Over the next few articles, we will be looking at the characteristics that successful business owners have adopted in order to allow their businesses to grow.
The first characteristic is that on the day the business starts, the owners know how they are going to end it, i.e. they have an exit strategy.
The other decision they need to make at the same time is whether they are going to be running a lifestyle business or a value business.
- If you set a business up in a way that you take out every penny it makes, and you use that to pay for what you and your family need today and maybe put some on one side for what you need tomorrow, then the likelihood is that on the day you decide to stop running it, the business stops as it is of no value to anybody else. There is nothing there of value that anyone can buy. It has funded your lifestyle.
- On the other hand, if you take out what you and your family need today, and maybe something that you can put towards what you and your family need tomorrow, but the rest you plough back into product development, research, acquiring other small businesses, geographic expansion, opening new offices, creating intellectual property or toolkits and methodologies, then the likelihood is that you are actually creating a value business, one that somebody else in the future may want to buy off you.
One of the reasons I have been so busy as a mentor, is that approximately 80% of people who set up their own business do not have an exit strategy. In addition, some of them believe they are a value business when in fact they are a lifestyle business. We will look at exit strategies and different types of business in more detail in my next post.
It does not matter which type of business you are, just as long as you know and plan your finances accordingly. Financial plans will be discussed later in this series and are covered in more detail in From Crew to Captain.