Small businesses are often a labour of love, but there comes a point for many entrepreneurs when they see themselves going in another direction.
Understanding how to make your business attractive to sell to others, and give you a great return on your investment, requires careful thought.
Most business owners – even if they are not serial entrepreneurs – will be thinking about the future; whether that’s retirement or a change in circumstances that requires them to consider passing on their homegrown business.
“We talk about the three-to-five years planning process,” says Graham Lamont, managing director of award-winning small business accountants Lamont Pridmore.
During this stage the business owner will need to look at the systems and processes that are in place to enable a new owner to – at the very least – carry things on as they are.
“We have the difficult conversation about value – what is it you are selling? Do you have procedures, contracts in place with customers?” says Lamont.
The key issue owner-managers face is that often they are the business. They hold the value themselves: they manage the work, maintain the relationships. If you can’t separate this value, “then all you have left to sell is a customer list,” Lamont says.
His key advice is to look at the sector you operate in: is there anyone who would want to carry on your business? “The great advantage with that scenario is they can often bolt your business onto theirs, and reduce overheads – they get the turnover but fewer costs. That increases your business value.”
Building value
Jerry Brand, founder of The Brand Foundation, a registered charity helping entrepreneurs to succeed, says if you set your business up to be “cottage-style” – operated from home – then the value comes from finding someone suitable to pass it onto. However, a business that has become more structured and financed has a greater chance of being sold.
From failing every O-level at school to becoming a hugely successful serial entrepreneur, Brand previously launched a chain of restaurants with celebrity chef Brian Turner which he then sold to food venue giant, ASK.
He sees the “building and selling” issue as one that requires understanding when “you hit the ceiling” as a business owner.
“Entrepreneurs are still human beings, they can only go so far,” he says. “They tend to be diverse in their thought process, which becomes dangerous when you have lots of people working for you.
“We start as individuals – but if you’ve managed to create something that’s not totally and utterly related to you, then you’re building [value] in different ways,” he adds.
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