Building transferable equity now will help with eventual sale

Thursday, June 24th, 2010


Building transferable equity is a task that entrepreneurs often overlook while they are immersed in the day-to-day fog of managing their business. Unfortunately, this oversight can squash their dreams of profitably selling their enterprise down the road.

while many entrepreneurs dream of selling their business some day, in reality just one in 100 do so successfully each year,” says John warrillow, author of Built To Sell: Turn Your Business Into One You Can Sell.

“One key reason is that their business is too reliant on the owner, and prospective buyers see that customer loyalty and future success depend on the founder’s continued role.”

“It’s natural for entrepreneurs to be their company’s best salesperson or creative force, but this can become a vicious cycle if customers insist on dealing with the owner, or they are the sole decision-maker,” adds Islay McGlynn, managing director and head of small business at Scotiabank.

You can break this cycle — and position your business for future sale — if you begin adapting your service offering early, notes Mr. warrillow, who, himself has successfully exited four companies.

“You need to narrow what you sell, to ensure that it is teachable to employees, valuable to customers — rather than a simple commodity — and repeatable, so that it promises a reliable revenue stream,” he says, adding that it is better to do this in the start-up phase rather than trying to change course years later.

To begin the process, Mr. warrillow recommends forming an advisory board composed of seasoned entrepreneurs who have done what you want to achieve. Then, you can draw upon the support of your banker, accountant and lawyer to advise you on the details.

Concludes Ms. McGlynn: “with a circle of experienced advisors, you can both unlock the potential in your company today, and also ensure that it is in shape for the day when you’re ready to exit the business and direct the proceeds to other goals, like a comfortable retirement.”

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