Updated: Jul 10, 2019
Small businesses usually operate with one goal in mind, which is to fund the owner’s lifestyle, while companies with high valuations are run with financial care. You may be years from wanting to sell your business, but early formalization of your operations will help you expect the future of your business if not shape it, so, when it’s time to sell, you’ll get more for what you’ve built because acquirers pay the most for companies when they are less risky. There’s nothing that gives a buyer more confidence than clean books and proper records.
A great example is found with Jay who ran his small business like a public company, which is our recommendation only if you want to sell your business down-the-road. Jay studied Accounting at the University of Texas and joined one of the big four accounting firms after college. His wife owned a small retail store selling blinds and window treatments. The store was successful, but by 1994, Jay had noticed a little Seattle-based website that was trying to sell books online. This company with the unusual name “Amazon” started to succeed in selling books online and Jay wondered if he could get consumers to buy blinds online and not too long blinds.com was born.
Unlike many of the first-generation online companies that were run with little financial controls, Jay grew his company like an accountant. He was determined to run his business with the same precision as a publicly traded company. He built an experienced management team and took the uncommon step of assembling an outside board of directors even though blinds.com was private and Jay owned 100% of the company.The board met every quarter and each of Jay's senior managers were asked to make presentations to the board. Jay even hired a big four firm to complete audits of his financials each year even though all he needed was a simple tax return.
Come 2014, Jay's business had grown to 175 employees and made more than $100 million in sales, his website was the largest online retailer of blinds in America. Even though Home Depot had close to $90 billion in sales at the time, Jay's website was outperforming them in its tiny forte, which, coupled with their demanding bookkeeping, made his website irresistible to Home Depot. On January 23, 2014, Home Depot announced its acquisition of Jay's business.
Managing your business like it’s a big company will make it more predictable as you grow and ultimately more lucrative especially when it's time to sell.