Concepts for Monetizing Your Business ...
* In this issue: Converting the Value of Your Business
* Less than 505 words, a three minute read.
What does it means to monetize your business? Simply stated, to get money out of it. And in our experience owner/operators do a fairly good job of taking money out of their businesses.
There are, of course, the tax-free lifestyle benefits of owning a small business, the things the business pays for that you receive personal benefit from. In some companies, this is a lot of money! Not to mention draws and bonuses whenever things feel flush. Many CI business owners afford enviously high-end lifestyles.
But where does all this intersect to create the monetized nirvana?
Years of income and distributions, and personal expenses paid, leads to a crescendo exit, right? Well, not so much. Small businesses are hard to sell at a premium. Unless, that is, you find someone who wants your lifestyle and can afford to pay for it. Hmm…
Oh, and what about that nest egg? The money you left in the business and/or cash you invested wisely to accumulate a safe landing? This is your money, for sure – but monetization is at face value
So, why does all this seem so at odds with each other? It doesn’t have to be.
Imagine a state where you are making good income from your business, you are accumulating cash in it and you are preparing for a logical transition from it. Perhaps, you even want it to sustain and continue as a legacy tribute to the very thing you started.
WOW! This might require some detailed planning and forethought, right?
Truth is most owners don’t get there.
Here’s how a CI business owner might create good income, build a nest egg, create on-going value in the business, and leave gracefully.
Outline your needs & wants:
I. Define the baseline income target, say $250K/year. Everyone is different on this.
II. Now, can you accumulate 10X that in the Business? Getting CASH to $2.5M might take 4-6 really good years
III. How about 6 to 10 years of income after you stop working? $1.5M to $2.5M pre-tax
IV. Do you have people in place to carry-on? Are they being rewarded? Phantom stock can be one way to do it. Another coffee some other time.
V. How big and how profitable does your company need to be to meet your monetization goals?
Based on these pre-tax requirements, our model suggests a $5M to $7M revenue business making at least 20% and selling for $6M might get you to a $5M post-tax reality with company cash coming your way.
What are the biggest impediments to making this happen?
Owners take too much out each year and get used to it and think the business will go on forever.
Owners never learn to achieve the full potential of the business, making north of 20% operating profit
Owners don’t leave cash in the business
Owners have no real outlet for selling a business at any premium.
All of these are fixable and manageable.
“Gee!” you say. “Thanks, Rich Dad, I’ll work hard and pay my house off at any early age.”
We get it if this doesn’t line up with what you’ve seen happen in the CI business. But we’ve watched this very scenario germinate & grow, and a crescendo is at hand.
If it makes sense that maybe this could happen, and you’d be interested to make it happen, we should talk about your future and what it can be.