It’s easy to start a business with the hope of selling it one day. It’s much more difficult to start one that’s truly sellable. There are numerous pitfalls that founders can fall into. Before you know it, you have a business that is doing well but – for a variety of reasons we will cover in this article – is not something an investor wants to invest in.
This is something that can be remedied at the idea stage of your company. However, if you’re already well into your business journey, the good news is that proactive steps can significantly enhance future saleability. Whether you’re working on a side hustle or scaling your startup, knowing if your business falls into that all-important ‘sellable’ category really does affect everything you do – from how you grow, to how you hire, to how you exit.
The reality is that many small businesses never sell. However, this isn’t necessarily because there is no market for them. It’s down to how they were built. Their structure makes it very difficult for someone else to take over.
So, let’s look at what makes a company sellable, the types of companies that can and can’t be sold, and how to move your company into the sellable category.
What makes a company sellable?
When investors or potential buyers evaluate a business for acquisition, they look for key traits that not only indicate the potential value but also reveal the risk they would be taking.
So, first and foremost, your company must demonstrate profitability. If your business consistently generates profit, it will be far more attractive than one that’s merely growing revenue. Of course, we have seen companies that are far from making a profit get snapped up, but as a general rule, being profitable is a must.
Buyers will also examine your market position. They want to understand whether your company is differentiated and active in a specific niche where it demonstrates leadership. This indicates to the potential buyer that there is a reliable demand for your product or service.
They will also want to assess the scalability of your company, the quality of your employees (particularly a team that can run the business without the founder), and how streamlined and accurate your systems and documentation are. A well-organised business is easier to take over and easier to run.
What types of companies can be sold?
Some types of businesses are more attractive to buyers. While each headline-grabbing sale may infer that these companies are all unique, there are a number of characteristics we can identify which are common among sellable businesses:
- Being product-led: Companies that sell products (physical or digital) are often more sellable than service-based ventures. If these products are unique in some way and are also patented, it can further increase the company’s attractiveness. Buyers understand that products can be scaled and distributed without a proportional increase in labour, further improving profitability.
- Recurring revenue: Models that require subscriptions or licensing make revenue more predictable. Buyers love consistent cash flow they can count on from day one, and products that come with any retainer or additional maintenance contract are attractive.
- Online presence: If the brand is widely recognised and boasts loyal customers and good reviews, it will help attract buyer interest. SEO authority and a strong thread of thought leadership help brands stand out to investors and customers.
- Operations are transferable: If the business doesn’t rely on the founder to function and can potentially be handed over with minimal disruption, it has a significantly greater chance of being sold.
- Paperwork in order: Beyond just paperwork, companies that can show clear legal structures and up-to-date tax filings will be more attractive. Audited accounts and evidence of intellectual property (IP) ownership also indicate to buyers that the company is ready for acquisition.
Companies that can’t be sold – but could be in the future
We have now covered what makes a company an exciting prospect. But what about the flip side? What follows is a checklist to measure against your business. If it ticks too many boxes on the ‘not sellable’ list, it doesn’t mean it’s doomed. Instead, it will need some restructuring to become sellable, which we will discuss next.
Some common issues include:
- Unpredictable income: If your business is seasonal or experiences irregular cash flow, this is considered a risk. If you’re overly reliant on one or two large clients, that is again off-putting to buyers.
- Founder dependency: If everyone (whether customers, suppliers, or employees) relies on the founder’s involvement, then clearly, the business is not transferable. Buyers aren’t in the market for a job, they’re looking for an asset.
- Poor bookkeeping: If your books are inconsistent, it’s a major red flag. Without clear financials, buyers cannot assess your current position and level of risk or project future returns.
- Hard to scale: Buyers may look elsewhere if revenue is tied to hours worked or the business can’t grow without massive investment.
- Poor underlying structure: It won’t be easy to sell without the correct contracts, licenses, registrations and IP ownership.
How to move your company into the sellable category
The good news is that most businesses can be made sellable with the right strategy and planning.
To prepare your business for sale, start by systemising everything. Document every aspect of your processes, from sales and fulfilment to HR, so that operations can run smoothly without your constant input. Create a detailed manual or knowledge base that everyone can access, empowering others to step in and manage the business effectively in your absence.
Another part of separating yourself from the day-to-day includes delegating tasks, automating routine operations, and building a strong leadership team. As strange as it may sound, the goal is to make yourself redundant.
One of the most important steps you can take is hiring an accountant, installing professional accounting software, and tracking every transaction. This will provide the potential investor with a comprehensive view of your operations and financials.
If your revenue model relies heavily on one-time sales, consider ways to shift towards more recurring income. Consider retaining services, subscription services, and long-term contracts, which can provide stability and make the business more attractive to investors or buyers.
Finally, do not forget marketing. Building a brand with a recognisable identity and a consistent marketing output makes your company more than just its product or service.
Build with the end in mind
When starting, it’s easy to focus solely on growth and survival. However, knowing whether your business is sellable can help you make smarter decisions from the outset. From how you price and package your offers to who you hire and how you scale, every move can add to or detract from your chance of a sale.
Whether you plan to sell in five years or want the option, building a company that others want to buy is one of the smartest ways to future-proof your hard work.
