Let's assume your moral fiber is strong.
With
that out of the way, let's get down to values – that is, the price your
startup business might fetch if you decide to sell it. Our startup
advice: getting the best value for your business is not something that
just happens. It's something you make happen. Like good
values that come from a proper upbringing, good values in a startup
business come from a concerted effort on your part to build up the
inherent qualities of your company.
Whether
you're in your third year of growth or you're just starting a business,
here are some tips and advice we've gathered from people who've
successfully sold their companies:
Startup advice: maxing out the value
Some of the key factors that determine business valuation include:
- Product line – how old are the products? How well are they respected in the marketplace?
- Market share – how much of the overall market do you control?
- Quality of your customers – what's their reputation and dependability in terms of future business?
- Overall state of the industry – is it a growth industry or has it plateaued?
- Intensity of competition – what is the degree of threat from the competition?
- Team members – who is crucial to the ongoing value of the business? Who will stay onboard after the sale?
- State
of your financials – how does your balance sheet look? If you have
large debts, they will detract from your company's price tag.
Startup advice: finding the best suitors
The
best buyer is a strategic buyer – one that sees added value in the
integration of your startup business with his or her company. The added
value could be:
- Immediate access to customers that the buyer has not reached
- Ability to sell a combination of products to the combined customer base
- Significant integration savings due to elimination of duplicated activities
Startup wisdom from the trenches
Some things you should take into account as you design your ideal exit:
- Loyal and longstanding customer accounts can positively affect your startup's perceived value
- Don't buy into your own hype – most business owners think their company is more valuable than buyers do
- Beyond
the balance sheet, incremental value can be generated from assets such
as your brand, trademarks, patents or trade secrets - To maximize your cash out, try to get your receivables
as low as possible in the months before the sale, and keep an
especially tight control over expenses - Get more money by taking a payment schedule based upon
the future success of the company, but know that this method of selling
your business has a higher potential for buyer abuse - Companies that have shown sustained high growth rates often claim a higher value at the time of exit
- Be
cautious about making yourself fundamental to the ongoing activities of
the company – the more important you are to the future success of the
business, the less valuable it will be to a buyer without you at the
helm
Our Bottom Line
The way you handle
the upbringing of your business can have a big impact on whether it has
good values when it's ready for exit. So our startup tip to you is be
sure you have a clear strategy for building value in your new business.
