What is the difference between an investment and a career? The two words are rarely compared, but in the context of business ownership perhaps we should pay closer attention to their meaning. A career is your occupation or profession, followed as your life’s work and hopefully something you are passionate about. An investment is an asset purchased with the idea that it will provide income in the future or appreciate and be sold at a higher price. Whereas a career only provides you with an annual income, an investment can provide you with both an annual income and a return (hopefully for a gain) of your invested capital.
Perhaps the best way to compare the two is this: you retire from a career, but you exit an investment. This distinction sums up the difference in approaches – retirement is a highly personal and emotional decision whereas exiting an investment is a highly rational, non-emotional, business decision. Unfortunately for many small business owners, when it comes to exit strategy it’s tough to separate the emotional from the rational. Therefore, exit is typically linked to retirement rather than the real factors that drive exit timing.
I draw the distinction between investments and careers because I know far too many business owners who treat their companies like careers. They purchased their business as a way to further their career and enhance their lifestyle, and, whether the goal was to make more money or create more free time, their company supports their goals. The focus is short-term, with the primary concern being to make as much money this year as they did last year, in order to fund their lifestyle. Rarely, if ever, do these owners contemplate the bigger picture, including their exit strategy.
Creating a strong exit strategy requires a shift in mindset; it requires thinking of your company as an investment rather than as a career. To this end, your company is no different than a stock or a piece of real estate, at least insofar as the determination of when to sell it. Unlike stocks or real estate, however, you have a lot of control over many aspects that determine whether or not you will be able to sell it when the time comes.
Owners who treat their companies like investments rather than careers embrace this mindset. They take action to ensure that their company is in a position to be sold at any point in time. We all like think that we control our own destinies, and in the case of business ownership that means determining when to sell and doing so on our terms. The unfortunate reality is that most don’t get to do both; some are forced to sell earlier than expected, usually due to unforeseen circumstances (divorce, illness, other hardship), while many others face the harsh reality that 80% of small business owners fail when trying to sell their company.
So what can you do?
This blog post is based on a presentation that I frequently give to groups of small business owners at conferences and networking events about exit strategy. It goes on to discuss:
- When to begin thinking about your exit
- How to view your business objectively, so that you can understand it’s actual fair market value
- How to take a buyer’s perspective and view your business through their eyes
- How to understand risk and make your business turnkey
- The right time to sell (hint: it’s not when you want to retire)
The presentation material is too much content to post in the blog, but if you send me an email at firstname.lastname@example.org I’m happy to spend some time discussing what it means for you. I might even send you the slides.