[Written as part of my series “How to Create a Business Worth Buying”]
Aiming to create a business worth buying doesn’t necessarily mean you’re selling. What buyers look for also pleases lenders, suppliers, credit rating agencies and customers. So ‘preparing’ for sale makes sense even if selling’s not your plan now.
Earlier blogs tackled how data on customers, sales and profitability improves what your business is worth. This week we look at how business growth adds even more to that.
What is, what was, what may be
Building value in a business isn’t the result of just one thing — it’s several — and business growth is another one buyers consider. In fact, it’s really pretty important as we’ll see.
Past growth proves a track record. The line of turnover and profits to date suggests a trajectory going forward. Sure, past performance doesn’t predict the future, but it hints at what’s possible without much input from the buyer.
But while reassuring, it misses the real issue in buyers minds. You see what matters isn’t what your business could make if you owned it, it’s what it could if they did. And that’s unlikely to be the same.
What prompts purchase?
BCMS’s Luke Rebbettes was crystal clear about this during his session at our Open Day[It’s the UKs Biggest Annual IT Trade Show]. The top reason buyers buy is growth potential.
Acquiring another business is rarely about buying turnover. Economies of scale seldom make a compelling case. What intrigues buyers are the possibilities purchasing presents. What gets them hot is what they could do with your business once they apply their money, their resources, their nous and their vision to what was yours. How they could use your products and services, your location and your customers to their advantage? How could your business not just add to theirs, but multiply it?
Your business isn’t just some product on a shelf. It’s not a widget with a price tag. It’s a launch pad, a new direction, ideas come true, a new set of options and opportunities not possible before. That’s what buyers — the right ones — will be after. And those possibilities may well be not what you think. They could be things you’d never dreamt of. Things completely different. Even things you think ridiculous.
Not your average bear
It’s worth getting under the skin of growth potential more. Because once you get why some buyers will pay a premium even when a business is loss-making or on-the-brink of bankruptcy, you’ve got why ‘potential’ has worth. Once you clock they’re not buying to pick up stuff cheap, they’re buying because they see possibilities others can’t, you’re in the right place.
Now we’re not suggesting you ‘crash’ your business to prompt a sale. Clearly that’s daft. We’re just pointing out how value works. And it’s not necessarily the result of turnover.
Never run your business like you’re selling
You can’t predict the future. You can’t read minds. You don’t know what your business could be worth to any one buyer. All you can do is make it as ‘sale-ready’ as you can. That way you’re covering all the angles. Your making your business as attractive as you can to the majority.
But wait… Is this actually good advice? Does it make sense to run things with one eye ogling for buyers? It’s an interesting question. Selling your baby is hard.
Whether you care for your business like it’s family or it’s just a means-to-an-end always being on the look-out comes at a price. Why invest in the new software you need to do repairs better? Why spend on the equipment that would help you do new work. Why hire staff to give you the extra capacity you need?
Why spend all that money when the buyer could do it? Thing is, if you run your business like this you’ll just end up under investing. And in the hope of making it worth more you’ll end up making it worth less.
It’s not there isn’t a right time to sell
There’s a sure fire way to attract buyers. The same approach will get you top dollar when you sell. It’s by running your business like you never plan to let go. That the only thing that matters is growing it and building something outstanding. This isn’t about pretending selling’s not on your mind, it’s that it genuinely isn’t. Treat it like this and you’ll tick buyers boxes.
So how do you do it? Well, planning and delivering growth hinges on implementing strategy. Evidence you’ve done this work and delivered is a must. A strategy and business plan don’t have to add up to hundreds of pages. A one-page explanation each year of the business opportunities you see and the same for how you’ll chase them down will do. Couple that with clear evidence you’re making progress and you’ve got all you need. And created real value in your business.
That’s not my name
Be all this as it may, none of it might be you. You’re not interested in world domination. You’re not even interested in being the best in town. You’re just out to do a good job and make a decent living. Your goal is having a business that lasts and is dependable. Something that pays the bills and puts food on the table.
Thinking like this might take the stress out of running your business. It certainly takes the urgency off growth. But it doesn’t mean you can’t have a strategy and plan. Be under no illusion, the more you let your business coast the more it’ll be at the mercy of the market. And the more a buyer can see it’s out-of-control the less they’ll pay.
Planning and delivering growth
There are many ways to create a business worth buying. Earlier blogs tackled how customer data, dependable sales and management information give value to your business and drive up its price. In this blog we discussed how growth potential drives this even more.
Regardless of your ambition, you need a strategy and plan, as well as the evidence you’re making progress. It may be you can’t be bothered with these — they’re just pieces of paper after all. But they are ones that prove you’re more than a business getting by on luck. That you’re well run and a good bet. That you’re the kind of business buyers should notice. It’s your choice whether you have these things. Just remember if you don’t, you’ll be worth less.
Establishing Business Value — Make Yourself Dispensable
This series is about helping get the best price for your business when you sell. Because if you’re not doing the right things the price you’ll get will disappoint. Building value takes time but the moment you start you’ve a more profitable business. Meaning your longer term goals are worth something now.
Next week we focus on something crucial — the value of YOU. The issue with YOU is it’s not on sale. And the moment you sell YOU will be gone. But are ways of turning YOU into something a buyer could acquire? Are there ways of baking YOU into your business?
That would be telling! Instead hold on and join us next week for another installment in this series. Join us for “Building Business Value — Make Yourself Dispensable” — and find out.