Long-term thinking that you probably haven’t imagined
Businesses tend to think in two timeframes, the short term and the long term.
The former is often more tactical in terms of what needs to be done to keep the lights on and hopefully pay your wages, with something at the year end to fund your holiday.
The latter is strategic, in other words, where do I want my business to be in 12, 24, 36 months or even longer?
Both of these are of course important in their own way and the former might be wrapped up within the latter, but equally so the longer term vision may dictate how you go about bringing in money tomorrow.
However, there is one long term view that is often not on anybody’s radar but is well worth thinking about as your business grows, or perhaps even as a deciding factor in the business sector you choose to pursue.
I am referring to an exit plan.
As the name suggest it means how and when to sell your business to a third party, hopefully for a tidy sum.
It may be 20 years in the future, or maybe even more. Or it could be much sooner than that if an opportunity presents itself which allows you to move onto something else and possibly repeat the same trick.
So, here is some food for thought.
Certain attributes make a business attractive to a buyer, such as:
- It runs without the owner’s daily input.
- The client base is well diversified.
- Repeat business comes from clients.
- It is a specialist business.
- The balance sheet is strong.
- Profits are consistent.
- Margins are good.
- It occupies a strategic position in the market.
- Its reputation is strong.
- It owns intellectual property that is well protected.
Of course there are many other reasons why a business might be sought after by a competitor or private equity and be able to command a good multiple of its profits or even a hefty premium in the right conditions.
For most entrepreneurs who are at the start of their business life, an exit plan rarely features, but it is always worth holding in the back of your mind when making strategic decisions that one day you might wish or feel compelled to sell.
A business that simply earns you a living, even if a comfortable one, will be a lot harder to sell and will achieve a much lower price than the equivalent business that is a true business and not simply a vocation.
