Seven Tips For How To Scale Your Business For Sale
April 11, 2022 | John Hotson
Strategically and systematically growing your organization can help you attract the right type of buyer for your business when it’s time to sell. In today’s competitive market, increasing revenues, market share or scaling operations will help make your business more attractive to potential acquirers.
In this issue, guest contributor John Hotson offers key insights on how to scale your business for sale. John is a founding partner of the Business Transition Alliance and works hands-on with business owners to help them develop and implement effective strategies that increase the value and profitability of their business as they prepare to exit.
Article highlights include
- Defining scalability
- How to make your business scalable
- The seven questions to ask to evaluate your scalability mindset
John’s practical advice will be help to any entrepreneur looking to scale in preparation for a future transition.
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Creating a Scalability Mindset
Partner: Business Transitions Alliance
The thinking that got us to where we are today is not the thinking that will get us to where we want to be.”
You’ve done well. You’ve taken your business from start-up to growth and profitability over the years and now it’s time to get it ready to sell.
You’ve heard a lot about how important scalability is to a potential buyer for your business. But what does that mean, and what should you be doing about scaling your business at this critical point in its life cycle?
Do you need to scale up the business completely before you try to sell it, which could take many years? Or is making a serious commitment to scalability and putting the right mechanisms in place enough?
What is scalability?
One definition is: “Scalability, whether it be in a financial context or within a context of business strategy, describes a company's ability to grow without being hampered by its structure or available resources when faced with increased business volume.”
The concept of scalability is actually quite simple.
Whether your fixed costs are high or low - if you can add significantly more customers without increasing your costs proportionally, the business is "scalable" and becomes more and more profitable as it grows.
It’s this simple hypothesis that makes prospective business buyers so interested in the subject.
How do I make my business scalable?
As with most things you’ve dealt with in building your business, tackling the issue of scalability starts with accepting the fact that you will most likely have to make some changes. And as Einstein said, the biggest change you will need to make is how you think about your business.
I call it creating a scalability mindset.
Ask yourself these seven questions to see where your business is at in this regard.
A scalability minDSET
- Is your growth history sustainable to the extent that it will support your projections for continued growth?
• Think: Customer loyalty = recurring revenue
- Is your future growth overly dependent on you?
• Think: Can a buyer take you out and still have a growing business?
- Where will future growth come from?
• Think: Is the next growth phase simply a multiple of what you’re currently doing, or will it require different skills and collaborations?
- Is your senior management team capable of achieving your projected growth?
• Think: Do your people have the right skillsets or do you need to diversify your knowledge base?
- How will you attract the right team that can help you deliver exponential growth?
• Think: Do you articulate your culture and value proposition in terms of where you’re heading or where you’ve come from?
- Are your processes documented?
• Think: Will significant growth flow through the business smoothly or plug up your operations?
- Is significant growth a plan or just an idea?
• Think: Does your opportunity to scale have a workable plan with dates, schedules, budgets and accountabilities?
If you feel good about your answers to most of these questions, congratulations — you have a strong scalability mindset and are in good shape to capitalize on the value of your business when you sell. A potentially serious buyer will view your business from the perspective of where they can take it from here.
However, the fact of the matter may be that while you have done a great job of building a profitable operation that supports you and your staff today, there are questions that need to be dealt with regarding how it gets taken to the next level.
With the large number of businesses becoming available, due to the aging demographic of owners, buyers have choices. To make sure that you succeed in getting what you need when selling your business, you may want to ask yourself if now is the time to adopt a scalability mindset and work through what it will take to create one.
John Hotson will be speaking at BTF Toronto on the topic “Scaling Your Business in Preparation for Transition”. View his bio and learn more about the conference here.
If you would like a complimentary assessment of the scalability of your business please contact John at firstname.lastname@example.org