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For many entrepreneurs, the idea of selling their business may be a vague notion far off in the distance, or may not even be on their radar all. Not everyone builds a business with the intention to sell. However, it is mistake to avoid building an exit plan into a business, no matter how adamant one is on the belief that they will never sell their startup.
Even without plans to sell, a business with a high sellable value tends to be more profitable, more enjoyable to run, and more beneficial to the owner in general. Therefore, it is vital for anyone, not just business sellers, to work to create value for their business.
The following is a list of reasons why a business owner should consider focusing on generating value within their startup.
1. Increased Profits
That number one reason for building a business with a high resell value is that it will generate more revenue. Since the aim of starting a business is to grow profits, then planning to build a sellable business should be a no-brainer.
Sometimes it can be beneficial to discover ways in which the business can be made more valuable instead of simply more profitable (although this definitely plays a part in value). Establishing recurring revenues, commercial goodwill, a wide customer base, and a positive brand reputation are just a few of the things that a business buyer will look for in a potential acquisition, so it is important to foster these qualities for one’s business. Investing in your own highly profitable business also implies personal financial freedom.
2. Power Over the Market
Having a broad customer base as well as cornering a niche market will assist in knocking out the competition. In fact, competitors may look to buy out one’s business in order to maintain their status within the industry. While one may choose not to sell to their competitor, having this type of power over the industry is what makes a business successful.
3. More Enjoyable
Many business owners do not realize that incorporating themselves heavily into the core of the business is actually perceived as a negative to buyers. On the contrary, having a disposable owner drives up the value of a company.
While becoming disposable may be the last thing that a business owner wants to do after putting years of time and hard work into starting the business, this process tends to actually prove beneficial to the business owner. Having a more hands-off approach allows one to delegate a majority of tasks and reduces the stress put on the owner to be the sole breadwinner and administrator for the company. With a strong management team in place, a business owner has the flexibility to take vacations and avoid constant stress.
4. Offers a Future
If there ever does come a time when the business owner needs to sell, the business will already have years of sellable qualities built into its foundation. The unexpected is bound to occur. Personal reasons, such as illness or retirement, may cause one to change one’s mind about selling later on down the road. Rather than retiring with little pension, selling the business could offer profits that will last a lifetime.
Another reason why selling a business offers a future to not only the owner but their family is that it has the potential to leave opportunity in the hands of the owner’s children. If a child inherits the business and finds that they are not up for the challenge of running it, a business with a high sellable value will ensure that an adequate amount will be paid to the beneficiary if they choose to sell. It is comforting for entrepreneurs to know that they can leave a legacy behind for their successors.
In order to fully understand the value of a business, it is worthwhile to have it professionally appraised. A business valuator will know what to look for in terms of the value of different facets of a business and its specific industry, and then will be able to provide recommendations on what may be done to improve its resell value.
If you would like to speak with a professional business valuator, please contact George & Company. We specialize in the buying, selling, and appraisal of small businesses. We would be happy to help you establish a plan to grow the value of your company.