You’re charging ahead with your business. You’re making sales, putting more products to market, and onboarding new staff. The business is growing.
Have you considered how much your business could be worth on the open market? Right now you could be sitting on a goldmine that you’ve completely underestimated.
You could be making that asset a lot more valuable if you’re reinvesting your profits to scale it up. You could be registering trademarks and copyrights on the intangible assets of the company, adding that much more value.
And you should be adding that value to the business, because, according to startup expert and BizSold founder Logan Chierotti, it’s a seller’s market for businesses right now. Once you’ve hit a million per year in cash flow, you can start attracting the attention of private equity groups looking to acquire a long-term investment.
Due to the lowest interest rates in living memory, investors are looking to take more risk to reap bigger rewards and so are looking to the hot market of online, physical products businesses.
It's a buyers market right now, and you should consider whether now is the right time for you to cash out on your creation.
Those private equity groups could be paying you a 3-4.5 multiple for your business. That would give you options going forward with your life; you could stay on and help run the business or transition to something else entirely (like the fine art of beach lounging).
Private equity buyers of businesses are like house flippers. They want a return on their money outside playing the stock market. They make money when the business is resold and/or as profits scale up as they grow the company.
How do they go about buying your company?
They often start with a formal Letter of Intent to purchase your business, proposing how the sale may go about.
They’ll want to look through your books, to see how organized the company’s financials are. They’ll check to see if you’re holding any valuable intellectual property. Make sure you have everything in order before you engage them.
Depending on how the above process goes, you may find yourself selling your company to them at a high multiple.
Usually will get most of the payout from the sale upfront, with the rest as an earnout over time. This is to help motivate you to ensure that the business is likely to grow in value for the buyer.
If you dump a bad business on a buyer, then the earnout doesn’t get paid.
Be sure to find the right buyer for your business. Choosing the right buyer can make—or break—your ability to get a $10 million payday.
The popular industries with private equity are physical products that encourage recurring revenue models. These are products like skin care and health supplements where consumers purchase on a rolling subscription, helping scale the business that much more predictably.
Speaking of scaling—when you go through a sales process, you can’t put your business on pause. You have to keep things going just as before. That can be overwhelming, as the sales process can take a few months.
Brokerage firms like Logan’s Bizsold help by dealing with some of the transnational labor that comes about during a sale. Even if you’re not sure whether to sell, Bizsold can consult with you if you're thinking about it.
Go find out what your company is worth. You might be surprised at what you find out!
And if you think your business is on its way to a $10 million payday, check out The Backroom. We want to support you on that journey. We have access to other entrepreneurs who have been there as well as investors looking for great opportunities. You can join here.
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