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Entrepreneurism Well Done

Entrepreneurism Well Done.

Let's talk about the future of your business ideas for a moment.

Say you have a business plan, and have developed your concept to the point of being able to start cashing in on some opportunities.Once the plans start to become more than smoke and mirrors, you start to think about the next day, and the next one after that. You start to live in the future by anticipating your next set of activities needed to continue to grow your business. Things are moving along hopefully in the direction that you planned they would.

At some point as it appears you are doing things right and can continue to find opportunities for your business, it is important to start the process of evaluating your end game strategy. The decision point may be well off in the future, but the thought processes need to be out in place to guide your future actions.

Consider this. Your plans cover the current year, perhaps the year after, and if you have a long selling cycle businesses, your plans require you to keep close the operation to the plans you put forth. In reality, what is your future plan for the business. Growth or executing an exit strategy where you sell part or all of the business sometime in the near term. The strategies for building and growing a business frequently are in conflict with the ultimate goal to sell the company. Why? Because of your investments in time, money, and emotional attachments, sometimes reach a point where you cannot continue. You might have overextended your finances, or encountered situations where the business does not increase in profitability, and in fact becomes harder each month to make the goals you once were able to accomplish.

If you have both a strategy for growth, and a time frame for realizing the maximum return on investment, you should also have a strategy for when and how to exit the business.

Take for example a small company turning in growth year over year due to increased amounts of investments in product development, production, and the general staff expertise levels. At some point the short term plans continue to call for investments to develop the business, but the profitability starts to show signs of decline. The customers are using all of the products you have at a constant run rate, but growth in their use is not happening, in fact the only growth is coming from continued investments in customer retention and acquisition. Even though the relatively predictable growth rates are there, the long term investment required continues to escalate. Management needs to decide what to do at this pivotal junction. Expand the investments increasing risks, or sell out the business in an appropriate way to return profit on all of the investments made over they years.

Most companies, when the pathway to generating new business involves increased amounts of investments and declining margins, start to seriously start thinking about selling the company. The reasons for selling or not selling the company could be emotional (people become attached to the sweat efforts and personal contributions to the business), technical (no new products due to lack of continuous investments in development), or strictly financial (we get all that we invested back and more). Sometimes, all of these reasons come together and result in a higher values for both the buyer and the seller. The seller gets a fair and reasonable offer for the company given all the current situations, and the buyer is able to see the benefits of the acquisition the the potential synergies resulting from merging their resources with the acquired company.

When looking at your plans and the results that are being produced, start thinking about the time line for when the best exit window will be open. Do not let conditions deteriorate over time without recognizing the need to sell off the business while you can. Buyers are, as you can imagine, generally leery of taking on a business that has started down the slow spiral to oblivion, even if it appears to have potential. Sell near the peak, not when looking for the valley.

The small business I know, recently sold their business for a fair price, yielding a sufficient profit for the principals. Everyone was happy, and in the end, the business that grew through sweat and hard work, received the rewards of their involvement and the accomplishments.

So the message here is simple. Regardless of where you are in the development of your business, consider the exit strategy as an important tool to ensure you get the most for your efforts, and to keep you from waiting too long before the situation becomes harder than is reasonable.

As the western song writer stated concerning the game of poker, "know when to hold em, and know when to fold em". Sage advice to be sure.

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