At IMPACT 307, we work with entrepreneurs with an innovative idea that provides the spark for launching a new business. Whether a company is brand new or well established, business owners should always have an eye on what they desire when they exit a business.
What, have an exit strategy at the very outset of a new venture? As famous author Steven Covey revealed in his bestselling book, “The 7 Habits of Highly Effective People”, one essential element of effectiveness is to “begin with the end in mind”. This concept applies to business ownership as well.
Every business owner will exit their business — it’s inevitable. A business will be sold, liquidated, transferred to a family member or friend or an owner will pass away. With this in mind, even my start-up entrepreneurs should think about what they want to achieve in their business and how they will eventually exit.
There are many reasons entrepreneurs start businesses. Most have a passion around a product or service idea and want to see it come to life. Most have a desire to see a business grow and generate profits, whether it be a sole proprietorship or a large company. If a business grows its revenues, profits and market share, its value will increase.
Given the previous statement that every business founder will exit their business, increasing the value of their venture will likely be a major objective, whether it be to create an eventual retirement nest egg, to sell and roll proceeds into a new opportunity, to be generous in supporting charitable organizations, or to provide opportunities for their family to take over the business down the road.
How can businesses increase in value? We won’t get overly technical here, but from a financial perspective, every $1 increase in profit generally increases the entity’s value by $4-6 in a given year. Thus, each business owner should take a hard look at the actions they can implement to increase profitability.
Since profit results tend to correlate with revenue improvement, increasing sales and sales diversification each year is almost certain to build business value over time. Understanding target markets and developing effective promotion strategies to reach prime customers is essential. Diversification of product and service offerings means expanding target markets or developing new products and services offered in the business.
Improving business processes and efficiencies can enhance bottom line profitability. The proliferation of technology in the workplace has had a substantial impact on growing economies and businesses over the last quarter century. Business owners should continually search for better, faster and cheaper ways to transact business.
Finally, business leadership should seek ways to minimize distractions in running the business. Most business owners I’ve had the pleasure of working with are the visionaries, idea generators and relationship builders of their ventures. Their companies will do best when they stay focused in these areas. The best owners find ways to delegate key functions to alleviate distractions and keep their “eye on the ball”.
Planning for that eventual exit by beginning with the end in mind, and devising ways to make a business venture successful and more valuable, will give every owner peace of mind.
Scot Rendall is director of IMPACT 307 in Sheridan.