We spend years building a business to generate economy for ourselves. Mostly, we are undercapitalized and learn to do things ourselves. It becomes a habit. Then, of a day, we decide we want out. Or circumstances change and we want out. This is brand new to us despite the 10-20-30-40 years of investment work in our businesses. All your experience is in generating an income through your business, you have no experience selling it.
Understanding your exit roadmap early will serve you well. Listen to this podcast of Pavlo Phitidis’ discussion about business exit planning with Bruce Whitfield on The Money Show on 702 and CapeTalk:
94.6% of all businesses started, fail to sell. Even the well-established ones. Think of it like a share you would buy on the stock exchange – what would you want from it?
You want to earn dividends each year hope, and when you are ready to sell it, you want to be able to sell it – for a capital gain. Your business is the same, it needs to demonstrate to a potential buyer the following:
Think of your potential buyer as a customer: That buyer needs to have a problem solved and different buyers have different problems, different skills and competencies.
Identify who the most likely kind of buyer would be for your business, and think about what they would want, and how you should build your business to suit their wants and needs.
It is very rare to get an outright cash offer for your business. Pavlo shared the story of an American business owner he worked with, who got this right. He did medical assessments for insurers and over a period of time he realized it wasn’t scalable as he had to do each patient visit. So he harnessed technology through Amazon, Instagram, Facebook, Google and used all of that data to create a risk profile for individuals, which he provided to the big insurers. When he was ready to sell he got a once-in-a-lifetime offer of $180million. But that was extremely rare. Most of us will not secure such a simple payment.
So who is buying what?
This leaves a no-mans land between around R25 million and R50 million where there is no-one who wants to or can buy your business. And it’s important to know that, as you grow your business towards an exit