As a business owner, I often think my business is doing great and every aspect of it is running beautifully. It reminds me of an old adage my dad used to say, “Son, you never tell a woman that the baby is ugly or you might get slapped.” However, that’s a problem for business owners looking to succeed. Mismanagement in business will be clearly visible. Our “baby” is ugly as it can be and we don’t see it. Eventually, we find out our business isn’t as attractive to potential buyers as we think. So, here are four strategic questions to ask yourself when contemplating a potential exit plan. Even if you’re 10-15 years out, you need to know NOW if you are hurting your business’s value.
Mismanagement in business will be clearly visible. Our “baby” is ugly as it can be and we don’t see it.Click to tweet
Many times, people focus on driving income. Obviously, income is certainly a player in the value of the business but it is not the only player. The value of business goes well beyond income. If you focus on maximizing the value of your business you’ll see a greater return in the long run. Differentiating between the income and value can sometimes be a little bit difficult for owners to wrap their heads around.
When running a business, owners take as much as money out as possible for various reasons. Then, whenever they sell or pass the company on, someone else will continue the process. Here’s the key. Potential buyers want to know if they come in and pay the current owner X amount of dollars, will the business maintain its current cash flow. They need the pro forma to show that they can repay the loan they took out and still turn a profit on it as an entrepreneur.
RELATED RESOURCES: Haven’t yet built your pro forma? Get started here.
Business owners typically operate through business trips. They often plan vacations around conventions or things of that nature. They use their work vehicles interchangeably, tracking work miles versus personal. However, if I am used to living a certain lifestyle, and then sell my business, can I maintain the same lifestyle after I sell? What usually happens is owners don’t anticipate the decrease in funds available to them. In fact, a business owner just last week said, “I am just not happy trying to live off 10% (that is his number) of my earnings after cashing in my business. I lived off a great deal more than that in my
Are you the glue that holds it all together? This is a potential buyer’s number one question. They don’t want to come in and give a significant amount of money to take over, only to have everything fall apart because you are no longer behind the wheel. That leaves them holding a bag of nothing. Not to mention, they just paid top dollar to you and lost the capital they invested in your business.
If you answered “no” to any of these four questions you need to make changes to your day-to-day role. One way to start is head over to our Building a Sellable Business series’ post about Business Scalability. In there we will cover these topics and many others that affect your business’s value when you want to retire.