Creating a business with the intention of selling it within three to four years can be a genius move for business owners.
This approach creates a focused streamlined and efficient operation from day one.
Here’s why adopting this strategy can yield remarkable results for all involved.
Clean financials
A business built to sell focuses on financial health from day one. Buyers typically request financial records dating back three to four years, scrutinising every expense to lower the sale price.
Unlike most startups, a business aiming for sale avoids unnecessary expenses that do not contribute to profitability. Personal expenses are meticulously excluded, presenting a clear profit-and-loss statement to potential buyers.
By prioritising financial reporting and strategic spending, the business cultivates a strong financial foundation, enhancing its value to future investors and leading to a larger liquidity event for the owner.
Superior systems
Building a business with an exit in mind results in robust systems. The ideal scenario for a buyer is to acquire a ‘business in a box’ that functions independently of the founder.
Every aspect, from operations to customer service, must be systematised and documented so staff can operate without reliance on the seller. This makes the business highly attractive to buyers and more efficient during the owner’s tenure.
Additionally, systemising with the team’s involvement from such an early stage can pave the way for a management buyout, as staff familiar with the day-to-day operations can become legitimate buyers, reducing the dreaded operational risks for lenders.
Competent and independent staff
A clear goal of selling within a certain timeframe gives everyone in the business a target to aim for, broken down into measurable metrics for each department and role. When staff have clear, measurable goals, they turn up for work with purpose and motivated to perform.
Incentivising staff around a successful sale ensures alignment and motivation for all parties. For example, sharing a portion of the sale proceeds above a certain figure can significantly motivate the staff to help the owner achieve their goal of exiting for a set amount on a set date.
Benefits of such incentives include clear alignment with the overall mission; lack of resentment towards the owner’s goal of exiting; financial benefit for all involved; a culture of a motivated and high-performing workforce; and intolerance for low performers who obstruct the mission.
A clear 36-month exit strategy allows staff to have a clear purpose, be part of a winning team and potentially be rewarded for any over performance.
Optionality in selling
After three years, you might find yourself running a highly efficient, self-sustaining enterprise. At this point, selling becomes an option rather than a necessity. You can enjoy the cash flow from this well-oiled machine or proceed with the sale, reclaiming your time.
Perhaps even giving equity to your star players to motivate them to keep growing the business for you. Either way, newfound freedom allows you to explore new ventures, purchase other businesses, or simply enjoy financial security without day to day stress of running a business.
Leveraging skills for future ventures
The process of building a business to sell teaches invaluable skills in systemisation, scaling and leadership. These skills can be leveraged in multiple ways post-sale, whether starting another business (with the goal of exiting within three years), entering the consulting world or by acquiring underperforming businesses with the aim to improve and sell.
Conclusion
In summary, strategically creating a business with the intention to sell for a set figure within a set timeframe can lead to better financial health, superior systems, an all-star workforce and optionality in exit strategies.
It’s a powerful approach that maximises the business’s value and enhances the entrepreneur’s skill set and future opportunities.