When I started my digital agency over 15 years ago, it wasn’t worth much. I started with barely any revenue and the furthest thing from my mind was the thought of selling it.
But fast forward 13 years later and the company had over 250 employees and was bringing in seven figures of revenue each month. At that point, brokers and other companies were approaching me to purchase my digital agency, and it was then that I finally started to see how valuable it was to the right buyer.
I did end up selling the agency to a global company and I learned a lot in the process. There’s a common saying, “Experience is the best teacher.” That saying really applied in the case of selling my agency. I made some mistakes when I sold it, but I also learned how to better prepare my next company for a sale.
I’m going to share with you what I learned from selling my previous agency. This can teach you how you can better prepare to sell your company and what to look out for when you sell it.
1. Prepare Your Company For Sale From Day One
If you plan to sell your company at any point, you need to have clean books that are organized. You need to accurately track expenses in their correct category, because no one will buy your company unless they have a clear understanding of your P&L (profit and losses). Sometimes startups can be sloppy about how they track P&L and that hurts them. So, from day one, keep clean, organized books and accounting records.
2. Ensure Your Company Can Run Without You
In order to create a company that is desirable for sellers, you need to ensure your company can run without you—even if you don’t plan on exiting the company post-sale.
In order to do this, create processes for each team and team member. Then, make certain that they’re being followed. Every department should have best practices, methodologies, life cycles, and so on that they follow religiously. Plus, every position needs to have a description, specific responsibilities, structure, etc.
You need to ensure your company actually operates as a company, not a place where everyone just relies on you. Therefore, it’s important that all of your best practices and procedures are well-documented and enforced to prove that. Plus, this tip will help with employee changes and new hires. If anyone on your team leaves or your hire someone, there will be documentation about their responsibilities.
All of this helps your company smoothly operate like a well-oiled machine. Fostering this type of organization is the most basic thing you need to do in order to sell your company, and you should implement it beginning on day one.
3. Determine The Best Time To Market Your Company For Sale
If you’ve already decided that your end-goal is to sell your company, you’re probably wondering when you should advertise that and at what point your business will be ready to fly the coup?
Well, there are two different ways to evaluate a company: profits and revenue. And the most important thing that buyers look for is not profitability, but growth. If you are showing revenue growth month-after-month, year-after-year, that is really what entices buyers.
Of course, being profitable is very important – and that does play a role – but buyers look for growth before profit margins. After all, it’s hard to sell a company with no revenue. So, how much revenue will catch a potential buyer’s eye?
Serious buyers look for $50,000 a month and up in revenue. That equates to $600,000 per year – and that’s considered a micro-sized business. However, this differs based on industry and type of business. For instance, in my industry – the agency industry – no one is interested in an agency that size. Agencies need to pull in several hundred thousand dollars of revenue per month at a minimum for people to be interested in purchasing.
(If you remember, my agency was pulling in over a million dollars per month before anyone contacted me to purchase.)
However, depending on the industry, smaller businesses could sell their company to a small buyer with less revenue. But on average, if you aren’t making at least $50,000 per month, you’ll have a hard time selling your company.
4. Prepare Yourself For “The Art Of The Deal”
After you prepare your company for sale and reach out to brokers and potential buyers, you also need to prepare yourself for tough negotiations.
When I was selling my company, a lot of people knowingly gave me an undervalued price because they wanted to bring the ball lower to negotiate. I was sometimes appalled at the numbers that were thrown at me!
But it is important to not get emotional, remember this is business, and to know your company’s worth. If you are a profitable company, you can ask a higher price than if you aren’t showing profit or growth.
Most companies sell for 5-10 times EBITDA (which measures profit margins), although there are exceptions. These can include cloud-based companies like Salesforce. That company would sell for more than that because they have recurring revenue and high client retention rates, which increases their overall value.
5. Be Ready To Move On
Finally, you need to prepare yourself for what you want to do after you sell your company. If you want to stay at the company, make sure your role and responsibility is clear. If you want to exit, make sure the exit strategy is clear and that it is communicated with the buyer.
But regardless of what you choose to do, you need to be ready to move on in a way. Selling a company can be surprisingly difficult, especially for someone who has an emotional connection to it and/or has kept it running for years.
But if you choose to stay with the company after you sell it, you no longer have the control you once did. You may have bosses you report to know. And whether you leave the company or stay, someone else will likely be calling the shots at your (former) company.
This may be hard to deal with. But remember that you achieved your goal, and learn to be okay with the shift in power dynamics at the company. So, what should you do after? My advice is to take some time off for some well-earned rest, then come up with a new idea.
Selling a company looks different for every entrepreneur, industry, business model and brand. The process that worked for one company may or may not work for yours.
However, by creating an organized work environment, tracking your revenue accurately, negotiating fairly, and preparing yourself for the next stage in your professional life, you’ll set up your sale for success and find the right buyer who recognizes your brand’s value.