Posts tagged with: ROI

How and When to Cash Out of Your Business

Cash OUt

When you started your business, your whole focus was to get customers, generate revenue and try to make a profit from what you love to do and what you are very at.

It’s never too early or too late to plan your exit. Think about your options now, whether you plan to cash out in the next couple years or in a couple decades.

Every business owner has 3 OPTIONS  of how they’ll get out.

  1. The first option is the default that over 95% of all business owners choose. That’s to do nothing, exit feet first and leave your family to muddle along or liquidate the business as best they can to pay your estate taxes.
  2. The second option is a bit better. That’s the standard option of paying a fee (e.g., $50K+) and a commission (3-10%) upon sale with an outcome that can pay you the owner a modest multiple (x) of your operating profit 6-10 years from now.

Have you thought about this as a viable option?
Do you want to wait that long?
Do you have the drive to continue growing the business another 6-10 years?
Is that the return you were looking for?
Can you finance your reinvention on that?
Is it close to your Number?

Are you aware of how this works? I want to make sure you know about it – but I think it’s an option that favors the buyer. But you need to know what it is to know if it is distasteful for you.

Alternatively, did you know it’s in your better interest to exit early, that when you exit in the first 3-5 years your ROI is greater? And right now, if you exit in the next five years (2013 – 2018), it is optimal timing to hit the seller’s market, instead of the buyer’s market if you wait more than 5 years (beyond 2018).

3. I offer a 3rd option for how to get out. My way is more pro-active and
measurably more expensive up front.
My approach helps owners optimize and leverage results early.
They can exit 2-4 years earlier, potentially realizing 4-6x operating profit,
instead.

 Your Choices

  • Take my 3rd option and get out four years earlier, with a higher multiple of EBITA in cash, with systems, structures and wealth preserving vehicles in place to maintain the lifestyle and benefits your business has provided, or
  • Take the standard option of a lower multiple in 6-10 years when it will be a buyers’ market.

Here’s how I make you succeed. I take a comprehensive strategic approach with only one objective, to help you the selling business owner get out on your terms on your timeline. This is all I do.

ROI – What Can You Control?

Return on Investment (ROI) is a measure of the economic return an investor or buyer requires for a given investment.  In the case of your business, the investor or buyer wants to know they’ll receive a specified return in a specified amount of time following a projected timeline and milestones.

ROI is directly related to the risks inherent in running a specific business in a specific industry. As you built and grew your business, you absorbed these risks, and accepted them as a cost of doing business.

But did you ever track those costs? Did you track the impact on your ROI? Can you measure the effect – good or bad – on your sales growth, market penetration,  profit margin? Can you quantify them?

Som ROI – What Can You Control?e of the variables that effect ROI are within in your control. Some of the variables are outside your control but still impact your business, your economics and your ROI.

Everything that can change your ROI, has a direct effect on what a buyer will perceive your business is worth. It’s your job to showcase your business in the best light for the buyer to say yes on your terms.

Here is a Range of Risks buyers will assess. How well does your business handle each one? How can you sell that position to a buyer?

  • Economic Changes
    • Economic downturn – Economic slowdown
    • Rising interest rates
    • Decrease in target market spending
  • Industry Changes
    • Regulatory / government changes
    • Increased competition
    • Threat of foreign entrants
    • Expansion into foreign markets
  • Business Changes
    • Regulatory / government changes
    • Loss of key customers / vendors / team members
    • Substitute goods / product obsolescence
    • New opportunities / new product lines
  • Natural Disasters
    • Earthquake
    • Hurricane
    • Flood
  • Personal Changes
    • Health problems
    • Divorce
    • Exit Timeline

To maximize ROI to a buyer, you must have contingency plans in place for these key risks. To demonstrate that value to the buyer, be sure they are all documented, not just in your head. That’s how you’ll command the full value for your business and come to the negotiating table from a position of strength.

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