Part of being a serial entrepreneur is starting businesses, achieving growth, selling the business for a big profit, and doing it all over again. But what if you are a beginner, what steps do you take to ensure that you get the maximum amount for your business? The most common reason people sell businesses is to get money in their pocket. Keep in mind that timing and the state of your business impact the sales price. For the sake of this article, lets assume you have a computer parts business.
Taking the following steps will ensure that your computer parts business is sellable and that you get top dollar for it:
- Solid Business Model & Sustainable Strategy
- Proper Financial Records
- High Cash Flow
- Good Employee Relations
- No Impending Lawsuits
- Good Reputation
Someone buying a business has a long-term horizon in mind and therefore seeks a business that rests on solid ground, that offers long-term growth with a high probability of returning back a good rate of return on their invested capital. The shrewd investors will have the wherewithal to determine whether your business model is sustainable, so it is important to that your business encompasses a solid structure. Some of the best business are the once that anyone can run, some investors purchases business as an investment, they are not necessarily looking to take over the day-to-day management.
There are varying degrees between investors, however sooner or later they all conduct a due diligence of your business prior to committing to a purchase. They review your financial statements, verify the accuracy of your finances, require forecast reports, review the management structure, review insurance policies, look for impending lawsuits, they review contracts that the business has in place and learn about the methods in which you provide your services to generate revenue. What they are after is to see if the business has any vulnerability that can cause issues once they have made the acquisition.
Verifying your financials gives the investors’ confidence that your business has a model that can generate revenue, forecasting will help them determine long-term sustainability that can sometimes be validated by past performance as long as the fundamentals of your business remain unchanged. A business that has a good reputation translates into great growth prospects. Stressing current financial performance to investors sometimes will not be as effective as stressing the growth potential that the business has. You as the business owner need to have a clear and concise way of demonstrating and communicating this potential to the investor.
The last thing to remember is the importance of cash flows the business generates, and how they will have a higher weight on determining the price of the business than anything else. Investors want to see a decent rate of return on their money, and a quick payback period. Given that cash flows will hold higher weight on the price of the business, it is important that your business is generating optimum cash flows. Make no mistake, that a business with $100 million in revenue vs. a business with $10 million in revenue which both generate $1 million in cash flows without any growth prospects are likely to be worth the same price if the business is valued by strictly using cash flows as the basis of the valuation.
Use the following as a principle in how to build a sellable computer parts business, in that any investors will purchase an efficiently run business that can generate optimum cash flows, has good growth prospects, a good management team at the helm, minimal vulnerabilities, good reputation, and an overall solid structure. Your shrewd investors will dig deep into your business, be ready to demonstrate that your business is solid all around, as it will also ensure that you get the best price for your business.