It's a common aim for entrepreneurs when they start their
business. Building it up and selling it for at least a
million, or maybe even multiple millions.
It's certainly possible and many people have achieved the
magic number but for every one that does there are
thousands who never make it even close and never quite work
out why. So what are the common factors in a multi-million
pound sale? Here are the top 10 factors that contribute
towards achieving that goal.
1. Multi-Million Sales And Profits
It may be obvious but this is the traditional and still the
best real way to achieve a multi-million exit. That's not
to say it's easy, you need to work hard to get to one
million's worth of sales and even harder to get to the next
ten million. However, if you can achieve multi-million
pound profits then your chances of a multi-million sale of
your company are greatly enhanced, although still not
guaranteed as it depends on the type of business you're in.
2. A Very Scalable Business
When a buyer is looking to acquire a business they are
looking for the future potential that will come from that
company. The price they pay is a reflection of what they
expect the future returns from the business to be. This
means that the greater the potential of your business the
greater the value. And the most important element in that
potential is how easily the business can grow, its
scalability. If your business is wholly dependent on you
doing all the work because you have very specialist skills
then there is a definite restriction on how much the
business can grow as you only have 24 hours in the day. If
you have a product or service that can be easily replicated
at a low cost (e.g. software) then the company can grow far
more easily with limited additional expenditure. This
makes your company much more valuable because it has far
greater potential for growth.
3. Valuable IPR
Businesses that achieve high valuations often have very
strong Intellectual Property Rights (IPR). These are the
patents, copyright, trademarks and legally protected
inventions and brands that the company holds. If you have
intellectual property that is legally protected so that
other companies can't easily copy it, then you benefit from
scarcity value. If you have good IPR then it means
customers have to come to you for the product or service,
which makes what you're selling more valuable. Large
corporations and VCs like to acquire strong IPR with a
company as it gives a greater justification if a high price
is paid and it gives them exclusive access to the rights.
It can be tough to achieve the higher valuations you want
without IPR.
4. A Desirable Customer Base
Sometimes a company is bought simply to provide the buying
company with access to the customer base. The alternative
is for the buyer to generate the sales and customer base
themselves but this takes time. If you have a loyal
customer base of regular, high spending, credit worthy
clients, then the value of your business is significantly
enhanced. A buyer will be looking to see what value they
can get from selling their products and services to your
customers and they will also have expectations of
increasing the value of sales to those customers. And that
could mean millions for them and for you.
5. A Hot Sector That's In Demand
This can be one of the best ways of achieving a high sales
value but it's very challenging to get the right sector at
the right time and find the right buyer. For all the
Facebooks and Bebos that get it right, there are many
thousand also-rans who didn't catch the market's
imagination. It's not necessarily about being first but
it's about being early, fast growing and getting attention
from the right people.
6. A Great Brand
If your company has spent significant time and money
generating a very strong brand in the market and your brand
name is the first one that people think of in your sector,
then your chances of a high price sale increase
significantly. Brands have huge value to businesses as
they can keep customers coming back, through brand loyalty,
and attract new customers, through brand recognition. The
brand may be the most popular or it may be associated with
high value, bringing higher value customers with it.
Again, it can be a challenge to create a really strong
brand but if you succeed the value can be huge.
7. Exclusive Rights
If your company has the exclusive, legally enforceable,
rights to a territory then they can be worth a significant
amount to a buyer. If your competitors can't break into a
particular geographic market because you have an agreement
with a supplier that no-one else can sell their products or
services in that territory then they will often want to buy
you simply to gain that access. The alternative for a
competitor could be that they have to ignore that whole
territory or country which could bring down their own
valuation. Whilst you should never over-pay (ideally you
shouldn't pay much at all) for exclusive rights, they are
well worth having if you can agree them.
8. Highly Successful Marketing & PR
Sometimes a business achieves a high valuation purely on
what appears to be hype and promotion. This is about being
in the public domain and getting noticed. It's certainly a
lot harder to achieve a multi-million pound exit when
no-one has heard of you. Of course, if you really want to
get all the way to completing an exit you will ideally need
to have a decent business to back-up the marketing,
although it's been achieved before without much substance.
Getting your company known through marketing and PR should
be a natural goal of the business anyway, as it generally
allows you to sell more if done properly. However, it can
be a dangerous route to start marketing programs just to
gain the attention of people who might want to buy your
company and you should always carefully measure the
effectiveness of any campaign.
9. A Great Balance Sheet
If your business has a very strong balance sheet, with lots
of assets and not so many liabilities, then you can achieve
a multi-million sale of the business just on that basis.
Generally, this will mean that you have achieved one or
more of the other options in this list already,
particularly the high sales and profits one. Another way
of looking at this is that you are less likely to walk away
with a multi-million deal if you have a very weak balance
sheet that is burdened with debt. If you've had to borrow
a huge amount to get your business to its current state
then when you sell you can easily find all the money just
goes to pay back the debt and you're left with very little
in the end. The stronger your balance sheet, the better
your chances of a good deal that pays your millions when
you sell.
10. Something To Plug The Gap In A Large Corporate
This covers a few of the previous factors because it really
comes down to a large company asking themselves whether it
would be best to spend the time and money to build up a
customer base, brand, IPR and revenue stream themselves or
whether it is better to just buy it ready made. Generally,
this solution works for niche businesses that focus in a
very specific area. Large companies will often conduct
strategy reviews that look at how they are serving their
customer base with a particular set of products or
services. This will often give rise to a gap in the
service offering that they will want to fill to provide a
full service. If you have the business that fills that gap
and you can get yourself in front of them, there can
certainly be a multiple million sale on the cards.
Overall, all these factors will benefit your business
whether you want to achieve a multi-million sale of your
business, whether you want to create a great lifestyle
business or whether you just want to create something you
can be proud of. And on the way it will allow you to
create jobs, boost the economy and benefit your local
community. And if you sell for a large sum, just think of
all the good you could do with that, along with maybe just
a few small treats for yourself.
----------------------------------------------------
Andy Warren is the Managing Director of Marshall Keen Ltd.
He is a chartered accountant and successful CFO, FD and
entrepreneur with extensive experience in M&A, Corporate
Finance, Business Growth and Exit Strategies. Marshall
Keen http://www.marshallkeen.com specialises in providing
flexible CFO services and part time FD services to early
and mid stage businesses, particularly in the tech sector.
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