Build it like someone will buy it

On Wednesday 4 November I'm on a panel at the Festival of Entrepreneurs at the NEC Birmingham: Building a business someone will want to buy. It's one of four M&A panels Gary Lennon of bizbritain is hosting that afternoon.

The usual advice is to start preparing for a sale 18 to 24 months out. I'd go further. The end should be in view from the day you start building.

At Comma Group we wrote an exit plan at the very beginning, with a five-to-seven-year horizon, and reviewed it every six months. We sold to Amplifi almost exactly five years in. Looking back, the preparation didn't happen all at once. It came in stages.

Stage one: the business and its operating model

First, you build something that works without heroics. A clear model, proper contracts and the legal basics done right.

Our rule was to outsource everything we didn't understand. Every contract, NDA and statement of work went past our lawyers. Our articles, shareholder agreement and EMI scheme (the tax-efficient way to give employees share options) were set up properly early on.

It's slow, unglamorous work, and it's exactly what due diligence tests.

Stage two: the people

A buyer is buying a team as much as a business. For me, the middle years were about the people: making sure we had a strong management team, incentivised in a way that matched where we were taking the business.

A business that depends on its founder is worth less, and harder to sell. A business with leaders who have a stake in the outcome is a different proposition.

Stage three: the transaction

As the time horizon narrows, the work changes again. Now it's about having everything ready that a deal will need, so the process runs smoothly instead of stalling.

Heads of terms were agreed in December and our data room opened mid-month. The buyer's risk report was done by the end of January, and it found two issues. We completed in March. It was quick at the end because we'd put the thinking in years earlier.

The thread through all three: the numbers

One thing ran through every stage: a relentless focus on our key performance indicators.

As a consultancy and a data business, we set our KPIs early, implemented them well and made them visible to the whole team almost from the start. By the time a buyer looked, the numbers weren't a story we were telling. They were how we had run the business for years.

What to start this quarter

1. Write the plan down. A horizon, a rough shape of the exit you want, and a date to review it. A strategic journey plan is the most important thing missing from most boardrooms I've sat in.
2. Look hard at your team. Who could run the business if you stepped back for three months, and do they have a reason to stay through a sale?
3. Pick your numbers. Choose the handful of KPIs a buyer will judge you on, and make them visible to everyone now.

Join the panel

Building a business someone will want to buy, Wednesday 4 November, 1.45pm, Funding & Investment stage, Festival of Entrepreneurs, NEC Birmingham. I'll be alongside Joe Brouder, Dave Parry and Laura Tutt, with Gary Lennon moderating. Visitor passes are free: festivalofentrepreneurs.co.uk.

Can't make it? See where your business stands with Exit Readiness in The Founders Exit®. Start free at app.thefoundersexit.com.