Building to Flip Your Business?
In an age of $1 billion buyouts of companies with zero revenue, many people are joining the entrepreneurial ranks. Naturally, there is a lot more to getting acquired than just having a great idea.
Building a business with an expectation to sell it in 1-3 years has become a common theme. There is a massive risk of focusing too much on the prize and then losing the game. You may cut corners, not build a solid product, take on customers you shouldn’t - in all, not create a solid business.
There is another risk, however, of not giving any thought about your exit until it is too late In the Entrepreneur article How to Build Your Business to Attract Buyers, the author lays out 6 Rules to Fine Tune Your Strategy:
Carefully consider the shareholder mix.
Keep it clean.
Know your audience and your market.
Delegate.
Choose staff and customers wisely.
Toot your horn.
This quote proves to be the most powerful statement on how to attract buyers:
Above all, the company needs an easily adaptable product or concept, clean books, good old-fashioned buzz, delegated authority and attention to the customer mix. Finally, the details of daily management have to support a company's long-term growth. "Startups get acquired because the acquirer believes they can scale up the company," Burgess says. "If the company is held together with duct tape and baling wire, it won't scale. Even though they start small, entrepreneurs have to think big from day one.”
This ties into Rule 2, Keep it clean. Many small business owners commingle personal and business funds and they shouldn’t. Not only does the IRS not favor that behavior, but potential buyers won’t either as it will become hard to separate the business from you.
The article helps explain how companies can be bought for so much with so little: "Without a good business, quality team and solid execution, there is no exit." It’s not all about revenue at any cost or just that great idea.
