When it comes to making your business as attractive as possible to potential buyers, anything you can do to reduce their perception of risk is going to command a higher offer. Think about the risk profile of a potential buyer. How can you mitigate their perceived risk?
The answer is predictability. Having predictable business processes, revenue streams, and customer data is critical. It’s often more important than growth or even profitability in the minds of many buyers.
What is a Buyer Looking For?
You have consistent, predictable revenue streams. Buyers need to feel comfortable that you’ve established reliable and diverse streams of income that won’t disappear when the sale goes through.
You have documented systems and processes that anyone could adopt. If your rockstar VP of Sales leaves the company, is his or her sales process documented in detail? How does she do her reporting? How does she process a lead? How does she conduct weekly meetings with her team? You’ll want to be able to hand over an Operating Manual on how to run your business covering every major function including accounting, sales, marketing, customer service, and even how you use your tech stack.
You have long term customer relationships. It’s incredibly valuable to see a well-served and well-established customer base. You’ll want to cultivate this as early as possible.
Your CEO is redundant. Can you as the entrepreneur leave the business knowing it would continue to run smoothly without you? Buyers want to know that the day-to-day operations of the company are not dependent on you. How can you make yourself redundant?
Your customer concentration is balanced. Is 40% of your revenue coming from just one customer? That feels risky to a buyer. How you can you be strategic about attracting and retaining a wide variety of customers and clients so that such that losing one will not pose a risk to revenue goals?
You have visibility into your most important KPI’s and track them regularly. Buyers need to know that you’ve been making strategic decisions based on sound data. Having this visibility into your analytics makes a buyer feel comfortable about trends they can expect.
Aside from being valuable mitigators of risk during an Exit, these principles add present value to any business in any stage of growth. Establishing foundational value drivers such as these only lead to more freedom for the entrepreneur during the scaling process. It’s never too early to start cultivating them.
Over the next few weeks, we’ll be sharing additional expert tips on how you can get into the mindset of building your business with a strategic exit in mind. In the meantime, please download our free Whitepaper entitled Seven Traps Sophisticated Buyers Deploy Against Unwary Sellers. This Whitepaper outlines the most common tactics that Private Equity Firms or other experienced buyers use to intimidate entrepreneurs who are going through this process for the first time.
We are passionate about making sure entrepreneurs get to experience a smooth and profitable sale of their business. From maximizing your valuation through the scaling process, to the final stages of taking it to market, we would love to help you. We offer growth strategy coaching, as well as exit advisory services.
Please contact us to schedule a call where we can discuss your specific needs.
