Most entrepreneurs are so focused on putting money into launching and growing their business that they rarely think about how they’ll get it back out at some point, in the form of an exit strategy.
However, the time to begin thinking about how you will cash out of your company, whether in the form of an acquisition, sale, liquidation or even a public offering of stock, is when you start your company, and at every stage of its growth and development.
“The Art of Cashing Out” was both the title and the subject of a panel held today at the Black Enterprise Entrepreneurs Summit in Miami. The panel discussion, led by BE SVP and Executive Editor-at-Large Alfred A. Edmond Jr., featured SVP, Business Banking, U.S. Head of Treasury and Payment Solutions, Leslie J. Anderson; serial entrepreneur, investor, and VentureFund.io Founder, Clarence Wooten; and startup adviser, investor, and entrepreneur, Lauren Maillian, co-star of Quit Your Day Job on the Oxygen network.
The panel of entrepreneurship and finance experts shared insights on a variety of key issues, including valuation, for business owners to consider in order to create exit strategies that can enable them to walk away with maximum financial reward and on their own terms. Among the key takeaways:
Think like an investor, not just an owner. “When I started my first company [a wine vineyard], I was attached to the lifestyle of owning my business,” says Maillian. “Then I recognized that even if you are the only owner with no outside investors, you are your own investor. As my own investor, I deserve a great return on investment just as any outside investor would. While I initially resisted the idea of selling, once I thought in terms of getting a return on my investment in the business, it was a no-brainer.”
Convert your small business into an asset. “Your business does not become an asset until it is able to run without you,” says Wooten. “You can’t exit the business if it can’t operate without you.”
Get real about the valuation of your company. “The biggest mistake of many of the entrepreneurs I work with who want to sell their business,” says Anderson, “is they base their valuation on what they need to continue to finance their lifestyle, which usually has nothing at all to do with the value of the business. The value of your business is not based on your needs.”
All the panelists agreed: While the path to the right exit strategy is different for every entrepreneur, not planning for an exit at all is simply not an option. “There are not a whole lot of road maps to exiting,” says Anderson, “but there is a lot of roadkill for those who don’t plan their exits.”