Many of my clients and colleagues have heard me liken running a business to being in a street fight every day you go to work. I’m not implying violence of any sort, but more the need for grit, awareness, and determination. With that comes the additional need for street smarts, particularly in the area of finance.
If you’re the business owner who doesn’t love numbers and sometimes even hides from them, then this is the article for you. I’m going to give you a few quick and powerful tips to instantly increase your financial literacy and enhance your financial wherewithal as they relate to selling your business. Walk with me.
Know What’s Going On
It’s okay for finance to be your Achilles heel—just don’t neglect it to the point where it ruptures and cripples your entire business. Many owners will tell me, “I don’t have time to go through the reports,” and/or, “My accountant takes care of the finances”—to which I say, you are never too busy to know whether you’re making or losing money.
You don’t have to dissect the reports; just read them! Even when things are going great and you know you’re rolling in revenue, you need to have some awareness in case the market changes. During the financial crisis a decade ago, I knew owners who went from thriving in 2007 to plummeting by 2008 without even realizing it until they were in the red. You can’t control the market, but you can and should stay in tune with it.
Measure Exit Readiness by Cash
When you’re selling your business, the books are wide open. My team and I are here to work the complex calculations, projections, comparisons, and so on. What we need you to focus on is: How much money are you taking home?
Forget about profits and losses. Forget about revenue. It’s all about how much you take home each year, because that’s what a buyer will expect to step into. All the buyer really wants to know is how long it will take to make back their money and when they will begin seeing a return on their investment. The exception here is the tech industry, where you might see people investing in firms that aren’t making money. It’s a little baffling, and inapplicable to the real world of selling a traditional business that provides products or services.
Exit While You’re Ahead
Any seasoned entrepreneur knows that growth and profitability aren’t guaranteed individually, much less together. With this in mind, if you have any intention of selling, you need to do it when the business is making money (and you’re making cash, to reiterate my previous point). If the market is ready and the business is ready, you can’t let your personal readiness lag. I have seen so many owners wait too long and lose their chance to sell because by the time they’re ready, the market and/or business readiness have passed them by.
If parents waited until their children were ready before sending them off to college, some kids would leave too soon and others would leave far too late. There’s a threshold for going to college, just like there’s a threshold for selling a business. When your company hits that sweet spot, don’t squander the opportunity. Plan your next endeavor, sell your business, and relish the win.
Don’t Mess it Up
Let’s say you truly love running your business and want to continue doing so, even though all signs point to selling. That’s understandable and admirable, so I’ll leave you with this: Just don’t run it into the ground. When companies grow, they use more cash for inventory, equipment, marketing, staffing, etc. Keep that in mind and avoid growing farther or faster than you can manage. The end game, after all, is still to exit at some point. This is your retirement at stake. Your future. Your legacy.
Now that you have a few tips under your belt, let Exit Consulting Group help you map the road ahead as you work toward a rewarding and profitable exit. Contact us to learn more.