20 Feb Are you stealing from your own business?
I cannot count how many times I have heard from business owners “That is not the real number. I am paying some personal expenses out of the business. The real number should be closer to this!”
Plain and simple you are stealing from your business and yourself if you are doing this. No, I do not work for the IRS or CRA. I hear it from business owners who would like to sell their business and are shocked at how much less it is worth because the have been syphoning off business money to pay for personal perks. Yes, you are the business owner and you deserve some perks. You have after all assumed a lot of risk. It’s time to look at the reasons why you should consider the consequences of adopting the “no one is watching other than me” syndrome.
Things you need to consider when it’s time to sell your business.
What are the retained earnings?
Banks and buyers are motivated by this. This after all is the facts. It is also a form of savings account for the business. A contingency fund to reinvest in the business or purchase a competing business. Many reasons. Remember. Banks or private investors don’t lend on “well it’s actually this.” Consider if you take away $ 1000 in one of your last three years of business you could be taking as much as $ 5,000 to $ 7,000 dollars off the selling price. This based on multiples of profit. Ouch….
Are the sales increasing year over year?
Buyers want a business that is growing. It is the growth that will help any future buyer pay for the business. It has in effect reduced the purchased price over time.
Are your profit margins at or above industry average?
Consider that if you are pulling out inventory for personal consumption you are actually reducing the company’s profit margin. Inventory shrinkage takes directly from Profit Margin. What do Buyers want? Companies with good margins. The lower the margin, the lower the selling price.
What systems do you have in place?
Will your business run without you? If you are fully engaged in every business decision then you’re in trouble on many fronts. If your making widgets alongside your staff you are only worth what you are paying your staff while doing that function. The key here is buyers don’t want to buy a job.
These are just a few of the reasons to be honest with your company. The list goes on and on.
I often ask my new clients in the first meeting. “What is your exit strategy?” Sometimes they look at me as if I have six heads. If we focus on what we will have to sell when it’s time to get out we will have maximized our time spent in our businesses.
The best thing you can do for your businesses is build a business that someone wants to buy. You will have multiple options of how your business lives on with or without you. Your banker will love you. Your family will love you. You … well the sense of accomplishment is the added bonus. Just remember Covey’s second habit for his acclaimed book The Seven Habits of Highly Effective People. “Begin with the end in mind.”