The key reason to start a business should be to sell it one day, and the way to become truly wealthy is by buying, building and selling multiple businesses – not just one. In fact, the only time you’ll want to hold on to a business is if you’re planning to franchise or licence it.
A good strategy to adopt is to hang on to your first business for its passive income while you acquire and build up your next business. But your first business should be able to successfully run without you.
Ease of transfer and valuation
The key to getting the best price for your business is how easy it is for the buyer to move in and start trading – everything must be set up already, not thought about only once you want to sell.
There are a number of factors that influence the ability to sell and the price that buyers will be willing to pay for your business. These are:
- Strong, consistent cash flow – Is the business able to generate strong consistent cash flow coupled with good margins and ideally a large percentage of repeat business?
- Assets owned – What assets are owned by the business – be they products, patents, registered, brands, investments, shareholdings in other businesses, movable and immovable physical assets – that are also part of the sale?
- People, process and systems – Every business needs systems and good people to ensure that you have a commercial, profitable enterprise that runs without you.
- Scalability of the business – The purchaser will always want to ensure that the business is scalable to ensure they can extract further value from the business after it has been bought. Failure to build scalability may result in the purchaser having bought additional revenue and not future leverage from the acquisition.
- Culture of the organisation – This is often an area that is overlooked. Research will tell you that around 80% of acquisitions fail because of the inability to fully integrate the respective teams into one cohesive operating unit.
Pieter Scholtz is a master licensee for ActionCOACH South Africa and a highly successful business and executive coach.