No one keeps a business forever. At some point, you’ll either want to sell your business or have to retire. When you’re ready to sell, it is important to streamline the process, minimize the stress, and also receive top dollar. In a recent Forbes magazine article, “How to Find a Buyer for Your Business,”serial entrepreneur Alejandro Cremades explores the most important steps business owners should take when looking to sell.
Like so many things in life, finding a buyer for your business is about preparation. Cremades, author of The Art of Startup Fundraising, says you should start thinking about selling your business on the day you found your company. Creating a business but having no exit strategy is simply not a good idea, and it’s certainly not a safe strategy either. Instead you should “build and plan to be acquired.”
For Cremades, it is vital to decide in the beginning if your preferred exit strategy is to be acquired. If you know from the beginning that you wish to be acquired, then you should build your business accordingly from day one. That means it’s essential to understand your market and know what prospective buyers would be looking for.
According to the the Kauffman Fellows Leadership Development Program, acquirers buy businesses for a range of reasons including:
- Driving their own growth
- Expanding their market
- Accelerating time to market
- Consolidating the market
- Reinventing their own business
- Responding to disruption
Startups should be prepared to answer these questions:
- How profitable is the company
- Size of total addressable market
- What are the top line revenues
- How much are gross profit margins
- Are customers retail consumers, SMB clients or enterprise level
- Customer churn rates
- Customer satisfaction ratings
- Value of contracts
Additionally, it is critical to make connections. “Strategic acquisitions are about who you know, and who knows you,” says Cremades. “Start making those connections early.” Buyers are not always who one expects in the beginning of the process. Keeping this fact in mind, it is important to stay open and always look to build solid relationships and keep those relationships up to date regarding your status. Getting your company acquired won’t happen overnight. Instead, it is a process that can take years. Therefore, networking years in advance is a must.
Like many seasoned business professionals, Cremades realizes how important it is to work with a business broker. Cremades says brokers “can help make introductions, hype up the opportunity, demonstrate the value, create a bidding war, manage the process and hopefully get you more for your company. That’s their job. The more they get you, the more they get paid.”
If you have failed to network properly over the years, then a broker is an amazingly valuable ally. They are about more than offering sage advice, as business brokers can also make potentially invaluable introductions and help you navigate every stage of the acquisition process.
“A talented team alone may warrant a bigger company buying your startup,” Cremades says. “So, hire the best. Who you put on your board can make it very easy (or more challenging) to get your company acquired as well. What experience do they have in M&A transactions? Who do they know that will also invest or may want to buy you out?”