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Start-up Advice

Starting a Business? Consider When to Cash in Your Chips

The best time to think about selling your business is when you first draft the business plan.

Ed Hatton

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Selling

It may sound bizarre for entrepreneurs who are planning a new business to also think about selling your business. Entrepreneurs are filled with visions of growing the businesses, employing more and more people, branching out.

However a key part of business planning should be to record your objective in starting or buying the business.

This could be the need to be your own boss, wealth accumulation, social good, desire for power or others. Many entrepreneurs open or buy a business with the sole intent of improving its value so that it can be sold at a large profit.

Contrast this with others who build businesses in fields that interest them, and the business becomes the sole passion of the entrepreneur. If this business is sold the entrepreneur will have lost their primary interest in life. Restraint of trade is usually applicable to business sales, so the entrepreneur will not be able to start again in the same field.

Related: How You Can Build a Creative Business From Scratch

What happens after?

What happens after the sale? Will you retire, go into a different field, work for charity or mentor young entrepreneurs? Or will you become bored, restless and depressed, with nothing to fill your empty days?

You will probably have been working intensely, travelling a lot, taking tough decisions, overcoming difficult problems and suddenly all that goes away. If you have nothing to replace that lifestyle you will need to adjust.

If the business is sold to a larger group, part of the sale price may be based on guarantees that the business will attain forecast profits.

There could be an employment contract for the entrepreneur to run the business as a division for a year or two. Be warned that it is unlikely that you will be given freedom to run the business unit as you choose to, and are used to.

Large businesses run on different rules, and these may even limit your ability to make the performance guarantees. Do not expect sympathy.

One entrepreneur in this situation described it as, “The prison sentence I need to serve before I can enjoy the money paid for my business, after the performance guarantee amounts have been deducted. Forget those, they can never be met.”

Other entrepreneurs have slotted happily into the larger organisation and carved out great new careers. Which will you be?

Succession

Many businesses are sold to family members or managers of the business. The plan is usually for the entrepreneur to stay involved to guide the new owners who will pay the purchase price out of future profits, providing retirement funding for the entrepreneur.

If this is your plan then take a dispassionate look at whether the family members or managers are really capable of running the business, and genuinely want to. Some family handovers have ended in failed businesses, poor retirees, bitterness and estrangement.

It is better to start succession planning earlier, with increasing responsibility and authority being delegated to the successors, who eagerly accept both the authority and the responsibility.They should develop their own financial plan to pay you out while retaining your mentorship.

Many entrepreneurs get to retirement age having assumed they have a successor only to find that they have none and must either continue to operate the business or sell it for the value of the assets. Nobody wants to see the destruction of something that has taken a lifetime to build.

Succession and business sale plans are best made rationally and early, with the interests of the business, its stakeholders and you the entrepreneur catered for.

But out-of-the-blue offers come to entrepreneurs all the time and fortunately they are good at making difficult decisions quickly. If you have thought about sale and succession in advance it will be easier not to get blinded by the big numbers on offer.

Related: How to Survive – and Grow – in Tough Times

Ed Hatton is the owner of The Marketing Director and has consulted to and mentored SMBs in strategy, marketing and sales for almost 20 years. He co-authored an entrepreneurship textbook and is passionate about helping entrepreneurs to succeed.

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Start-up Advice

Put On Your Wellies: It’s Time To Wade Into Risk

Entrepreneurs aren’t all leaping into the unknown like lemmings off a cliff, but they do need to consider it…

Chris Ogden

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You’ve had a great idea. You’ve looked into its development. You’ve recognised that it has potential beyond just what Auntie Mabel and Mike From The Grocer think. And you’ve clearly nailed a pain point that can make money. Now it is time to take the risk of running with it.

Every big idea comes with risk. You can’t step out into the world of entrepreneurial thinking and business development without it. Your idea may fail. It will also be time consuming, demanding, hungry for money, and hard work. It is unrealistic to expect that your project will leap out into the world and be an unmitigated success.

It is also unrealistic to assume that it isn’t worth taking this risk.

There are steps that you can follow to ensure that your risk is managed so you aren’t blindly leaping off that cliff…

Step 01: Do your research

No, canvassing your neighbours, friends and family is not doing research. You need to know that your idea will appeal to a broad market and that it will have significant legs. This may sound like daft advice, but you would be surprised how many people think an idea will take off just because Susan in Accounting said so.

Step 02: Understand the costs

Projects are hungry for money and investment. Realistically work out your budgets and how much it will cost to take your project off the ground and then stick to it.

A calculated risk is a far better bet than one that shoots from the hip and hopes for the best. You can also use this as an opportunity to draw a clear line under where you will stop investing and end the project. If it keeps eating money and isn’t getting anywhere with results you need to be able to walk away.

Step 03: Know when to walk away

As mentioned before, this can be defined by a line you’ve drawn in the proverbial sand (and budget) but no matter where you draw this line, you have to stick to it. Often, when time, money and energy have been poured into a project it can be incredibly hard to walk away.

You think ‘but I have put so much into this, just one more’ and then it gets to a point where the ‘just one more’ has taken you so far down the line that walking away feels impossible. Leave. Learn the lessons. Apply them to your next project.

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Start-up Advice

Mind The Gap

The entrepreneur’s guide to finding the gaps and building the right solutions.

Chris Ogden

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entrepreneurship-gap

Innovation may very well be the key to business success but finding the gap into which your innovative thinking can fit is often a lot harder than people realise. Some may be struck by inspiration in the shower, others by that moment of blinding insight in a meeting, however, for most people finding that big idea isn’t that simple. They want to be an entrepreneur and start their own high-growth business, but they need some ideas on how to find that big idea.

Here are five…

1. Network

It sounds trite but networking is actually an excellent way of picking up on patterns and trends in conversation and business problems. The trick is to note them down and pay attention. Soon, you will find patterns emerging and ideas forming.

2. Look for pain

Just as networking can reveal trends in the market, so can spending time reading. The latter will also help you find common business pain points. These are the touchpoints that frustrate people, annoy business owners, affect productivity, or impact employee engagement.

Be the Panado that fixes these pains.

3. Luck

luck

This is probably the most annoying of the ideas, but it is unfortunately (or fortunately) very true. Luck does play a role in helping you capture that big idea. However, luck isn’t just standing around and random people offering you opportunities. Luck is found at networking events, it is found in research and it is found in conversations with other entrepreneurs.

4. Luck needs courage

You may have found the big idea through your network, a pain point or pure blind luck, but if you don’t have the courage to take it and run with it, you will lose it to someone else.

Being bold in business is highly underrated because most people assume that everyone is bold and prepared to take big leaps into the unknown. However, not all brilliant entrepreneurs were ready to throw their family funds to the wind and leap into an idea – they were courageous enough to figure out a way of harnessing their ideas realistically.

5. Pay attention

This is probably one of the most vital ways of finding a gap in the market. Often, people are so busy that they don’t really pay attention to that niggling issue that always bothers them on a commute, or in a mall, or at a meeting. This niggling issue could very well be the next big business opportunity. Pay attention to it and find out if that issue can be solved with your innovative thinking.

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Start-up Advice

5 Things To Know About Your “Toddler” Business

As you navigate this new toddler phase of your business, here are five things to bear in mind.

Catherine Black

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Ah, toddlers. Those irresistible bundles of joy bring a huge amount of energy, curiosity and fun to any family – but there’s also frustration and worry that comes with their unpredictability, as they grow and start to become more independent. If you own a business and it’s successfully past its “infancy” of the first year or so, it’s likely it will also go through a toddler stage of its lifecycle.

Pete Hammond, founder of luxury safari company SafariScapes, agrees with this. “Our business is now three and a half years old, and we’ve found that we’re not yet big enough to justify employing a large team of people to handle the day-to-day admin tasks, yet we still need to grow the business as well,” he says. “As a result, our main challenge is finding the time to step back and see the bigger picture. Kind of like when you are raising a busy toddler and you spend most of your time running after them!”

As you navigate this new toddler phase of your business, here are five things to bear in mind:

1. This too shall pass

Everything in life is temporary – and that goes for both the good and the bad. It’s as helpful to remember this when you’re facing the might of a toddler temper tantrum, as it is when you’re facing throws of uncertainty in your business. If your new(ish) venture is going through a rough patch in its first few years, it can be easy to think about giving up – but don’t. As long as you have an overall big idea that you believe can add value to your customers, keep pushing through the rough parts until you come out the other side.

2. Appreciate what this phase brings

The toddler years mean that the initial newborn joy is officially behind you. But these small humans also bring their own kinds of joy, as you watch them learn new skills, say funny things, and give affection back to you. While your two-year-old business may not hold the same exhilaration for you as it did during those first few months, there are now different things to appreciate about it: Maybe you’re expanding your product range, or employing new people who can take the workload off you.

3. Establish boundaries

Toddlers thrive on boundary and routine – and your toddler business will too. As it grows into a new phase, try and establish limits in terms of the type of clients you want to work with and the type of work you’ll do. It’s also a good idea to make a decision about the hours you’ll work and when you’ll switch off, which will help you establish a good work-life balance.

4. Take a break

Every parent with a toddler needs a break every now and then, even if that means a walk around the block (on your own!), a dinner out with friends, or even a few days away. The same is true for a demanding small business: every so often, remember to take time out to rest properly, where you switch off your laptop and completely unplug. You’ll return much more inspired and resilient to deal with the everyday uncertainty that it brings.

5. Give it space to make mistakes

While the unpredictability of a young business can be stressful and tiring, it’s also a time for trying new things without the risk of huge consequences if they don’t quite work. After all, it’s much simpler to change your USP if you’re a small business employing a few people, rather than a big company where 50 people are relying on you for their salary, or where you’ve received a huge amount of investment capital. While you may fail in some of the things you try with your business (in fact, this is almost guaranteed), see it as a toddler that’s resilient enough to pick itself up, dust its knees and keep moving forward.

During this phase of business growth it’s also essential to have the right type of medical aid cover. There are medical schemes such as Fedhealth which has a number of medical aid options and value-added benefits to ensure that your health and wellness is taken care of too. After all, the healthier you and your staff are, the more productive your business will be – during the toddler (business) stage and beyond.

While this phase can be frustrating, it’s a sign that your business is growing and adapting, rather than remaining in its infancy, and that can only be a good thing! So embrace the difficulties, learn from them, and watch as your business strides forward confidently into the next exciting phase.

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