SCORE Tips for a great round in business
July 9, 2012
This is a guest post by Maceo Z. Keeling, SCORE Executive Committee Member at Large. Asheville SCORE, Counselors to America’s Small Business, is part of a national nonprofit association dedicated to entrepreneur education and the formation, growth and success of the nation’s small businesses. SCORE provides FREE professional guidance, information and support.
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| Maceo Keeling, SCORE Executive Committee Member at Large |
When you start a new business, it’s like starting a round playing golf. You need a great drive to get the ball up into the air and see it travel far down the course. Many entrepreneurs spend a lot of time on their start-up business plan, and that’s like spending all you time on the driving range. You can swing at the ball and miss it completely or hit the ball and not land in fairway. If you don’t have a target, usually a flag stick, you may not have a easy put to finish the hole at par. What happens when you are on the putting green and you need to tap the ball into the hole. You can’t swing wildly at it, and often times you miss the short shots because you haven’t practiced your end game.
SCORE counselors recognize that sometimes your efforts don’t turn out exactly as you plan for them to turn out. If you fail to plan at all, you can be fairly certain that your effort will be all for not. You are likely to wind up in a place or circumstance you really don’t want to be in, like the bunker or sand trap in golf. You need to set up for an easy exit right from the time you tee off your business.
A very important part of your business planning is how to protect what you have created and to develop a plan for what you want the business to do for you as you get older. When you start your business you can often see the general direction you want to go. Goals like buying a house, a car, or building a savings are easy to see. What about your long term goals, when you are older? Those goals are much like that little hole on the putting green. Sometimes you can see the flag where the hole is when you tee off, but you can almost never see the hole itself. What happens when you can no longer do hard labor, work long hours or handle the travel associated with your business?
Do you want to get a golden parachute like the executives get when they leave corporate America? What are you doing to get one?
As a consultant, I have traveled all over the United States and far too often I found business owners who have worked well into their sixties because they had to work to keep an income. They had not taken vacations in years and many had little or no money saved for their own retirement. This could be the result of a lack of planning for an exit from the business. While a business should be a “going concern” which means it goes on indefinitely, owners cannot.
If, one day, you plan to exit your business and transform your labor into cash or a desirable lifestyle through a sale, merger or even an initial public offering (IPO), you need to prepare for that day EVERY STEP ALONG THE WAY!
You need to plan your shots when you tee off so you have an easier short game! You don’t get to take a “Mulligan” (a second try to start over) with your business.
Most often owners wait until they are ready to retire to think about how they are going to do it. By then it is too late. Business Value Mapping is a methodology to build value and equity in your company and keeping it there by implementing systems, processes and procedures to help sustain the business after you, the owner, have left. Here is an overview of some strategies to help you plan for a great game in your course of business.
The most common exit strategy for any business owner is to sell the business to someone else or to some other company. A sale typically results in the seller of the company receiving cash in exchange for the company. The tricky part of any sale is valuing the company. Since most small businesses generally don’t have a structured way to determine their business value, the final transaction price may be less than the actual value of the business. In fact many businesses sell for as little as half of their actual value. Make sure you get more than one appraisal or valuation of the business so that you have confidence that the price is right. A SCORE Business Analysis Team (BAT) can help to you evaluate the value of your business, and it’s free!
Another way you can achieve liquidity, (get cash) when you leave the business is to get bought-out by someone who comes in and takes over your business. You’ll usually see this happen with small- to mid-size businesses that provide professional services such as insurance companies, CPA firms, law practices, and even distribution and manufacturing organizations. Companies that have accounts that have recurring fees for products or services.
A typical “buyer” would be an individual or group who is in the same line of work and who will take over your business on the basis of buying out your existing ownership. Remember, a deal like this is often tied to performance of the business at the time of the buyout and after you leave. (Future Value) Usually, you’ll get a better deal if the acquiring company can pay upfront rather than doing a “leverage buyout” (LBO) where the buyer uses the future cash of the business to pay off their debt to the seller.
If you don’t have any debts, you can also achieve liquidity by shutting down your business and selling the assets that you have. Of course, you’ll need to find buyers who feel that your assets have value, and you’ll have to negotiate a fair price for those assets that are not clearly identified in terms of a price point. With this kind of exit strategy, you are usually getting the smallest amount of money because you’re just selling the raw assets and trying to agree on a price they’re willing to pay.
If you want to sell your business for retirement funds in the future, take the time now to create an appropriate business exit strategy. Carefully structure your plan to see what liquidity is going to be for you. And down the road, you’ll find that you’ve built a business that has value to others without you having to be there every day to run it.