Creating a business you can sell | Fin24

Creating a business you can sell

Mar 19 2015 12:08
* Pieter Scholtz

Cape Town - The path to becoming truly wealthy is by buying, building and selling great businesses. Indeed, the primary reason to start any business should be to sell it one day.

Moreover, you won’t achieve true wealth by owning just one company. The goal should be to buy, build and sell several businesses.

(In fact, the only scenario in which you’ll want to stay involved with a business is if you are planning to franchise or license it. However, that is a different discussion for another article).

Strategic approach

Our approach is to advise entrepreneurs to keep the first business for its passive income while you strategically acquire and build up your next enterprise. Before moving on, however, your first business should be at a place where it can run without you – and still be successful and sustainable. Hopefully, this generates a healthy passive income and gives you some breathing space to take time finding the right buyer and negotiating the best deal.

At this point, you are aiming to get the best price possible and the business needs to be at a point where the buyer just has to move in and start operating. In other words, everything must have been set up for a smooth takeover beforehand.

There are a number of key factors that influence the ability to sell your business, and the price that buyers will be willing to pay:

•    Steady cash flow

The ability of the business to generate consistent cashflow, paired with good margins (and a large percentage of repeat business) is essential to ‘saleability’.

•    Assets

Buyers will look very closely at the number and value of business assets: products, patents, registered brands, investments, physical assets (movable and immovable) and shareholdings in other businesses that are part of the deal.  

•    People, processes and systems

Every sustainable enterprise needs robust systems and qualified people – buyers will be looking closely at these factors, and whether the business can run well without its founder.

•    “Scalability”

Buyers will always want to ensure that the business is scalable - so that they can derive further value from the business after the sale. They want future leverage, not just additional revenue.

•    Culture

Around 80% of acquisitions fail because of the inability to fully integrate the respective teams into one cohesive unit.
Essentially, you need to start working on the above five areas from the start, not right at the end! If you can begin with the end in mind (selling the business), you will be prepared when a juicy offer does come your way…

* Pieter Scholtz is the co-master franchisor for ActionCOACH in Southern Africa.  



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