In the highly competitive and cut-throat business world, those who often find the most success are the savvy, far-sighted entrepreneurs who opt to play the long game when it comes to M&A strategy.
Rather than concentrating on making a quick buck, they pour their energy and investment into building a business that will be easily scalable, cost-effective, and resilient to market downturns.
Perhaps most important of all, they focus on launching an enterprise that will be capable of providing a significant ROI when it comes time to sell.
We’ve all heard the stories – an entrepreneur launches a business out of his spare room and turns it into a multi-million turnover company that eventually sells for a sum so substantial he’ll never have to work again if he doesn’t have to.
The fact is, some of the biggest and most well-known brands in the world were born in someone’s garage and launched with just a few hundred dollars. If you’re keen to follow in their footsteps and create a business that will be well worth selling one day, read on for some top tips and insider insights to get you started.
Respond to consumer demand
If you want to launch a new business from scratch, the first thing you need to decide is what that business will be offering. This could be a particular service that you specialise in – whether that’s baking, teaching a skill, pet-sitting, or making bespoke wooden furniture.
Alternatively, you can dedicate some time to conducting market research in your local area and finding out if any gaps in the market need filling. For instance, there may not be enough landscape gardeners or sign painters in the area, and you could occupy that niche.
The important thing is to make sure that there is enough demand for the service or product that you will be offering, as you will need to build up a strong enough customer base to help your fledgling business take off.
Understand your target demographic
As well as researching what services or products are most likely to attract consumer interest, you also need to make sure you have an understanding of the consumers themselves.
After all, you need to know who your customer is so you will know the best way to market your business to pique their interest – and, most importantly, keep them coming back for more.
Customer retention is vital if you want to grow your business. The simplest way to attract and retain customers is to understand what they want and provide them with high standards of service, time after time. This, in turn, will lead to positive testimonials and word-of-mouth reviews, which, in turn, will attract more clientele and help you to expand.
Build a strong framework
One of the most important elements involved in building a business that will sell well is nurturing a robust structure.
This means concentrating on low-cost, highly efficient operations and recruiting a knowledgeable and effective team of employees who can keep the business functioning at optimal levels even when you are no longer the owner.
In particular, you should make sure you hire a top-notch management team who will run the business and keep everything flowing seamlessly once you’re gone. Having high-calibre management in place will make your business more attractive to would-be acquirers when you do decide to sell up.
Keep your eye on the EBITDA
As you start building up your business, you may be keen to invest in its infrastructure. However, if you want to create a sellable business, then your foremost goal should be profitability (EBIDTA). Potential investors will want to see that your company is turning a decent profit; in their eyes, infrastructure will come second to turnover.
In short, if you have invested too heavily in infrastructure and your business isn’t making much profit, this can be a real turn-off for would-be acquirers. However, if your company is generating a substantial EBIDTA at the end of the fiscal year, then your business is sure to be eminently sellable.
Automation and documentation
To build a business that operates effectively and maximises its value, you need to invest in automation and prioritise documentation.
Automate all those simple but time-consuming tasks that don’t need to be carried out by a person – thereby cutting costs and streamlining your operations – and keep all of your records and paperwork in order (especially your finances!).
When you do eventually decide to sell, eager investors will find a business that is lean and agile and has everything in order, from contracts to licenses and tax returns.
Know your buyer
Last but not least, once you have built up a profitable, scalable, sellable business, you may decide the time has finally come to look around for potential acquirers. When you do, it’s important to understand exactly who you are searching for and what they might want from an investment.
There are three main types of buyer to be aware of:
- Financial buyers (private equity groups)
Private equity buyers tend to be interested in companies that can grow significantly in the first few years following their purchase, thereby rewarding them with a high ROI. They will probably then sell the business to a new buyer for a profit. As a result, this type of buyer will want to see a solid EBIDTA, robust infrastructure, and a highly effective management team in place.
- Corporate buyers
Corporate buyers may wish to merge your business with theirs rather than simply taking it over. As a result, their interest in your infrastructure is liable to vary from buyer to buyer. However, they will undeniably be keen to invest in a business that is both profitable and has an efficient team in place.
- Single buyers
These buyers tend to be more interested in smaller businesses with a profit of a few million pounds or less. In most cases, they will be searching for a company that has proven scalability and profitability; infrastructure will not necessarily be so important.
Think about hiring a business broker
While you can certainly handle the sale of your business yourself, it can be a stressful, laborious, and time-consuming process. As a result, it may be in your best interests to hire a business broker to oversee the whole process from start to finish on your behalf.
Not only will they be able to draw on their expertise to verify buyers, promote your business, and assist with negotiations, but they will also leave you free to manage your company and plan your exit.
To find out more about how a business broker can help you sell your business, don’t hesitate to give us a call at 01926 757100 or send an email to Hello@harriscquire.com.
