How do you prepare a company for a successful sale? Don't rely on window-dressing to clinch the deal... it could be more about the future than your past

When Tony Wilmot and Elliot Kidd launched Frontline in 2000, they had no intention of selling the company. More than a decade later, they're still at the helm of the Nottingham-based recruitment firm, which employs 40 staff and has a turnover of £10m.

But it's a different story for their latest venture, an online recruiter called Staffbay. It was created in 2009 and started trading this spring, but it's always been the owners' intention to sell the business in 2014.

So does starting a company with the aim of selling—as opposed to running it for the long term—mean approaching business in a different way? No, says Wilmot. All companies must be built so they are saleable, he argues, whether you plan to keep or offload them.

"From a business practice point of view, there's no difference," says Wilmot. While Frontline is an office-based recruitment operation, Staffbay operates totally online. "But the two working parts are the same: the candidates and the employers. Whether the business succeeds is down to the users," he adds.

Adrian Kinnersley, who, along with Paul Marsden, created Twenty Recruitment in 2009 with a view to selling in five to seven years, agrees. "I wouldn't be working as hard as I do, putting in the hours for little reward if we were doing this as a lifestyle business," he says. Twenty Recruitment, with offices in London and New York, now has revenues of £12m and 350 per cent year-on-year compound growth. "There's a difference between starting a lifestyle business and one that will achieve a return on exit," Kinnersley adds. "For a start we wouldn't be growing so aggressively."

Dean Williams, an executive coach who works with business owners wishing to sell, shares this view. "If you start a business to provide a job and income you are driven by different motivators than if you start one to sell," he says. "It is easier to build a business to sell, as you can mould it for the market from day one."

But what about the practicalities? Peter Weiss, a corporate lawyer with Davenport Lyons, says you need to maximise the cash in a company for sale. "When starting a business for sale, you need to show high profits and turnover, and not take much out. If you start with a view to keeping it long term then you may structure it so you have a steady salary."

Yet there's more to making a business saleable than ensuring it is cash-rich. "It's all about creating something of value," adds Williams. "If you were looking to sell your house you wouldn't just leave it in a state of disrepair. If you wanted the best price you'd give it the attention. It's the same with a business: making it attractive to potential buyers."

But focusing on the purchaser, instead of those who buy the company's products and services, is a recipe for disaster, says serial entrepreneur Peter Wilkinson, who has started and sold many businesses, including internet service provider Planet Online—sold to Energis in 1998 after three years—and Sports Internet, which was offloaded to Sky in 2000.

Today Wilkinson is chief executive of InTechnology, a £40m turnover company. "You should never start a business to sell," he adds. "For a start, you never know if it's something someone will want to buy. You have to create one that is viable."

It comes down to presentation. "If you were starting a business to sell, you would end up doing quite a bit of window-dressing," says Wilkinson. "It would mean cutting costs and customer service, and boosting revenues through acquisition. You would be looking just to have a couple of years of rapid growth and profit to make it look attractive. But if you dig underneath you will find an unhappy customer base. Most times those things don't get found in due diligence because, if you have 700 customers, there isn't the time to get round to all of them to find out what they think."

But Kinnersley disagrees. He says: "If you are spending millions of pounds on a business, you won't just look at the performance over the past six months."

In fact, it's perhaps the future rather than the past that could clinch the deal by showing potential buyers that the business still has plenty of room to expand, says Professor Abby Ghobadian from Henley Business School, who specialises in mergers and acquisitions.

There could be others with a financial interest in the new business who are seeking a quick exit. Those who put in their own funds-such as Wilkinson, Kinnersley and Wilmot-do not share the same view as venture capital-funded firms where an exit plan is agreed up front.

"We considered launching with VC help," says Wilmot. "We considered TV advertising as it's one of the fastest ways to get a message over and the VC cash would have been used for that. But ultimately we wanted to retain 100 per cent of the shares, and our business model is built on needing just one per cent of those in the UK who swap jobs to become profitable."

There are other considerations, says executive coach Williams. "You need to look at what will be attractive to a potential buyer and that comes down to three things: brand and reputation; client list; and the infrastructure, and that's the bit many find frustrating. It involves doing the right things with staff—investing in them in terms of development to get the returns and effort. It comes down to the systems. Are they attractive to a potential buyer, is there structure behind the process? Not having the right infrastructure in place could cost you, in terms of selling, hundreds of thousands of pounds."

Time is also critical. If a business is sold too soon, investors, including the initial entrepreneur, may be left losing out on schemes such as Entrepreneurs' Relief or the Enterprise Investment Scheme, which provides tax relief to investors, says Weiss. Taking the right advice is crucial, he adds.

"If a business is involved in gathering data through Web sales, for example, it needs to make sure it is properly registered under the Data Protection Act. If your business is based on your customer database-and you've not properly registered-then the whole database could be unsaleable," says Weiss. "The idea that you can make a quick buck on a business, getting in and getting out very quickly, is misguided. Every business will have the same criteria of success whether they go in thinking about exiting early or for the long term. They are going to have to establish solid contacts, significant levels of revenue and operate correctly from the start."

Golden rules

1 Mould the business to the market
If you start a business to provide a job and income you are driven by different motivators. It's easier to build a business to sell, as you can mould it for the market from day one.

2 Keep cash in the company
When starting a business for sale you need to show high profits and turnover, and not take much out. If you start with a view to keeping it long term then you can structure it so you have a steady salary.

3 Attract a buyer
Potential buyers are interested in three things: brand and reputation; client list; and infrastructure. Keep your staff happy-invest in their development to get the returns and effort.

4 Timing is critical
If a business is sold too soon, investors, including the founding entrepreneur, may be left losing out on such schemes as Entrepreneurs' Relief or the Enterprise Investment Scheme.  

5 Take the right advice
Make sure that the business is robust. It should establish solid contacts, significant levels of revenue and operate correctly from the start.