The final chord was sung. The noise from the crowd became a roar. The lights came on. But there was still hope … still a chance that he might appear again. And then there was the voice, saying …
Elvis has left the building.
You’re probably familiar with those famous words. It made us think:
Elvis always knew how he was leaving the building. If he was an entrepreneur, he would surely know how he was leaving the business.
Learning from the pros
Bankers and venture capitalists know at least two ways that they’re going to get their money back (plus the return they need) before they invest in our business. Shouldn’t we know at least one? It’s one of the lessons we can learn from these professionals.
Why you should know how you’ll exit
In 7 Habits of Highly Effective People, Stephen Covey taught us to begin with the end in mind. We should know how we’re getting out of our business before we get into it.
Know your exit. Elvis did. Professional investors do. Yet many entrepreneurs never think about it.
That may be a reason why studies show that a majority of entrepreneurs don’t expect their business to kick in any money for their retirement.
It’s crucial to consider your exit because small businesses are highly illiquid by nature. Unlike shares in a public company, there is no marketplace where you can go to sell it immediately.
Another reason to know your exit – perhaps a more important reason – is that it your exit should be one of the drivers of your business strategy. How you plan to get out affects everything from how you structure your business, where you get money from as well as a number of other things.
3 common exit strategies
- Sell your business outright
Just like selling a house or any other asset, you exit the business by giving up any claims to ownership in exchange for an agreed-upon price. On your way out, just say, “Thank you … thank you very much!”
- Redirect cash flows
Let’s say you invest $25,000 to start a business. Let’s also assume that you make $25,000 after-taxes in your first year in business (after fully compensating yourself for your time).
Further, let’s stipulate that you don’t need that money for your existing business. Take that $25,000 out and invest it somewhere else.
You invested $25,000 and you took out $25,000. Essentially, you have no money invested in the business. Yet you still own the business! Get your money out and say, “Thank you … thank you very much!”
You still own the business with this strategy as well. Let’s say that you invested $25,000 to start your business. You got your business started, built it up and are making money.
You may be able to go to your banker and borrow against your business. Let’s say your banker agrees to a $25,000 loan which you can pay back from the cash flows of your business.
It’s likely that you’ll need a good use for the money to get your banker’s okay. For example, maybe you have an opportunity to buy a piece of real estate that will house your company.
In essence, you’ve cashed out of your business because you now have that original $25,000 invested somewhere else. Repeat this strategy over and over until you have enough money to fund the life of your dreams. That’s bigg success!
Thank you … thank you very much for reading our post today.
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(Image in today's post by btafly)