business.
Contracts and trademarks are a good way to protect your business’ intellectual property and supply or service agreements with third parties. These provide you with a form of security in your business, in that your supply chain is locked down and your business branding can’t be copied or stolen by someone. These are also valuable factors for anyone looking to buy your business as they are looking for stability and longevity in the business and these provide that, to an extent.
Along with these come terms and conditions, privacy policies, and any other legal agreements applicable to your business. It is very important that you seek legal advice on preparation of these and that they are in place within your business to not only protect you, but also provide another solid asset to your potential sale. You need to ensure to display terms and conditions and privacy policies on your website, but your legal advisor will give advice on this.
Software and freelancers are a great way to get more tasks done in your business. You only have so much time in the day so careful selection of software to automate tasks, wherever possible, is an important step to freeing up your time to focus on business growth. Freelancers can be a good investment to take tasks away from you as well. Make sure to have a contract or agreement signed with any longer-term freelancers to ensure their ongoing support. These pieces of the puzzle will also be preferred by a potential buyer of your business because they would like to see that not everything relies on the business owner’s time to get done.
An element of this—which not only makes your business a better one to sell, but also makes it perform and grow better—is expertise. I want to touch on this because its an important area to address. Most online business startups run on the smell of an oily rag, that is they tend to be reliant on low funds and single owners grinding away on a range of tasks. The key thing here is to learn to identify when to transition from you doing it to someone else doing it. So, what I mean by this is being able to see when the task you’re doing is better to be done by someone else with more experience in that field. Be careful not to try to do everything yourself because your business will suffer. Rather than trying to learn to code a website, hire someone to do it and free up your time to focus on other tasks. This means that your business will be more professionally set up which makes it more appealing to buyers as well as better performing.
12 Months From the Sale
If you have a exit date in mind then there are a few things you can also do a year out from this date to improve the end result:
There are several free business valuations being offered by brokerages and other companies these days. By having a valuation done 12 months out from the proposed sale date, then you can get some insights not only into the possible sale price but also (and more importantly) the areas of the business which need improving. Then, you can focus on these for the next 12 months so that when the sale day comes the re-valuation should be higher.
Along with a valuation, you can seek advice from a broker or your bookkeeper 12 months out from the exit. They will be able to look at the business and give you tips on what to improve and what to focus on over those 12 months to ensure the business is not only stable but also growing. This is important because buyers like to see growth in the asset they’re going to buy. The other benefit of working with an expert 12 months out from a sale is that they can help keep you focused over that period. When an owner is looking to sell their business, they can sometimes get distracted from managing and growing the existing business and instead start focusing on other things or the next adventure once the business is sold. This is a big mistake and so having a third party involved can be very beneficial to keeping you on track.
A Backup Plan
One other thing I haven’t mentioned much yet is that by following this method of setting up your business to sell, it provides you with options. For example, let’s say John has been running his ecommerce business for two years and it’s going great. John decided to set his business up with good systems and processes, as described in this article. One day, John is involved in an accident, of which will mean six months away from work. Instead of letting his business go to ruin, he now has the option of contacting a broker and providing them access to his business information to prepare and sell the business for him. He can do this, why? Because the business is prepared to be sold. John effectively set up an exit strategy with his business from day one and that has given him a backup plan when something unexpected happened.
I have gone through several areas in your business that you can work on from day one to better prepare it for sale. Take a look at your business right now. How easy would it be for you to list it for sale tomorrow? How many systems and processes do you have set up right now? If the answer to these questions is a bit scary, then fret not. It is not too late to start, but start today and work on your systems and processes a bit each week to get your business ready for sale because you never know when the day will come when you want to (or must) sell.
Most people don’t think about their exit strategy during their initial launch. However, the end result can be dramatically improved if a little focus is put on this at the start and along the way.
One method I use is to ask the following question whenever I am planning a new task for my business: “Will this task add more value to the business?” If the answer is “no” then I will normally stop and question whether the task is actually relevant and is needed right now. This method works most of the time and is a good way to keep you focused on the most important tasks.
This article was written by Blair Quane from www.emilyandblair.com which is a library of free articles and resources for online businesses.