Questions on Creating a Business to Be Sold...

RenaissanceIdealist

Hello Start Up Nation,  I am preparing to start up a business in the near future.  My plan is to work on the business for 2-3 years, then sell it.  I have been wondering how to make the business more "sell-able".  Is one business entity worth more than another?  How does one know what a business is worth? How does one even find a buyer for a business?  Are there any mistakes that will kill the selling price of a business?  I would love to hear from anyone with any experience with this.  Thanks a lot.Ril
RenaissanceIdealist2006-11-3 4:10:1

asykes

Hi,Make sure you keep your company lean, taking on lots of liability reduces the value of the company and therefore what anyone is likely to offer you for it.Watch your accounts like a hawk, nasty fluctuations in cash flow or panic capital injections can look a bit worrisome to a potential buyer.You might want to get an accountant to help you calculate P/E (Price/Earnings) multiple. Your business will be worth the last year`s profit multiplied by the P/E but working out P/E can be tricky; industry specific and to an extent a matter of judgement.Good luck with it!

PremiumGuru

Purchase a book called, E-myth by Michael Gerber. It is a great book that
all entrepreneurs should read. Once you have a concept for your
business, this book will guide you through building your business into
something that is truly sellable.

This book helps you to "run your business" and not let your business run
YOU. It makes you plan for the future to ensure that you will have a
company that can sustain itself and thrive even after you have gone (on a
beach somewhere, counting your dough...I hope!).

Best of Luck to you!

Eric

Ril,
Is there any way you can even elude to the type of business that you are referring to? It makes all the difference in the world. You`re asking a broad question. If all you are looking for is a broad answer then that`s fine of course but I think that you`ll find people here that can help you with some of the specifics.
Just saying that it`s a manufactured product, or a service of some kind. Maybe tell us who you are marketing to. Sharing these things will get you a lot more of the help that you seek.
Best of luck to you.
~Eric

RenaissanceIdealist

Eric et. al.,   Thanks for the preliminary adice.  And can I just say, I think the Instant Nickname of "Ril" is genius.   I have read the E-Myth, and am waiting for the second book by Mr. Gerber to arrive (there was no copy in the country, seriously).  We believe in the foundational ideas of that book, and see it as one of the guides in starting this business.   When set up, the business will deliver an online service.  There looks to be no centralized office, or equipment.  And no real estate etc. to go into the sale.  The business will be only the sytem itself, the customer base it is serving, and the brand loyalty that can be developed.   With this addressed, are their further ideas available within the communitty.  I am especially intrested in knowing what things might be Kryptonite to a business sale (liability is a great and appreciated suggestion from asykes).  Thanks for your help,Ril 

Eric

Ril,
Thanks for considering Ril "genius" ....you could also consider it lazy but hey I prefer the former!
Kryptonite to a business sale: Interesting.  I think that you will find the obvious.
Debt Bad - Profitability Good - Strong Customer Base Good - Strong Customer Base AND Good Profitability...GREAT!
As Asykes says, keep it lean and steady.  You want things to appear stable and steady to keep the business attractive.That`s not to discount explosive growth of course. That would be the good kind of unsteady.
Now did you really come here to listen to what you already know? If you have a system designed with the specs you mention, you have little to lose by moving forward.
As a last thought, I would also add that you should feel out your market before getting too wrapped up in the project. Nail down your target market as much as you can in advance to make sure that you are delivering more of what it is that they want and minimizing what they don`t. (Don`t you love when you get broad generalizations for advice......it`s sickeningly vanilla) 
Now, go do something special!
~Eric

TheButtonStore

One thing to focus on when planning to create a company for the reason of selling it later, is to separate yourself from the equation.When you sell the business, the new owner will be getting the business, not you.  Meaning that the systems and work flow need to be setup so that anyone can do it, not just you.  An example of this being a one man web design company.  While the brand can be worth something, the real value lays with the designer or programmer.  Without him/her, the company cannot function properly.  Try to stick to an industry where anyone can be trained to take over, without excessive special training or experience.  Makes for a much easier sale.

CatherineL

Other advice you have received is great.  I have just sold my first business, and I`m starting another.  I would advise you to build a good system, as that is what you will be selling (not the type of business).  Others have suggested Emyth, which is excellent, and I advise you to read Instant Systems by Brad Sugars after that.  Emyth is good at showing you why you need to systemise a business, but Instant Systems shows you how to do it - step by step.
Apart from not having a good system - one thing that will make your business sale difficult is a lot of debt (because people will either not want to buy, or they will want to buy it for peanuts).  I have spoken to people who would love to sell their business, but can`t as they owe too much cash to the bank.

RenaissanceIdealist

Thanks for the advice everyone.  Any other book recommendations would be appreciated too!Ril