Not ready to sell your business yet… but know you’ll probably want to sell it someday?

There’s lots you can do now to make it easier to sell your company later.

These tips are pulled both from my own experience selling two content businesses, and from some of the founders we’ve interviewed for They Got Acquired who sold their company.

Think ahead: tips for building a sellable business

If you want to sell your business someday, the biggest variable is whether you’ve created a product or service that brings value to others. Quality is always the starting point.

But there are a few other things you can do from the beginning to make a business easier to sell later. You’ll notice second- and third-time founders covering these bases because they learned the importance of each one the first time around. Even if you didn’t do them from Day 1 of building your company, starting now will give you a leg up later.

“Start planning for [a potential acquisition] 1-2 years before it happens,” said Gamal Codner, who sold e-commerce brand Fresh Heritage and now helps other founders exit. “So much of how you can maximize your exit depends on the performance and decisions you make 1-2 years prior.”

You on board? Here are four things you should do now to set yourself up for a successful future sale.

1. Create a brand that doesn’t revolve around you

If you want to sell the company one day, create a brand that doesn’t completely revolve around you. Or at the very least, plan to pivot to that design down the line.

If the company’s brand is built on your reputation alone, another company might not be able to run it without you, which could make it challenging to sell. If you are the brand, it’s simply not worth as much without you.

Founders sometimes find creative ways to make this work, for example, by supporting a buyer during a transition period after a sale. But if the brand relies on you, it will likely be difficult to exit entirely.

Striking this balance can be challenging because brands with a face and personality tend to gain traction more quickly than brands that don’t share who’s behind them.

Especially in the early days of a business, customers tend to want to support the people behind the company more than the company itself. So one of the best ways to grow is to attach yourself and your personality to the business. Customers trust you, and because of that, they trust the brand.

I thought about this balance a lot with the website for writers I founded, The Write Life. While I introduced myself as the founder on our About page to help the brand gain credibility and used my network to help the site find legs, the brand never revolved around me. Perhaps it would have grown faster if I’d been willing to put myself front and center, but I didn’t want to be known as the face of that brand.

One simple tactic to apply here if you’re just getting started: avoid calling the company by your name. Give the brand a name you can easily transfer to another owner.

2. Keep your accounting clean

One of the biggest headaches for business owners when they go to sell is messy financials.

A buyer will want to see financial records for at least a year leading up to the sale, and possibly two or three years. If you keep your accounting clean from the beginning, you’ll avoid the massive chore of putting your books together or fixing mistakes — or worse, thinking your business is worth more than it really is.

One of the reasons this is a common challenge is because most business owners aren’t accountants. We run businesses because we enjoy the work, want autonomy and appreciate the financial benefits. But most of us don’t bring intimate knowledge of how to put together a Profit & Loss statement. In the best-case scenario, we learn the basics on the job and/or hire someone to help. Worst-case scenario, our financial books languish while we focus on growing the business.

“Maintain business records as if you’re going to sell your business tomorrow,” advised Chelsey Roney, who co-founded and sold SaaS business Select-A-Sis.

That means tracking, at minimum, revenue, expenses and profit, as well as keeping business money separate from your own personal money. We all know these best practices, but sometimes we forget to follow them.

And here’s one more tip: if you’re running more than one business at once, as many entrepreneurs do, track separate finances for each line of business.

For tax and legal purposes, it might work to have all of this business money reported in one bucket, depending on how your business is structured. But you should still track revenue, expenses and profit for the business you hope to sell separately from your other business activities, so you don’t have to tease them apart later.

Perhaps even more importantly, when you run multiple projects, it’s easy to make assumptions about which ones are profitable vs. eating cash. Those assumptions can lead to poor choices, for example, keeping a business alive that’s not making a healthy profit.

Tracking and understanding these basic metrics from the beginning will help you make good business decisions, while setting you up to easily share financial records with an interested buyer when it’s the right time. If you do this well, you’ll spend your months leading up to a sale figuring out how to maximize your sale price, rather than simply getting your books in decent shape.

3. Optimize for profit

While every company valuation is in the eye of the beholder, many online businesses sell for a multiple of their profit.

Online content businesses, for example, tend to sell for a multiple of 3-4x annual net profit. So if your business profits $100,000 a year, you might look for a sale price of $400,000.

Lots of other metrics and factors come into play, but this is the core metric another company will likely use to value your business. That means the number-one thing you can do to increase your company value is to increase your profit.

This sounds obvious. Of course you’d do everything you can to bring in the most profit, because that’s what a business is about, right?

But there’s a tricky quandary that becomes apparent to every startup founder early in the journey: how to balance profit vs. investing money back into the business to support growth.

Maximizing profit in the short term might mean more money in your pocket at that moment. But if you invest business dollars back into the business to accelerate growth, you could have a more profitable or more valuable company down the line.

For The Write Life, for example, I reinvested most of our business dollars to maximize growth throughout my eight years of running the site. I could afford to do this because I wasn’t relying on the site for income; it was always a side project.

This strategy is a big part of why the site grew to 460,000 monthly pageviews. But in retrospect, I wish I’d balanced our desire for growth better with maximizing profit. One good resource for thinking through this is Mike Michalowicz’s book, Profit First.

Your approach to profit can morph over the course of your company lifecycle; you can take one strategy at the beginning based on your own personal income needs and the needs of the business, and shift to another strategy later.

But even if you optimize for growth initially, plan to optimize for profit in the year or two before you sell the business. 

This can be tricky because we can’t always anticipate the timing of our desire to sell or when an offer might come our way. But if you do spot a possible sale on the horizon, look for ways to increase revenue and cut expenses, effectively increasing profit, to maximize your sale price.

This was one of the lessons learned by Dave Schneider, who built and sold NinjaOutreach, a SaaS. “You have to think ahead… so that when people look at the financial books for the last 1-2 years, it tells the story you want to tell,” he said. “We screwed up a bit on this because we invested a lot into growth before selling so it wasn’t planned out strategically.”

4. Build a business that can run without you

In addition to the brand being more than you, your company’s operations should also be bigger than you.

Can the company deliver on its promise without you doing all the work? Are your duties systemized and documented so someone else could take them over and keep the business running smoothly?

Most bootstrapped founders do much of the work themselves, at least initially. There are benefits to starting this way, at least for tasks you’re semi-qualified to do or can figure out, because experiencing them yourself can help you see what’s challenging, how long tasks should take, how to make tasks easier, how to create systems around tasks, etc.

But over time, if you want to position your company for an acquisition, your business must be able to run without you. In my mind, this involves two parts:

  • People
  • Systems

While people can make or break the business, in my opinion, systems are more important.

If you build good systems and document them well, you can find qualified people to do the work.

But it doesn’t work the other way around: If you have good people but no systems for them to follow, they might falter. Those people are then critical to your business; if they leave for whatever reason, you won’t have your systems to fall back on.

As a founder, you don’t have to build all the systems yourself. If you’re not sure exactly how a task should be turned into an efficient process, hire an expert in that field and ask them to build the system and document how they do it so someone else could do it, too.

One challenge of documenting systems at a small, agile startup is that things change constantly. How you do the work will change as you figure out better ways to work and take advantage of new opportunities. That’s the beauty of a small shop; you can adapt quickly in whatever way benefits you and the business.

But this means process documentation is out of date almost as soon as it’s been written. It’s most important to update it before you bring on new hires, so they have accurate documentation to follow, and before you sell the company, so the buyer has up-to-date guides.

If your process documentation is out of date at other times, that’s ok. In fact, it’s normal. But don’t use that as an excuse to not create it at all. Having documentation that’s not perfect is better than having no documentation at all. It will guide you as you grow your business and your team, and minimize work when it comes time to sell.

Need a resource for learning about the importance of systems and how to create them? Try John Warrillow’s book, Built to Sell: Creating a Business That Can Thrive Without You.

Growing a profitable, sustainable business

The good news is that you don’t have to do all of these things at once. Take your time putting them in place, at a pace that’s manageable for you.

When you first start a business, you have so much on your plate. Your most important task is to ensure you have a product or service that offers value, something customers will pay for. Once you’ve validated that, it makes sense to look to the future.

If, however, you’re beyond the early stages and see a path to an acquisition, work on these items as soon as you can. They all take time, and you’ll want to have your machine working for a while before sharing metrics with a buyer.

If you take steps to optimize for profit, for example, you’ll want at least a year’s worth of maximum-profit P&Ls to get the best possible sale price.

And what if you follow this advice and never have an opportunity to sell your business?

Congratulations are still in order, because if you’ve worked on each of the items on this list, you’ve made your business more scalable, more efficient and more profitable. And probably more enjoyable — and less stressful — to run, too.

In fact, some entrepreneurs go through these exercises, then realize they want to keep their business instead. Because ironically, the steps you should take to get your company in shape for a sale are often the same steps you should take to grow a profitable, sustainable business.

“Don’t wait to ‘prepare’ your business for selling until you’re actually ready to sell,” said Grace McBride, who grew and sold TripKit, a services business. “Get all of the systems and processes set up in the beginning; it will truly change your business for the better.”

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