"I sold my business" is a magical phrase for
entrepreneurs. Just saying the words conjures up images of wealth,
leisure and exciting new challenges. For many entrepreneurs,
it's the goal, the reward, and the ultimate validation for
years of struggle.
While selling out isn't every entrepreneur's objective,
perhaps it should be, says Ned Minor, a transaction attorney in
Denver and author of the book Deciding to Sell Your Business: The Key to
Wealth and Freedom. "Eventually, every business owner
will leave their business," says Minor, "either sitting
down at the deal table, or feet first on a stretcher."
Let's face it; the idea of working until your last breath is
not what got most of you into business for yourselves. And yet, if
you aren't already planning a more graceful exit, you may end
up with the one planned for you.
On Your Mark
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It's never too early to start thinking about selling.
"The day you start building a business is the day you should
start designing your exit," says Minor, who has counseled
thousands of business owners through the process.
Dan Freedman, a serial entrepreneur and now CEO of San Jose,
California-based Jasomi Networks, agrees. He sees himself not as a
software entrepreneur, but as a business builder. No matter what
industry he's in or what product he makes, he says he's
always in the business of selling his business. "If you view
the company itself as the product and the acquirers as the
customers, you're on the right track," he says.
After building and selling three different software companies,
Freedman, 39, takes a very strategic view of business. "When
you're starting or growing a company, it is always a huge
amount of work," he says. "The only question is, Are you
going to get a huge return, an OK return or a horrible return? Each
outcome is possible from the same company."
Jasomi seems well-placed for a huge return: The company has
grabbed a 40 percent market share and, according to Freedman, will
post 2004 revenues "in the low eight digits."
Scale and Strategy
What does a salable company look like? It's salable if
it's scalable, says Minor. Of course there are small-and-steady
businesses sold every day, but the big bucks come looking for a
business that has huge growth potential. "Every buyer thinks
he's smarter than the seller-that he can double the size of the
business," says Minor. "And we encourage him to think
that." A business will fetch the best price only when buyers
believe they can take advantage of significant future growth
potential.
Selling a company's future upside means proving your
previous growth and validating your future growth strategy. Start
with two years of audited financials to show the veracity of your
historical growth. Then be prepared to explain your business
strategy and how it fits into the overall market. If your growth
has been fueled by acquisitions, show the buyer how that works and
how many more acquisition targets are still in the market. If your
growth is through new product development, be prepared to reveal
details of your R&D pipeline and your ideas for future product
lines.
As an intermediary, and sometimes a buyer, Andy Agrawal stresses
the importance of a strong, clear strategy. Agrawal, managing
partner of VisionQuest, an investment banking firm in Fort
Lauderdale, Florida, says that a strong strategy will attract an
entirely different kind of buyer. He differentiates between
"financial" buyers, who are looking at your income
statement, and "strategic" buyers, who are looking at the
overall value of your business.
"Financial buyers will typically pay a lower
price-they'll have a fire-sale mentality," says Agrawal.
"So you need to find strategic buyers and paint a picture for
them. Show them a great customer relationship, a great piece of
intellectual property, an advantage in time to market, or a key
employee. Show the strategic buyer how one plus one equals
three."
"You have to understand why an acquirer might want to buy
your company," says Freedman. Big companies sometimes must act
quickly in the face of market pressures or trends. "I've
seen companies bought for many millions of dollars just to justify
a press release...or to backfill for a previous press release that
left an unfulfilled promise."
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