When do you sell up?
That is the simple question to answer.
You sell your business when someone comes along and knocks on your door with a fist full of dollars that is enough to make you walk away.
But to get to the end, you have to start at the beginning.
And the beginning starts with your realisation that your primary asset is your business and that as an asset, you should sell it when it reaches its market height, whatever that may be.
Forget the sentimental waffle, you’re an entrepreneur and whilst you may love your business, your customers and your staff, your primary reason for being in business is to make a financial return.
And there is no better financial return than when you sell a business.
Plus after selling up, you have a fist full of dollars combined with the years of experience. So if you don’t quite want to retire yet, then start again, do something new and different but do it better, with less mistakes.
Become the investrepreneur.
But coming back to selling up.
To be able to sell your business you will need to step back from the day to day operations of your business and you’ll need to do this a long time before you actually sell your business.
You need time to strategise about your business, what is does and what it can do (for someone else) if you are to reach your maximum exit value. If you’re stuck working in your business, day in, day out, then you simply won’t find time for the higher level thinking that is required in order to join the dots and plan your business future, or in fact your future outside of your business.
Ideally you should spend at least one day per month behind closed doors planning your business, including the likely exit strategies. Even if you have no intention of selling your business today, that you should have an idea of who may buy it tomorrow, next week, next month or next year.
You may think this is too forward planning, but in reality aligning your business to a potential suitor is the key way to maximise exit value.
For example, if you notice that a larger competitor is buying smaller businesses then consider why they are acquiring.
More often than not it is because the cost of acquisition is far cheaper than the cost of organic growth (when you consider the opportunity cost and real cost of capital). In such cases, acquirers are generally looking for a customer base, preferably of repeat customers and the icing on the cake is when those customers, your customers, have an average spend in excess of the the acquirers customers. That right there is why you need to think, to strategise, because if that is why acquirers are buying in your sector, then you need to start work on making your business attractive to them.
If your margins are higher than the competition, then you are a natural target as economies of scale when combined with a reduction in business running costs (HR, finance, operations, marketing etc) can mean that a combined entity will be far more profitability than the sum of the component parts.
Hence if you track previous acquisitions in your sector then you will already know of rival competitors that have been sold and then it is simply a case of understanding what made these businesses look attractive to a purchaser.
In nearly all instances it comes down to one thing, your profit model.
And this is why you should spend time strategising about your business a long, long time before you think about selling it. You should understand the intricacies within your own profit model and how you can maximise the profitability of your business.
Try a simple task, draw up a list of the last ten companies that were sold in your sector and then look for commonalities between them. There is one thing we can guarantee, the profit model will be the same throughout each of the ten. So if you can understand what that profit model is, then maybe, just maybe you can be the next acquisition.