Make profit ON your business, not IN your business

Every successful business owner will, at some stage, exit their business in full or part, in some way or another.  If you’re not sure about this, then let me ask you a question:

Are you interested in paying the mortgage or paying off the mortgage?

If you are interested in the latter, then the key is to understand that the real profits from running a business come when you exit, and to start planning for that exit right now.

I’m guessing that you don’t want to be one of those owners who spend years of stressful days and sleepless nights building a business that ultimately leaves you disappointed with the money you got when you sold.  If this is the case, then you need to follow three simple rules:

  1. Plan your growth in order to maximize the business value.
  2. Realize that you are the biggest handicap to a successful exit.
  3. Start following these rules at least three years before you exit.

I bet that the second rule was a bit of a surprise!  I’ll explain what I mean in a minute, but first a bit more on Rule 1:

A business exit can take many forms.  For example a full exit via a trade sale, or a buy-out or perhaps a floatation.  It can also happen in a partial sense via the introduction of new partners, a merger of a capital injection by a major new shareholder.  In all these scenarios, the way to maximize your exit revenue is to maximize your Price/Earnings Ratio, or P/E for short.

A P/E ratio can vary between 1 and 20 – a huge spread – depending on a number of factors.  However, understanding those factors is actually quite simple – if you know how!  We’ve identified the three key factors and the nine sub-factors that any business owner needs to focus on in order to drive value – and we’d like to share this with you so that you can build a better business.

Rule 2 is something that often surprises people. This is because it highlights the strange contradiction about being an entrepreneur:

You need to really work hard, put in huge commitment and take all the risk – but your goal must be to be able to not turn up and make yourself redundant.

Putting it another way

At the start you are everything, you are the business.  However, the end game must be that you are nothing and that the business can thrive without you.

This is the key challenge for many entrepreneurs.  It is the leap that so few manage to make and the reason why so many find themselves disillusioned.  As a result, path to a relaxing retirement is littered with the fallout from stressed business owners who are still locked into the day-to-day running of their business.

Rule 3 is about the implementation of rules 1 & 2.  These things do not happen overnight.  Do not be one of the many business owners who suddenly turn up at the door to a Corporate Finance Advisor expecting an instant and lucrative deal.  Failing to plan is planning to fail.

ACF Associates can help in three ways:

  1. The tools, templates and techniques to implement the nine keys to driving business value.
  2. The coaching and mentoring skills to enable the entrepreneur to detach from the business.
  3. The commercial and financial network and contacts to make the exit a reality.

Is the idea of paying off your mortgage is something that interests you, or perhaps you would like to know more about the key valuation drivers, or maybe you’d like to start detaching yourself from your business?

If so, then get in touch by phone or via the contact box, top right.