You pick up the phone, and BAM! You’re blindsided. The person on the other end of the line wants to buy your business.
You freeze. You don’t want to say the wrong thing.
Your mind races.
What am I supposed to do now? Are my ducks in a row? Am I prepared to get what I think this is worth? What is this business worth? Is it worth anything?
Although this is the dream scenario for many entrepreneurs, most business owners won’t be able to sell their companies. According to Business Reference Guide, 70 to 80 percent of businesses put on the market don’t sell.
Here are five things you need to do now — before you get that phone call — to build a strong business and prepare for a successful exit.
1. Hire and Develop Leaders in Your Organization
Avoid falling back on the old business maxim, “If you want something done right, you’ve got to do it yourself.”
The problem with handling the most important tasks and decisions yourself is that it doesn’t prepare the rest of your staff to take over when you leave. Any new owner will be hesitant to take the reins of a business that depends solely on you.
Insisting on doing everything yourself also stifles your business growth because one person has limited bandwidth. Identify team members with leadership potential, and invest in their development early on.
2. Keep Your Business in Growth Mode
Don’t get distracted by one potential buyer. The odds of selling your business to any one buyer range from 15 percent to 40 percent, depending on the study.
Your odds with this interested buyer are worse than 50/50, so it’s best to keep your business growth a top priority.
Making headway with new markets, new products, and new opportunities also makes your business more attractive to investors. Buyers like to see growth opportunity, so don’t plateau right before closing. Make some significant, measurable progress on growth before an exit opportunity arises.
Remember: Talk is cheap. Execution is valuable.
3. Build Systems
Building systems in your business is important for three main reasons: Systems help you hire and train good employees, they help you build a scalable business, and they create opportunities for you to explore recurring revenue models. All three are appealing to potential buyers.
4. Avoid Heavy Customer Concentration
It goes without saying that taking care of your biggest customers is important. But if a vast majority of your business comes from one customer, you may have too much of a good thing.
Businesses with poor customer concentration are risky to buyers. Ideally, no single customer should account for more than 20 percent of your revenue. If this is the case for your business, try to acquire more customers to minimize that risk.
5. Keep Great Records
“Due diligence” is the term used when potential buyers peek behind the curtain to make sure what you’ve said about your business is true. If all the information is in your head and they have to take your word for it, this can be painful for you.
Make sure you keep accurate records. Procrastinating on your bookkeeping can make it all but impossible to catch up when potential buyers need to quickly access current information.
These five areas are all critical to your business, but juggling them all at once can feel overwhelming. Make a plan this week to execute on just one of these things, and you’ll avoid the crunch-time panic that’s familiar to business owners who don’t prepare an exit strategy. Of course, you should always seek advice from a mergers and acquisitions professional who has sold businesses and knows what to expect from the process.
In short, you need to focus on building a business, not just a job. This means keeping a potential buyer’s perspective in mind and growing a company that will be an attractive investment.
If you have a strong business, you can exit at a premium. It just takes careful preparation before the opportunity to sell arises.
If you wait too long, you may not exit at all.
Nelson Muller is Vice President at Biz Crossing, an M&A advisory firm in Ashland, Mo.