Finance Expert Recommends 2 Key Investments to Make Before Selling Your Business
Building a business from the ground up requires substantial hard work, and seeing it succeed offers a tremendous sense of pride in what you’ve accomplished. Is it any surprise then that a whopping 316,310 UK businesses ceased trading in 2020 alone, according to the Office for National Statistics (ONS)?
Often, its crucial for business owners to realise the time has come to move on to greener pastures – before it’s too late.
The Business Statistics Briefing from the House of Commons Library revealed that 810,316 new businesses were launched in the financial year ending 2021.
Many of these could potentially sell in the coming years.
So how should those owners prepare their businesses for a future sell-off?
The founder and CEO of Hilton Smythe – a UK firm that facilitates business sales – Gareth Smythe, has the following to say:
“It is essential to plan your exit early, so your business is in the best possible position before selling.
Business owners should consider enhancing company profitability because this indicates the value of a business. This can be achieved through acquisitional growth (strategic mergers and acquiring competitors) or organic growth. The latter might be realised by investing in new talent, reducing unnecessary overheads, switching to cheaper suppliers, or moving to more self-sufficient automated processes.
You must also identify ways the business could be scaled up (i.e., expanding into new territories or acquiring new clients) to demonstrate excellent growth potential to prospective buyers. Owners might also want to ensure a management layer that can operate the day-to-day business independently of the shareholders. The less input the selling shareholders have in the day-to-day business operations, the better the value building.
Most importantly, it would be best to assemble a solid team of legal, accountancy and business advisers to ensure that all transactions go as smoothly as possible; at a minimum, you will need a suitable corporate lawyer and a well-trusted business broker.
The goal? To create a self-sufficient future-proofed company with low expenditure, high returns, and huge growth potential that will be highly attractive to prospective purchasers.”
In this article, we’ll look at some investments you can make as a business owner so that when the time comes to re-evaluate and sell a business, you can get the most out of the sale.
1. Property – purchase, maintenance, and more
One of the most profitable investments is property. It contributes to a considerable portion of the UK economy, with a turnover of £68.6 billion annually. And property values increase as time passes, making it a worthwhile investment for businesses.
This extends to any buildings that your company operates from. If you have a small to medium-sized business with an office that you own, it is an asset that contributes to the overall value. If you have the means, dedicating a portion of your budget to investing in property, either to be used by the business or even as leasing or rental space, could add value to your business when the time comes to sell.
2. Stocks, bonds, and mutual funds
These investments aren’t physical in the same way properties are, but over time are a great way to add value to your business. Having a portfolio that you can track and refer to when presenting your business for sale can encourage potential buyers to commit to making an offer.
Investing in stocks means your business partially owns shares in another company. The more you have, the more control of that business, including processes and revenue. The value of the shares relies on how the company you invest in is doing, and you can sell your shares on to make what’s known as capital gains and make a profit if their value increases.
Think of bonds as stocks with a significant difference – long-term investments at a fixed rate.
The process begins with one business lending another money with interest to be paid back on the bond expiration date, accumulated over its lifespan.
For low-risk options, mutual funds comprise a worthy consideration. Though mutual funds come with an annual fee and a minimum investment cost when they first begin, they offer a combination of stocks and bonds, which means you can earn profits from both.
Committing to these investments strategically won’t just help enhance your company’s valuation but add to its lucrativeness for potential investors.
Additionally, you may consider investing in sustainable waste management solutions to exhibit a progressive and positive outlook for environment-conscious investors.
