If you’re thinking ahead to the day when you’ll no longer run your business, think about these five (5) Exit Strategies now, so you’ll be prepared for your future.
from Entrepreneur magazine 7/13 enhanced by Peter/CXO Wiz4biz 7/14
Entrepreneurs live for the struggle of launching their businesses. But one thing they often forget is,that decisions made early can have huge implications down the road. It’s not enough to build a business worth a fortune; you have to make sure you have an Exit Strategy, a way to get your money back out of it. For those of you who like to plan ahead–and for those of you who don’t, but should–here are the five (5) primary Exit Strategies available to most entrepreneurs:
1. Just Take It. [The Modified Nike Maneuver] Take all you can. One favorite exit strategy of some business owners is simply to bleed the company dry on a daily basis. I don’t mean run it in the red–I mean pay yourself a huge salary, reward yourself with a gigantic bonus regardless of actual company performance, & issue a special class of shares that only you own that gives you ten times (10x) the dividends the other shareholders receive. Although we frown upon these practices in public companies, in private companies, this actually isn’t such a bad idea. It’s called a “lifestyle company.”
Rather than re-investing money in growing your business, in lifestyle companies, you keep things small, take out a comfortable chunk, & simply live on the income. In one of my most memorable Harvard Business School moments, my fellow classmates and I asked the owner of a small, fabulously profitable manufacturing company, why he didn’t grow the business bigger and sell it for a gazillion dollars. His response: “Excuse me? You’ve had way too much schooling. What part of 30-hour work weeks and a $5 million personal income don’t you understand?”
Are you growing your Business or your Bankroll? Remember, money in the wallet is no longer money in the business. If you’re in a business that must invest to grow, taking out too much money can hurt you down the road. Also, if you have other investors, taking too much can upset them. Imagine their surprise when investors in a small business I once worked for, received the company’s internal loan repayment spreadsheet, showing that the business owner was pulling out bucks by paying his family exorbitant interest on loans while investor loans were repaid at rock-bottom rates over as long a time period as possible. If you think you’re in business for the lifestyle, minimize your dependence on other investors and structure the business to allow you to draw out cash as needed.
· Who doesn’t like seven figures of take-home pay?
· Private jets & exclusive clubs are fun.
· There’s no need to think hard about getting out: Just pull out the money when you need it.
· The way you pull the money out may have negative tax implications. For example, a high salary is taxed as ordinary income, while an acquisition could bring money in the form of capital gains.
· Without careful long-term planning, you may end up pulling out money now you’ll need later.
[ 2. Liquidation, & 3. Friendly Buyer in Premium Content ]