Well here we are – the last excerpt from 20 business stories.
One thing I have learned is that you should START with the exit strategy. Because it determines how you set the thing up in the first place. 2 of the people that small business owners read a lot are Michael Gerber of the E-Myth and Robert Kiyosaki aka Rich Dad. However in all the wishful thinking and dreaming the core messages get lost.
Gerber’s is that you should be building a sausage machine to deliver whatever it is you want to produce. Work on the business not in it means that you need to build systems. This is not to everyone’s taste but as I’ve said before – if you haven’t got someone on board at senior level who likes doing this – you’re going nowhere. Kiyosaki’s main insight is that you grow by getting enough capital gains under your belt to buy an income stream.
Businesses are income streams – so if you want to be successful you need to think about what you’re doing in those terms. Just to remind us here is a diagram we looked at earlier. Businesses produce income which after you’ve taken off the expenses give you profits you can spend or invest.
So if you want to sell your business on or get additional investors you will need to get it into a condition where it is a self running income stream. We talked about how to track the growth of value in the business earlier on. However where you go with it depends on what you want do with it.
Basically do you want a capital gain or do you want a pension?
When we set this business current business up, our view was that we wanted to set up a system that we could carry on running indefinitely as we get older and feebler. We called it pro-tirement. We arranged our affairs so that we had some money in the stock market, some property, a business to sell and a business to hang on to for the pension.
In our 6th year it looks slightly different. The expansion of http://www.plants4presents.co.uk has meant that not only have we acquired a 2 acre glass nursery (currently growing organic veg) but our daughter and my sister are now shareholders and members of the board. Getting the bank loan to buy the place was as dependent on us having a strong team with continuity as it was with the figures in the plan. So indenturing the kids turns out to be an additional exit strategy to add to the others.
Along the way we bought a business that sells biological controls (ladybird larvae to eat aphids and nematodes to eat slugs) mail order. We were offered it by one of our suppliers and after a bit of haggling we acquired it for 3 times the net annual profit – a fairly widespread rule of thumb for buying or selling businesses.
So if you want to sell your business for cash – you need to demonstrate it’s sustainably profitable. Chances you will have to earn out – continue working for some time – 6 months to 2 years is usual – to ensure you haven’t left any nasty surprises in the woodwork.
Just remember businesses have a finite life-span – taking the money when it’s offered may give you the chance to move on. I had some-one interested in Ai Systems once – but I knew better and ignored it. A real entrepreneur will always be looking for opportunities to cash out.
Finally if you are seriously going for growth you can take the business public. This will however eat a lot of your life and probably involve 2 or 3 rounds of venture finance. It can’t be done organically. However once you get into the swing of it it’s possible to make serious money.
There is no right or wrong. It depends on who you are, your attitude to money, security and status and what you value in life.
It also depends on where you are in your life. As a couple around 60 with our kids through University our attitudes to what we want to do are different from someone of 40 with kids they need to put through private education. We can afford to be more experimental in our approach.
The joy of business is you can use it as a vehicle to live your life on your own terms. Sometimes of course you may have to work harder than you planned. And it may not work – the customers might not want what you have to offer.
But as long as you stay afloat you can always start again next week and have another crack at getting it right – or at least fine tune the model.