In order to scale a business, it must run like a business. Get your
financial house in order and keep it squeaky clean. Be unimpeachably
honest about money with clients, vendors, employees, the IRS, and
most importantly yourself.
If you think it’s terrifying to have your mother rummage through
your closets and junk drawer, try having attorneys and accountants
who aren’t on your side digging through your bookkeeping. If your
books aren’t clean, you can end up losing a valuable business sales
opportunity or leaving a lot of money on the table.
Don’t mix business and personal finances. Ever. If you need
to put money from your personal savings into your business, make
sure that it is accounted for properly as a loan or capital contribution.
If you take money out of your business for personal reasons, account
for it properly as compensation, a draw, or distribution in accordance
with your entity classification.
Watch expenses, not just income. It’s so much fun to look at
the revenue side, but buyers only care about profitability. Maximize
your company’s growth by spending what you need to, and maximize
your profits by not spending what you don’t need to.
Pay yourself a fair-market-value salary. If you don’t do it
now, it will be adjusted for later in the negotiation phase of a business
sale. Take the salary now so that it’s accounted for in your expenses.
If times are lean and you can’t afford your salary, loan it back to the
company for capital infusion—but always account for it.
Building a scalable business takes a lot of capital. Risk tolerance
will likely come into play. Be willing to invest in yourself. In fact,
money for your business may very well come from your savings.
Consider whether you are likely to gain more through traditional
investments, such as in the stock market or through investing in
your business. This is called calculating net present value (NPV).
If you don’t know how to calculate whether or not you can expect
to be more profitable if you invest money into business growth versus investing in traditional financial planning, then you need to talk
with a certified financial planner (CFP). In the meantime, for a good
explanation of NPV, check out a useful article in Harvard Business
Review by visiting hbr.org and searching “net present value refresher.”
3TAKE CARE OF YOUR CAMP
Unless you plan on selling to a fertilizer company, nobody buys
crap. Build quality.
If you crank out derivative work just to have “something,”
then you will quickly gain a reputation for nothing of note.
That means investing a lot of time or money—and very possibly both—to create work of value. A salable business provides
quality products and/or services that are scalable and unique.
Remember, a high-quality copy is still just a copy.
The easiest way to create high-value work is through deep
involvement in a niche industry. Become intimately familiar
with a specific problem within the niche, design an innovative
solution, then test and iterate until you become recognized as
an expert with a highly prized solution.
At the time of this writing, I am in negotiations for selling a
second company based on such an innovation. The company I’m
selling has no clients or revenue, but I have a deeply developed
proof of concept, trademarks, copyrights, and patents-pending
in the U.S. and Canada. The innovation provides a unique and
high-quality solution that can be sold based purely on potential.
If you create genuinely unique products or processes, you
need to guard your intellectual property (IP) through legal
protections. See an attorney who specializes in the type of IP
you intend to sell. If it is of potentially high enough value, you’ll
want to receive a signed nondisclosure agreement (NDA) before
showing your work to anyone who might attempt to copy it.