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Do All Entrepreneurs Need an Exit Plan?

exit-planningMost entrepreneurs don’t have an exit plan. Most advisors and academics says they need one.

A growing chorus is singing the song of the entrepreneurs. We think they’re out of tune.

Bankers have at least two ways to get their money back or they won’t loan you money. Venture capitalists have an expectation of how they will get out before they get in.

As an entrepreneur, you have a greater stake than anybody else in your business, no matter how much money they tie up in it. You need to know how you might exit even if you don’t plan to exit.

It’s about liquidity.

At some point in your life, cash may be a more valuable Asset than a business. With every other Asset, we invest cash thinking it will turn back into cash someday. Why should our businesses be any different?

It’s about legacy.

Exit planning is continuity insurance. You’ve put your heart and soul into your business. Do you want to risk that it falls apart if you’re not able to be there for one reason or another? Of course not.

Most importantly, it’s about options.

If you plan on an exit and run your business accordingly, you’ll have the ability to walk out completely or at least step away and create some distance. At some point in your life, you may find more enjoyment from activities that don’t involve building a business.

It doesn’t mean you ever have to retire. It doesn’t mean you ever have to sell out. It does mean you’ll be able to live your whole life on your own terms.

Do you need help planning your exit? Maybe we can help. E-mail us at bigginfo@biggsuccess.com or leave a voice mail at 888.455.2444.

Image in this post from svilen001

If Elvis was an Entrepreneur

exitThe 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 …

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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!”                     

  • Recapitalize
    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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Please join us next time when we ask some questions about work – life balance. Until then, here’s to your bigg success!

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How Honest Should You be with Your Employees?

questionsClinton Korver wrote a great article for Harvard Business Publishing. He talks about his experience running a start-up and why it’s especially important during tough times to share information with your employees.

He says that he went against the advice of his venture capitalists. They feared losing employees, customers, and other investors if the bad news got out. Clinton found that being completely forthright strengthened his relationships with his employees.

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marylynn One of my radio managers did that when our company wasn’t doing so well. I appreciated the honesty and how it put all of us on the same page.

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Honesty is high on most of our lists of core values. However, do we really think that we should always be honest?

For example, picture yourself standing with your best friend adoring her newborn baby boy. You think he’s the least attractive baby you’ve ever seen. She’s going on and on about him, when she asks you the dreaded question …

Isn’t he the best looking baby you’ve ever seen?

Would you tell her what you really think? Or would you pick your words carefully to avoid hurting her feelings?

Of course, this is a different situation than the first one presented – being honest with your employees, even when things are not going well.

But it illustrates that there can be a second value at stake – the desire to not cause undue harm.

Is there a reason to tell your friend what you really think? What good will come from it?

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georgeI’ve come to believe strongly in open-book management. As a general rule, I think the more you share with your employees, the better. Having said that, I have found you also have to know your employees. Open-book requires a higher level of maturity from your employees. If that’s not present, sharing more just creates undue emotional distress.

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The reason an ethical dilemma is a dilemma is because two or more core values at odds with each other. These situations flow up to the leader. You have to find a good solution.

It’s a personal decision. There likely will be disagreement on the best way to handle it. That’s why it’s so important to have a framework in place for these kinds of decisions.
This framework will help you:

  • be more efficient in making decisions like this
  • make decisions that are consistent instead of all over the board
  • build goodwill with all affected parties
  • respect the face you see in the mirror at the end of the day

We have a great resource that helps you set up the framework so when an ethical dilemma comes your way you’re prepared. It outlines the three steps to solving an ethical situation:

  • Know your core values
  • Select an ethical model that helps you apply those core values
  • Use a problem-solving process to work through the situation at hand

So we’ve presented an ethical dilemma today … should you share all news with your employees, even the bad stuff? What do you think?

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Answer These 3 Questions to Get Money for Your Business

By Bigg Success Staff
04-30-08

Bigg Success in Business

jockey 

Most businesses need some outside financing to succeed. Yet attracting capital isn’t always easy to do. Money people – angel investors, bankers, venture capitalists – bet on jockeys, not horses. They bet on you, not your business.

That’s not to say that you don’t need a good business idea to attract outside funding. Great managers in troubled industries usually lose the fight. Good managers in great businesses will probably do just fine.

So financiers definitely do consider the “horse” as well.

However, all else equal, it’s the “jockey” that wins the race. So they ultimately put their money behind you.

What’s your track record?
Ideally, you’re seeking financing because your business is already successful and you need money to take it to the next level. If that’s not the case, don’t despair. If you’ve successfully run a similar business before, your odds are still good. It’s also important to maintain a good credit score. 

How will you handle adversity?

Your financiers will be trying to determine how you will respond during the inevitable tough times. They want to know that you will work with them, not keep them at bay. Discuss how you overcame past hurdles to put their mind at ease.

Can they work with you?
This is the ultimate question. They want to feel like the chemistry with you is good. You will listen when they offer advice. You will cooperate with all reasonable requests. You will care for your interests by watching out for theirs.

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