Tag: Business exits

Creating an exit roadmap

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:

Elements of an exit roadmap:

  1. Salable vs non-salable business

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:

  • Income growth
  • Capital growth
  • Tradability
  1. The buyer personas

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.

  • The private buyer – an individual who wants to buy a business. Typically they work through a business broker to find a business that fits their own abilities and resources.
  • Management buy-out – this is seen often in professional services, where you generate income and value by selling time – medical, legal, architectural firms etc.
  • Family – the first generation sells to the next generation.
  • A business – where a business sees value in acquiring you.
  • A JSE listed business – these form the majority of buyers of private businesses. They look to acquire growth in revenue, innovation, or skill and capability, which often means they want you in it.
  • A foreign owned business – a multinational looking to gain a foothold into Sub-Saharan Africa but these are few and far between until we welcome foreign investment.

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.

  1. The hurdles

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?

  • Private money – if you are selling to a private individual, how much can they put down and how much can they borrow from the bank? The need to borrow, especially in our current economic climate, caps these buyers at around R15 million for private money.
  • Business money – Between R12 million to around R30 million, a private business could leverage funds to buy you.
  • Corporate money – given the compliance, risk and legislation around transactions, one that doesn’t give them a business that generates at least R50 million plus, is not going to justify the pain of acquiring you.

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

 

Shining a light on the business blind spots

Smart and successful businessmen have faith in their vision for their companies, but they need to be aware of their limitations and see themselves and their situations in the proper light.

A failure to do this leads to the business blind spot, a place where we can’t see what is going on around us. It’s also a place where we see things not for what they are, but what we perceive them to be. It grows from a history of how things have always been done in the business and a narrow view of what the business needs going forward. On The Money Show with Bruce Whitfield this week, we discussed business blind spots, how they develop, what they cost your business and how to prevent them.

Recently, I met two business owners in their late 60s. Both started their businesses from the ground up, work hard and earn their success. But what perplexed me was that even with their wealth of experience, both were plagued by glaring blind spots preventing them from putting succession plans in place.

In fact, the global status of successful succession is bleak – 28% of businesses survive it and only 3.4% make it there.

Keeping it in the family

However, blind spots are extreme in the family context. Founders in their late 60s and early 70s don’t admit to their fallibility easily. They can’t tolerate change, but argue that they don’t want the next generation to change the way they’re running the family business because it’s too risky. The successors can’t see that the founders are fearful of risk simply because time is running out and change means risk. This cycle places both in a deep, dark circle of despair – and both generations know it, but feel helpless to change it.

We all suffer from them

Many successful businessmen overestimate their capabilities and have an infallible view of themselves. They surround themselves with a team that seldom disagrees and mostly offers opinions that support the boss’s views. They listen to reply, not to hear and they talk to an outcome but don’t back it up with a plan to act. They seem convinced that what and how they are doing things is the best course of action to grow their businesses even though the numbers don’t agree.

Luckily, there are some blind spot antidotes that we can embrace such as:

  • Have a big vision for the business and one you believe in. The vision then becomes more important than your ego, your being right rather than effective and it will require you to surround yourself with co-creators rather than subservient implementers. The different views on getting things done will shine lights on blind spots for the business.
  • Annually, do the turnaround steps to keep fresh, in the present and relevant.
  • Don’t surround yourself with yes-men. A few contrarian people whose views differ from yours is a good thing. Diversity in a team will bring on contrarian views for certain. Create a safe environment for people to intelligently contribute opinions. That means listen to hear when they are offered and be sure your team knows why the business exists and what its goals are.
  • Increase your self-awareness – understand that the way you project yourself might be viewed by your staff as bullying behaviour in your efforts to retain the status quo. A message will go out that even though you ask for an opinion, you never really engage with it.

As a business builds over time and as growth comes in, the complexity of the operation increases and your ability to change your way of working is crucial. Don’t allow your business to be sabotaged by blind spots. They can lead to a misplaced commitment to a selected course of action that can cloud your vision and stunt the growth of your business. If the destination is clear and there is a clear vision, you can get past the problem and deliver on the promise.

Aurik Business Accelerator will work with you to build, implement and manage a family business succession plan.

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