Different entrepreneurs have different motivations for starting and running a business. Some do it to escape the monotony of working for a corporate outfit, while others do it to pursue a passion. Whatever the reason an entrepreneur has for pursuing a business, eventually he/she would think of selling the business to realize its full potential. There are several reasons why one would want to sell the business. It could be retirement, absence of succession planning, no legal heir, mental fatigue for the entrepreneur or simply, to cash out for the right offer. In this article, we’ll explore different steps one has to take before putting up a running business for sale.
It’s important for us to first understand what buyers of business look for while purchasing, to better understand what strategies need to be followed while building a business.
What potential acquirers of a business look for -
USP A unique selling proposition is very important to have for any business to find a buyer. What’s something special about your company that a buyer can’t find in other business? What’s your secret sauce?
Strong, positive cash flows Selling a profitable venture in itself is a challenge, but selling a business which is running on a loss is possibly 10X as difficult. Buyers are sceptical when purchasing businesses which are bleeding money at a constant basis as they can’t be too sure how/when the business will become profitable.
Moats A moat is essentially a reason why competitors can’t eat up your business i.e. a competitive advantage over other companies in the same industry. Buyers always want to reduce their risk when acquiring a company, and having strong moats around your businesses is critical to ensure a good sale.
Less dependence on founder(s) While all businesses will have a lot of dependence on the founder, buyers are always concerned on the survival of a business post an acquisition, when the entrepreneur is not part of the company anymore. It’s important to ensure that the business can carry on, even in the absence of the founder(s)
Regulatory compliance There’re too many instances of buyers of companies being hit with retrospective taxes and penalties due to non-compliance of regulatory processes in the past. These instances have made buyers vary and are particular that the business has to be completely compliant to all rules in the industry
Company Culture Post a take-over, most companies struggle with conflicts of culture between new management/team with the employees in the business. Buyers look for businesses which have a ‘cultural fit’ with themselves
Now that we’ve understood a few important aspects that buyers want, we can move onto strategies that could be followed before putting up your running business for sale
Building moats and USPs A moat, as discussed earlier, is nothing but a competitive advantage over others in the same market. Possible moats could be a great recipe that has customers coming back for more (in the restaurant business), or well struck deals with suppliers to keep the price low for customers in retail businesses, or a great team which understands and executes in your market, or filing patents for processes/technology. It’s important for founders and management to really understand what possible moats could exist for the business before putting it up for sale.
Cash positive businesses Drive the company towards profitability at all levels – By store, by business division/function, etc. While calculating profits, it’s also important to keep interest payments for capital, depreciation of assets and other factors in mind. Businesses with a high gross and operating margin are of particular interest to buyers (even if the net margins are currently low, as margins will increase once debts are paid back).
Automation of processes and decisions When you are selling your running business, it’s important to ensure that it can grow (and flourish) without the hands-on involvement of the founder. Work towards automating all processes in your organization to an extent they don’t involve the founder at all.
Another important automation that has to happen is that of decision making – Small businesses are structured such that the business owner is involved in all decisions (big or small). It’s important to put a structure in place which removes this dependency to make the business lucrative for buyers. Having a management layer between the operational elements and the business owner is critical. In general, it’s best to reduce the role of the business owner to 3 main functions –
a) Raise the capital b) Hire people and take care of building a great culture c) Set the strategic direction and vision
Anything outside of these functions should be offloaded to management.
Adherence to regulatory formalities Work with a strong accounting and auditing teams to ensure that all regulatory procedures are updated periodically. Every formality from tax deductions to filing of board meetings have to be done regularly, which helps during the eventual sale of a company.
Having a sound understanding of factors affecting the sale of your business will not only help you run your business successfully, but also make it a very attractive target for buyers looking for running businesses for sale. You can leverage platforms like SMERGERS to sell your running business.
Fuel additives are fuel-soluble chemicals added in small quantities to enhance the properties of the fuel, improve fuel handling and fuel performance. The rapidly increasing demand for hydrocarbon fuels from transportation and power industries have
Facility Management (FM) refers to the use of a third-party service providers to maintain a part or entire building facility in a professional manner. It is increasingly gaining popularity amongst commercial as well as residential clients driven by
The Indian healthcare market is expected to reach ₹ 24 lakh crore by 2022 from ₹ 9 lakh crore in 2016 growing at a CAGR of 17.7% driven by rising incomes, greater awareness, prevalence of lifestyle diseases and increasing penetration of medical
Automobile industry facing a tough time as vehicle demand is sluggish. Valuations of companies on the lower end. Autocomponent industry is also expected to witness a flat growth this fiscal because of weak automobile demand. The industry will remain
Fitness industry in India is worth Rs.4,500 crore and is growing at 16-18% annually and is expected to cross Rs.7,000 crore by 2017. The industry is fragmented with majority of the market dominated by unorganized and independent gyms outlets. The
Low utilization rates and weak demand from realty and infrastructure sectors is driving consolidation in the Indian cement industry. More mergers & acquisitions are expected in the medium-to-long-term as valuations are attractive to buyers and
Demand for electronics hardware in India is projected to grow at 25% compared to only 15% growth in production, expected to create a demand supply gap of Rs.14.8 lakh crores by FY20. This creates a unique opportunity for electronics companies
The ecommerce space in India is still evolving and companies have limited history. Many of them function at negative operating cashflows and are dependent on investments from venture capital firms. Using traditional valuation methods like DCF
The food processing industry in India is getting a shot in the arm with increased focus from the governement and policy makers, higher involvement of scientists to help increase food processing productivity, and establishment of mega food parks
The Staffing Industry includes companies which list employment vacancies, place applicants in employment, supply temporary workforce and all other employment related services. Market size of the Indian staffing industry was INR 26,650 crore in 2014
Global acquisitions by Indian IT firms rising with a majority of the transactions happening in Europe and North America. Primary reasons driving these acquisitions are increasing local presence in the US and Europe, acquiring employees with a
Advertising spends in India are expected to grow 12.6% year on year to Rs 48,977 crore for the year 2015. The ad spend in 2014 was Rs. 43,490 crore, which reflected a 12.5% increase over 2013. Firms in the advertising industry prepare advertisements
The worldwide ERP software grew by 6.4% in 2014 to reach $27B market size. The segment is anticipated to garner $41 billion in sales by 2020 with a CAGR of 7.2% during 2014-2020. ERP software is second fastest growing segments within Enterprise
It is widely believed that India has not fully leveraged its strength in the Manufacturing sector in the last decade, but the sector is expected to emerge stronger in next decade as companies innovate and adopt new business models. To support this
Pharmaceutical industry seems to be entering a growth phase after a muted growth over the last few quarters. Valuations of pharma companies fairly high as they are expected to perform. Indian Pharmaceuticals industry is the world’s third largest in
The Indian restaurant industry is highly unorganized and fragmented but is getting rapidly organized with Quick Service Restaurant (QSR) segment leading the way. Private Equity and Venture Capital firms have shown increased interest in this sector
The salon industry in India is largely unorganized but is getting organized at a fast pace. The average per person spending on salons in India is a miniscule of spending in other countries such as the US, China and Malaysia. Even a small growth in
India is world’s second largest producer of textile and apparel after China. China is slowly reducing its focus on textiles and this has had a positive impact on the Indian textile and apparel industry. But not everything in the garden is rosy as
Since we are an online platform running at a large scale, we do not do in-person meetings and would not be able to resolve queries over phone calls in an ad-hoc fashion. We request you to create a profile on SMERGERS with the link below, so the concerned analyst can get in touch with you for any clarifications required before activating the profile.
Alternatively, if you already have a profile on SMERGERS, we request you to send us your question over email (email@example.com) so the appropriate team can revert with proper resolution or contact you over phone to clarify your doubts. It would be difficult for us to assign the right person without knowing your queries.
We noticed that you have disabled cookies on your web browser. In order to login and get a good experience on the platform, we suggest that you enable cookies. Click here to see how to enable cookies on your web browser.
Customize for your location
You are currently viewing the results from SMERGERS worldwide. Click below to select your location.