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Selling a Start-up

How to maximise the price when selling a business you started from scratch

Selling a start-up business is much more complex than advertising it for sale when you’re ready to get out. Rather, to maximise the selling price of your business, you must begin the sales process much earlier.

Getting the best price for your business essentially comes down to deciding which phases of the business cycle you will sell and knowing your buyers before you start.

1. The planning phase
Sure everyone knows they need to have a strategic plan when starting a business, but do they think about who the likely buyers are before they start and have a timeline towards an exit strategy? It’s vital to know exactly what you’ll be selling—and that will depend on the idea itself, the potential market for the business and the cost to monetise the business through the phases of development to profitability.

Selling before the business makes money

It’s important to note that selling doesn’t mean letting go, it can include raising capital and/or IPO. Let’s say for example, if you have a great idea, with an unlimited customer base, you have built a working model and secured patents it may be best to sell down your share and raise capital before you bring in any revenue. In this case, the value of your business—and what buyers will pay for it—is all about the idea.

This is common practice for start-ups in Silicon Valley. Many companies raise capital and even IPO while not profitable. Investors are not always attracted to the profits these companies are currently generating. Rather, they are much more interested in the market cap or potential revenues and the potential for seizing and controlling that a particular market.

In this way, selling down on a start-up business before you monetise it can actually be the most profitable method and allows you to skip the long and uncertain period between concept development and actually getting the business to a profitable point.

 2. The growth phase
On the other hand, if your business is already generating revenue and has captured a customer base, buyers will pay multiples of that revenue, be that for an outright sale or once again to raise capital.

Whichever it is, you want to show a positive trajectory. Investors and buyers both want to see a positive story and an investor will want to see a solid reason for the capital required, be that a new market to capture, investment into infrastructure or the like. But be warned, they aren’t going to let you take a lot of the table, as they will want to make sure you are hungry enough to see the project through. After all, you’re the driving force of the operation.  

3. Market Realisation

It’s a hard slog to see a business through towards market dominance. Quite often, the person who started the business may not be the right person to see it through to fruition. Interestingly its often the limitations of the owner that see a business plateau and it takes a strong person to recognise their limitations. Let’s say you have taken the business towards realisation of its market capacity. Well, now you have something truly valuable and a market dominant business will attract all sorts of buyers and a solid value.

Whichever path you choose, you’ll likely achieve the best result if you’ve decided on your exit strategy from day one.

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Mark Jason
LINK Australia, Managing Director