In the vast landscape of American entrepreneurship, small businesses serve as the backbone of the economy, with over 33 million small businesses operating in the United States. According to the Small Business Administration (SBA), a small business is defined as any enterprise with 500 or fewer employees. Despite this robust number, the reality for many small business owners is far from the glamour often associated with entrepreneurship. Shockingly, only 7% of these businesses generate over a million dollars in revenue, and an alarming 40% are not even profitable. These statistics paint a clear picture: building a sellable, thriving business that is primed for mergers and acquisitions (M&A) is no easy feat. Yet, with the right strategies, it is possible to transcend these challenges and create a business that not only survives but thrives.
The Plight of Small Business Owners
Many small business owners face a myriad of challenges that prevent them from reaching their full potential. From financial constraints and fierce competition to operational inefficiencies and market saturation, the roadblocks are numerous. The stark reality is that nearly half of all small businesses struggle to break even, and many are caught in a cycle of just getting by, without the resources or strategic vision to scale.
For those aiming to build a business that attracts buyers or investors, profitability and growth are paramount. Yet, achieving and maintaining profitability can be elusive. High operational costs, inadequate cash flow management, and limited access to capital are just a few of the factors that can hinder profitability. Moreover, many small business owners are so deeply entrenched in the day-to-day operations that they lose sight of the bigger picture—building a business that can operate independently of their involvement.
Building a Sellable Business: Key Strategies
To build a sellable business primed for M&A, small business owners must focus on creating value beyond the immediate revenue stream. Here are some key strategies to consider:
1. Establish Strong Financial Foundations
Achieve Profitability: The first step toward building a sellable business is to achieve consistent profitability. This may require a thorough review of expenses, pricing strategies, and operational efficiencies. Implementing sound financial management practices and regularly reviewing financial performance can help ensure that the business remains on a path of growth.
Clean Up the Books: Potential buyers will scrutinize your financial records. It’s crucial to maintain accurate and transparent financial statements, free from discrepancies or questionable entries. Consider hiring an experienced accountant or financial advisor to help you with this process.
2. Build a Scalable Business Model
Focus on Recurring Revenue: Recurring revenue streams, such as subscription services or long-term contracts, are highly attractive to buyers. They provide stability and predictability, which are key factors in determining a business’s value.
Automate and Systematize: A business that relies heavily on the owner’s direct involvement is less attractive to buyers. Implement systems and processes that allow the business to run smoothly without your constant oversight. This includes automating routine tasks and delegating responsibilities to capable team members.
3. Develop a Strong Brand and Customer Base
Create Brand Loyalty: A strong, recognizable brand with a loyal customer base can significantly increase the value of your business. Invest in marketing and customer service to build and maintain strong relationships with your customers.
Diversify Your Customer Base: Relying too heavily on a small number of customers can be risky. Diversifying your customer base reduces dependency and makes your business more resilient to market fluctuations.
4. Prepare for Due Diligence
Legal and Regulatory Compliance: Ensure that your business complies with all relevant laws and regulations. This includes having up-to-date contracts, licenses, and permits. Any legal issues can be a red flag for potential buyers.
Intellectual Property Protection: Protect your intellectual property, such as trademarks, patents, and copyrights. These assets can add significant value to your business.
5. Seek Professional Advice
Consult with M&A Advisors: Working with experienced M&A advisors can help you navigate the complexities of selling a business. They can provide valuable insights into market trends, buyer expectations, and valuation techniques.
Build a Strong Advisory Team: In addition to M&A advisors, consider assembling a team of experts, including accountants, lawyers, and financial planners, to guide you through the process.
The Payoff: A Sellable Business with a Strong Future
By focusing on these key strategies, small business owners can build a sellable business that not only survives the challenges of today but is also primed for growth and acquisition. The ultimate payoff is a business that commands a higher valuation and attracts the interest of buyers or investors. It is a business that is no longer just a job for the owner but a valuable asset that can provide financial security and freedom.
In conclusion, while the plight of small business owners is real, so too are the opportunities. With the right approach, it is possible to overcome the odds, build a thriving business, and achieve a successful exit when the time is right. By focusing on profitability, scalability, and brand strength, small business owners can create a legacy that endures long after they have moved on to new ventures.
Author:John S. Morlu II, CPA is the CEO and Chief Strategist of JS Morlu, leads a globally recognized public accounting and management consultancy firm. Under his visionary leadership, JS Morlu has become a pioneer in developing cutting-edge technologies across B2B, B2C, P2P, and B2G verticals. The firm’s groundbreaking innovations include AI-powered reconciliation software (ReckSoft.com) and advanced cloud accounting solutions (FinovatePro.com), setting new industry standards for efficiency, accuracy, and technological excellence.
JS Morlu LLC is a top-tier accounting firm based in Woodbridge, Virginia, with a team of highly experienced and qualified CPAs and business advisors. We are dedicated to providing comprehensive accounting, tax, and business advisory services to clients throughout the Washington, D.C. Metro Area and the surrounding regions. With over a decade of experience, we have cultivated a deep understanding of our clients’ needs and aspirations. We recognize that our clients seek more than just value-added accounting services; they seek a trusted partner who can guide them towards achieving their business goals and personal financial well-being. Talk to us || What our clients says about us
