Because we have little funding in this process, starting, growing and sustaining a business is done with a view to secure revenue as fast as possible. But this develops habits that, if we don’t change them, builds a business that generates income for us, but that can’t be sold.
94,6% of businesses started, fail to sell and close.
A life lived successfully growing and sustaining a business to build an income generating business, is a life lived poorly when you cannot monetise your years of risk and investment because you cannot sell your business for a capital gain.
Rather, we should have our cake (an income generating business) and eat it (a capital growth business). Both are possible and realising this too late is a costly mistake.
Listen to Pavlo Phitidis discuss how to get this right on this podcast from The Money Show
Think of it objectively:
If you have R1000 and you want to invest in the stock exchange, with a view to hold on to it for 5 years.
You can ear dividends – let’s say R200 per year. At the end of 5 years you’ve enjoyed R1 000.
In your business the income dividends come from a salary, other perks of owning the business and dividends.
In 5 years you now want to realise its capital growth
Let’s say your share is now worth R2000 – you sell it and gain R1000 on your initial investment.
You had your cake and ate it as the R1000 you made in dividends covered the R1000 invested AND you made R1000.
The third element to this is that the share has to be interesting to someone, to buy.
In our businesses, this so often doesn’t happen because the business owner is central to the continuation of the business. Without you there, there is no business.
You need to think with both an operator and investor’s hat as you run and build your business. The sooner you start thinking like this, and behaving differently, in accordance with this, the better your chance of making it into the 5.4% who can sell their business, and secure their retirement, and legacy.