07 Jun, 2012
Why You Should Think About The End Of Your Business Right From The Very Start
When setting up a business or buying into a business, it is important to decide from the start whether or not you aim to sell that business at some time in the future. If you do, then start preparing for the sale from the beginning. The prospect of sale should affect almost every decision that you make.
Get into the ‘exit mind-set’ and build a business that is set up to sell.
Ask yourself early on: “who might want to buy this business?” Do this research to unearth who the buyers might be. If it is really such a good concept, then there must be others out there who think so too. As the business grows, try to imagine what would make it more attractive to your target buyers and make them want it more.
Look back at recent sales. Research which firms bought businesses in your market. What did the business being purchased look like at the time? What would it take to put your business in that shape? Find brokers who specialise in selling businesses and who operate in the same filed; get a feel for what would interest them and stay in touch.
Ask their advice on what would make your business more eye-catching to a potential buyer.
Entrepreneurs need to think big. To attract a buyer, the business for sale must have growth potential. For example, you might operate a number of ‘shop-cart’ stalls in the main thoroughfare of large shopping centres, carefully sited to attract shoppers as they come out of the big chain stores.
This could be an attractive proposition because a shopping-cart format can be replicated in other sites, such as train stations, airports or in the foyers of large corporations. It’s important for the entrepreneur to show the buyer that there is still meat on the bones for someone else to enjoy.
potential buyers need to need to see how the business could be expanded.
Avoid being parochial. In this age of globalisation, cross-border deals are no longer reserved for the largest multinationals. Indian and Chinese buyers are interested in UK companies across the board.
For most businesses there are only two realistic future purchasers – a trade buyer or a financial buyer. A trade buyer may be a potential competitor, wanting to expand.
A financial buyer will be looking for a sound investment. Few have the option of following the route of Facebook’s founder, Mark Zuckerberg – taking their business to the stock market through an IPO. In any case, going to the market is not really an exit. It’s usually a way to refinance the business and lock the founder in for longer.
Trade buyers can be interested for several reasons. On the one hand, they might be prepared to pay a premium just to get an awkward competitor out of the way.
On the other, they might see a business that complements their own, with synergies to be gained from combining suppliers and/or customers. Such a buyer, once identified, should be cultivated. Remind them from time to time how interesting your products and/ or services are.
Think about how you might ‘morph’ your business in order to become even more appealing to them.
A financial buyer (like a private-equity firm) will look at the potential to expand the business and make it more profitable. At the same time, they are looking for ways to trim the ‘fat’ and make the operation leaner. It makes sense to alert them to potential growth and expansion to opportunities and to pass on your ideas for business growth and development.
Finally remember that there is no ‘right time’ for a sale. Though bank lending remains sluggish, there are plenty of financial buyers out there. A good business that ticks all the boxes can expect at least half a dozen private-equity firms to be interested.
Once banks return more fully to the market, of course, the price that buyers are prepared to pay should rise. But it’s never a good idea to wait until conditions are perfect before selling. Because they never are.