What is Bootstrapping? - Hilton Smythe

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What is Bootstrapping?

If you have ever heard the term Bootstrapping, then you must be envisioning a person pulling himself from his own bootstraps. This is precisely where the term has been coined and is essentially used in the context of business as starting an enterprise with very little capital. The act of bootstrapping can have several meanings when applied in a financial context. Selling a business may be considered a bootstrapping technique to raise funds for another venture.

By using your own resources to finance a venture, there is not much stress involved with diluting the profit and dividing it amongst investors. The owner of the business has more freedom to hone and experiment with products and services before it is launched to the market.

Selling a business to look for a new opportunity or to realise business growth requires careful consideration. How do you know when it is time to sell your business? Here are three factors to consider:

  • Business value. Whenever you have the opportunity to liquidate your asset, give it serious consideration. There are always risks involved in running a business, and the risks increase the longer you hold on to the enterprise. Liquidating your business through selling is always an option to consider whenever an opportunity presents itself.
  • No more risks involved. The early stages of running a business is always the best time to consider taking risks. While the value of the business is still low, you can afford to make and repair mistakes. As the business grows, this is no longer the case. When the value of the business has risen, it is a smart financial decision to sell when the value is at its peak rather than make costly mistakes later on.
  • Make room for change. One primary motivation for selling a business is the hunger for change. Either the owner is looking to retire or have moved on to a different interest. When a business is up for sale, it doesn’t always mean it is in trouble. More often than not, the owner has outgrown it and is looking for something new and challenging.
  • Selling a café/coffee shop. Cafés and coffee shops are increasing in demand across the UK. In fact, Brits drink around 55 million cups of coffee daily. What does this mean for you? This means that a café will attract a considerable amount of interest from buyers investing in the food and beverage industry. The first thing that you need to do is to allow at least 6 months to prepare for the sale. The valuation of your business will also play a major part in attracting potential buyers. For example, is the location of the business profitable? Will the space require renovations and maintenance? You also need to prepare your financials to have a solid reference for the actual profit of the business.
  • Selling a pet shop/supplies store. Another sector that has enjoyed a steady growth in the last few years is the pet service industry. This is the best time to consider selling your business because you will attract a lot of attention from buyers who want to become a part of this booming trade. There are two types of potential buyers funding business acquisition either through cash on hand, or bank financing. A buyer who will be financed by a bank needs to gain access to your financials. You need to prepare this prior to entertaining an offer. You can also get a free valuation if you decide to sell your business through a broker.
  • Selling a pub. The value of your business relies heavily on its profit. This means that two years before deciding to sell your pub, you need to make sure that you are making enough profit to receive an attractive offer from a potential buyer. Like other businesses, you have to prepare your accounts for the past couple of years at least. If you have a complete list of your staff and how much they are paid, it would be useful in the valuation as well.

With all these factors considered, getting your business ready for a sale requires that you have picked the right timing, prepared all the financial reports, and most importantly, have found the right buyer.

With these in mind, how do you prepare your business for a potential sale?

Here are some sector specific examples to selling a business:

The valuation of a business, regardless of its type is usually done in three stages. First, the valuer will meet with the owner to discuss an overview about the company. For example, you will be asked how long the business has been in operation, the profitability of the business, etc. The next step is to conduct an ocular inspection of the facilities. Lastly, your accounts will be carefully checked. Oftentimes, the requirement is to go back at least two years. The valuer will look at how profitable the business has been, while also taking into consideration the potential for future profits, location of the business, and operation style.

With all these factors considered, it is beneficial for any business owner who is planning to liquidate a company to consider the services of a broker. A broker can get your business sold in less time than it would if you personally look for potential buyers. A broker will also have access to a network of potential buyers, thus possibly increasing the chances of getting a more handsome offer than you initially expected.

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    *Completions figure is comparable to K3 Capital PLC from 2017. Data based on our nearest competitor k3 Capital PLC, results in 2018 against comparable period.

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