Why You Should Plan to Sell Your Business in the Next 36 Months

Why You Should Plan to Sell Your Business in the Next 36 Months

Creating a business with the intention of selling it within three to four years can be a genius move for business owners. This approach creates a focused streamlined and efficient operation from day 1.

Here’s why adopting this strategy can yield remarkable results for all involved…

Clean Financials

A business built to sell focuses on financial health from day one. Buyers typically request financial records dating back three to four years, scrutinizing every expense to lower the sale price. Unlike most startups, a business aiming for sale avoids unnecessary expenses that do not contribute to profitability. Personal expenses are meticulously excluded, presenting a clear profit-and-loss statement to potential buyers. By prioritizing financial reporting and strategic spending, the business cultivates a strong financial foundation, enhancing its value to future investors and leading to a larger liquidity event for the owner.

Superior Systems

Building a business with an exit in mind results in robust systems. The ideal scenario for a buyer is to acquire a “business in a box” that functions independently of the founder. Every aspect, from operations to customer service, must be systematized and documented so staff can operate without reliance on the seller. This makes the business highly attractive to buyers and more efficient during the owner's tenure. Additionally, systemizing with the team’s involvement from such an early stage can pave the way for a management buyout (MBO), as staff familiar with the day to day operations can become legitimate buyers, reducing the dreaded operational risks for lenders.

Competent and Independent Staff

A clear goal of selling within a certain timeframe gives everyone in the business a target to aim for, broken down into measurable metrics for each department and role. When staff have clear, measurable goals, they turn up for work with purpose and motivated to perform. Incentivising staff around a successful sale ensures alignment and motivation for all parties. For example, sharing a portion of the sale proceeds above a certain figure can significantly motivate the staff to help the owner achieve their goal of exiting for a set amount on a set date. Benefits of such incentives include:

• Clear alignment with the overall mission
• Lack of resentment towards the owners goal of exiting
• Financial benefit for all involved
• A culture of a motivated and high performing work force
• Intolerance for low performers who obstruct the mission

A clear 36-month exit strategy allows staff to have a clear purpose, be part of a winning team and potentially be rewarded for any over performance.

Optionality in Selling

After 3 years, you might find yourself running a highly efficient, self-sustaining enterprise. At this point, selling becomes an option rather than a necessity. You can enjoy the cash flow from this well-oiled machine or proceed with the sale, reclaiming your time. Perhaps even giving equity to your star players to motivate them to keep growing the business for you. Either way, newfound freedom allows you to explore new ventures, purchase other businesses, or simply enjoy financial security without day to day stress of running a business.

Leveraging Skills for Future Ventures

The process of building a business to sell teaches invaluable skills in systemisation, scaling and leadership. These skills can be leveraged in multiple ways post-sale, whether starting another business (with the goal of exiting within 3 years), entering the consulting world, or by acquiring under performing businesses with the aim to improve and sell.

Conclusion

In summary, strategically creating a business with the intention to sell for a set figure within a set timeframe can lead to better financial health, superior systems, a all star workforce, and optionality in exit strategies. It's a powerful approach that maximizes the business’s value and enhances the entrepreneur's skill set and future opportunities.

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Jamie Simpson

Partner at Monopoli Capital

Monopoli Capital are a UK based private equity company who take minority stakes in Businesses doing ￡1m-￡10m turnover. They mentor the owner to systemise and scale the business, using proven growth playbooks, so it can be sold within 36 months creating a liquidity event for all involved.

www.monopolicapital.com

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