Why do entrepreneurs start new businesses?
Well, for some, they simply love the thrill of starting a new business. For others, they have a great idea that they think will help people, and are eager to fulfill this unmet customer need. For some, they want to create a paying job for themselves and/or not have to answer to a boss. And for still others, they have grandiose plans to “change the world.”
While the individual goals for each entrepreneur may vary, most sophisticated entrepreneurs share one common goal when starting a business – to eventually exit the business for a large sum of money.
Savvy entrepreneurs know that they can make money day-to-day running a successful business. But, they know that the real money comes when they “exit”; that is, when they take the company public, or more likely, sell the business. That is when the million-dollar windfall comes that most entrepreneurs dream about.
Having successfully bought and sold businesses in the past, I have my own views on the topic of “exit strategy planning” or how to prepare a business to maximize the likelihood of 1) selling it and 2) the price at which it eventually sells. (Note that I tend to equate “exit” with “selling a business” since this is the most likely form of a successful exit.)
But, in order to provide more expertise on this subject, I recently interviewed John Davies.
Not only is John the co-author of “Selling Your Business For Dummies,” but he has significant experience buying and selling businesses as the CEO of Merrymeeting, Inc.
In fact, not only does Merrymeeting own Sunbelt, the world’s largest business brokerage firm, but Merrymeeting owns and/or has a majority interest in numerous national and international service franchise businesses.
In my interview, John conveyed his five insider tips for successful exit strategy planning.
The first is to make yourself replaceable. That is, if you as the business owner are too critical to the business’ success, no one will want to buy it. You need to make sure that you have trained others that can run the business successfully in your absence.
The second tip is to make sure that your business has “predictable future revenues.” The predictability of revenues has to do with how many new customers you get and the number of times your customers buy from you over time.
Clearly, a business that has repeat customers is more valuable than a business that has to constantly search for new customers. If your business is the latter, you need to figure out how to extend the lifetime value of your customers.
The third tip is to plan for your exit. You need to start planning for your exit well in advance of when you want that exit to be. Think through what potential buyers will want to see. Make sure your staff is well trained. Keep clean books. Get key employee contracts signed. Shore up relationships with customers.
Fourth, run your personal and business financial projections. If your current business is paying your personal bills, and you expect to retire after the sale, do personal financial planning beforehand. Understand what your personal financial needs are for the coming years, and make sure you figure out the required business sale price to ensure your financial security.
And finally, the fifth tip is to make sure the business stays liquid. Make sure that your business has access to capital. This will enable it to survive any short-term market conditions or disasters that may occur in the period leading up to your sale.
The Ultimate Path to Wealth
as an Entrepreneur
What’s the ultimate path to wealth as an entrepreneur?
Build your company and then sell it for millions to the highest bidder.
Don’t build your business the wrong way.