Why I Created My Company to Be Sold from Day One and Why You Should Too

Why I Created My Company to Be Sold from Day One and Why You Should Too

From the moment I decided to embark on the entrepreneurial journey, I had a clear vision: build a company that is designed to be sold. This strategy goes beyond securing a profitable exit; it is focused on building a business that remains robust, scalable, and sustainable, regardless of unforeseen circumstances or eventual retirement. Regardless of where you are on your journey, it is never too early or late to start thinking about and planning for your exit.

Over the past eighteen years I have had the opportunity to work with a variety of business owners, executive teams, and consultants working with and for companies ranging from a start-up to mature and with minimum revenues to a billion plus. Collaborating with them over the years and hearing their stories I have seen what has worked and what pitfalls companies fall into not planning with the end in mind.

In this article I will discuss concepts to keep in mind and questions to ask yourself as you are either starting a new business or developing your long-term strategic plan. Planning on day one does not mean your business will be ready to be sold on day one, however it is a starting point. Aligning your strategic plan with the idea you will be selling at some point creates steps in your Company’s evolution from start up to a maturity. A few of the topics include plan with the end in mind, be ready and stay ready, can my business operate without me and what institutional knowledge leaves with me.

Plan with the End in Mind

Starting with the end goal of selling your company means every decision is made with a strategic purpose. You create a roadmap that aligns with your long-term vision, ensuring every step you take moves you closer to an eventual sale. This mindset encourages you to build a company that is not only profitable but also sustainable and appealing to potential buyers. I attend a quarterly round table with business owners and consultants designed around succession planning. The leader of the group either opens or closes our meetings with this quote “Death has a 100% success rate”. This quote is to remind us that eventually any business will transfer to someone else, and the preparedness of the company affects the success or failure of that transfer.

Be Ready and Stay Ready

Long-term goals and strategic plans should consider the impact not only on day-to-day operations but your readiness to sell or transition your company. You might not think it will happen but one day unexpectedly you get a call from someone in your industry asking you to sell them your business. After taking time to think about it, you decide it is time to sell and move to the next chapter of your life. Now what? This brings me to the first pitfall I have seen business owners fall into, not being ready to sell.

How can you get ready and stay ready? If your business requires an annual audit that is a start. Clean records give potential buyers confidence in your total business operations, not just your financials. If you do not engage an external auditor to routinely review your financial records, operating policies, and document retention policies to ensure they are being followed consider starting with a self-audit. The due diligence process of any sale can hit a major roadblock if your financials cannot be supported due to a lack of document retention or consistency between systems. This roadblock can be costly, by either stopping a potential sale, decreasing your valuation, or incurring added costs associated with correcting/resolving any issues.

Periodically dig into your workflows and operations to ensure they are effective, efficient and are giving you the financial results you are looking for. In assessing your readiness, ask yourself these questions that can have a direct impact on your business valuation. If you have inventory, when was the last time slow moving items were assessed for their current value? Are you showing they have value when recent technology has made them obsolete? What is the state of your equipment? Are assets near the end of their useful life and need major overhaul? Is there an efficiency gap between current equipment and current technology? Are software systems used giving the results you want? Are they communicating between systems effectively, are there redundancies that can be removed, and are they creating or reducing work for employees?

In addition to asking yourself these operations-related questions, you should be asking questions related to your role as a business owner:

Are You Creating a Business or a Job for Yourself?

I was once asked, “Are your focused on creating a Business or a Job for yourself?” As an Accountant, like most other consulting professions, this is an easy trap to fall into. This question got me thinking, what is the difference between creating a business for myself verse

a job. Creating a job for yourself you are focused on performing the daily operations of the business. If your company cannot operate without your constant input, you are an employee rather than a business owner. Building a business your focus is on developing and implementing strategic plans, automating processes, guiding a management team, and cultivating customer relationships. In other words, you are outside driving value to the business verse being a component driving the bottom line.

Have You Designed Your Business to Operate Without You? Could My Position Be Merged into a Preexisting Position in the Acquiring Company?

One of the critical aspects of building a company is ensuring it can function independently of its founder. This means creating systems and processes that allow the business to run smoothly even in your absence. A company that relies heavily on the owner's involvement could be seen as less attractive to buyers, as it poses a risk to continuity and stability. Another way to look at it, if I leave could my duties and responsibilities be absorbed into the acquiring company’s current leadership or would they have to create a position? This goes back to the question; did I create a job for myself and become an employee that needs to be replaced, or did I create a business?

Consider how your role can be integrated into an acquiring company. This includes identifying key functions and responsibilities that can be easily transferred. If your position can be merged seamlessly, it simplifies the transition for the acquirer and makes your company more attractive.

Am I the Driving Force Generating Annual Revenues?

Your company should be built to not rely solely on you for revenue generation. Diversifying revenue streams and building a strong sales team ensures that the business can continue to grow even if you step away. This brings me to the second pitfall I have seen business owners fall into, doing the work and not leading the business. If the work you put into the Company daily creates 90% of your revenue, what happens when you leave? Drive the strategic plan to generate revenue, do not be the component in the business creating the revenue. This could make your company less appealing to acquirers who are looking for a stable investment with potential for growth.

What Institutional Knowledge Leaves with Me?

Institutional knowledge is the collective wisdom and expertise that exists within a company. If this knowledge is concentrated in one person, it poses a significant risk to potential buyers.

To mitigate this, document processes, train employees, and ensure that critical information is accessible to others within the organization. This reduces dependency on any single individual and adds value to the business. Not only is this important for the business owner, but it is also especially important for key employees regardless of any potential sale. Unforeseen circumstances, resignations or retirement can happen with key employees at any time.

Have Systems/Software Been Created In-House vs. Purchased from a Developer?

Developing proprietary systems and software can be a significant value-add for your company. It demonstrates innovation and provides a unique selling point. However, this comes with the caveat of ensuring these systems are well-documented and transferable. On the other hand, purchasing from reputable developers can offer reliability and support, making the transition smoother for an acquiring company.

Internally developed software brings me to the third and final pitfall I have seen business owners fall into, the ability to transfer technology. Internally developed systems can be a great tool for your business and can be highly valuable, however they should come with a note of warning and considerations. Systems designed to fit the needs of owners could be missing key elements not always considered until the company enters into an audit or due diligence. A few I have seen working with business owners include compliance components, accurate integration with financial systems, integration with acquirer’s systems, correct GAAP reporting, proper system controls and access, and specialized knowledge needed.

To touch on the items mentioned above. If you do not have to have an annual audit, have your system evaluated by an accounting professional to aid in reviewing integration with your financial systems and correct GAAP reporting outcomes. A lack of understanding of your system from a potential buyer and how it relates to your financials can have a direct impact on their confidence in your business and financial results. Secondly, and one I have seen companies stumble on, train multiple employees and document how your system operates. Internally developed software tends to require specialized knowledge in its use and maintenance an acquiring company will not have. A well-documented system can help an acquirer reduce the risk of integrating your system into their business.

Conclusion Building a company with the intention of selling it from day one may seem counterintuitive to some, but it is a strategy that fosters strong business practices, scalability, and long-term success. Whether you are at the beginning stages or a seasoned business owner, incorporating strategic exit planning into your day-to-day operations can

protect and enhance your company's value. The concepts and questions discussed in this article are designed to help you align your long-term vision with practical steps to maintain readiness and resilience. Remember, the ultimate goal is to create a company that thrives beyond your involvement, providing lasting value for both you and its future owners. By planning with the end in mind, you can navigate the unpredictable future with confidence and clarity.

Are you ready to start building your company with the end in mind?

About HGM Advisors

HGM Advisors is a fully remote accounting firm focused on providing exceptional Outsourced Accounting and Fractional CFO Advisory Services. We work closely with small- to medium-sized companies looking to fully or partially outsource their accounting functions, from daily transactions to strategic planning with their executive team. Our goal is to develop strategic partnerships, leveraging technology, while delivering value to our clients.

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