Business Exit & Entry Strategies for Wealth.
Transworld Business Advisors of Canton
Good Deals, Good People.
Owning profitable companies can provide unparalleled opportunities for sustainable wealth creation and financial freedom. However, one must set the proper foundation for long-term prosperity by focusing on fundamentals for sustainable growth when acquiring, growing, or exiting a business.
Cash flow remains the lifeblood of any enterprise. While profits showcase past gains, positive cash flow represents funds available for growth or distributions. One useful metric is the Investment Cash Flow Index (ICFI), which compares capital invested to ongoing cash generated. The formula = Investment Amount / Monthly Cash Flow. Lower results signal better efficiency and reduced speculation.
Common Considerations Include:
Many mutual funds plow profits back into holdings rather than paying dividends. Investors can only access gains by selling shares. But values fluctuate, and liquidations during downturns may lock in losses.
Stocks making quarterly payouts provide recurring cash flow. However, high share prices relative to dividend yields mean more significant upfront costs and lower efficiency. Reinvesting dividends can compound gains over time.
While rental income quickly offsets them, larger down payments initially increase the ICFI. Appreciating property values and rising rents provide built-in inflation hedges.
Owning a company offers unmatched potential returns for seasoned entrepreneurs. Although initial investments are higher, proportional cash flows exceed most options when scaled. Reinvesting earnings further boosts valuations over time.
This math partially explains why the affluent often acquire private businesses. However, calculated selection and ongoing effort must focus on entities with proven cash flow traction.
The 6 P Method
When building or identifying a thriving enterprise, renowned business coach Michelle Seiler Tucker suggests concentrating on her "6 P method" to distinguish high-growth companies from those struggling to stay relevant:
People: Building talented teams enables scaling beyond dependence on company founders. As leadership guru Zig Ziglar proclaimed, "You don't build a business; you build people, and they build the business."
Product: As Coronavirus abruptly demonstrated, continuous adaptation to evolving consumer preferences and market conditions is vital. Asking transformational questions keeps one aligned: 1) What business are we in? 2) What unique value do we offer? 3) What business should we pivot into?
Process: Systems leverage talents while delivering consistent customer experiences. Revisiting workflows through an end-user lens exposes improvement opportunities. Although processes may initially feel restrictive, they enable delegation and reduce mistakes.
Proprietary Assets: Branding, patents, trademarks, distribution channels, and technologies help lock in competitive advantages and premium valuations during eventual ownership transfers. Industry experts estimate proprietary assets alone can account for up to 75% of acquisition valuations.
Patrons: Mitigating client concentration cushions against sudden revenue drops should large accounts defect unexpectedly. Losing just a single significant patron can instantly sink profit margins. Review the 80/20 rule frequently - where approximately 80% of revenue comes from 20% of patrons. Limit concentration from the top 5-10 accounts. While large anchor buyers provide stability, a variety of sources help smooth fluctuations should spending habits shift unexpectedly.
Profits: Sagging financials typically indicate problems with one or more other critical areas. By performing regular external audits, executives ensure that numbers reconcile fully, statements are balanced, taxes are current, and teams appropriately handle resources.
Thriving "lifestyle businesses" artfully balance these often-competing facets through adaptation over decades. Their enterprise value compounds mightily by not relying excessively on any individual founder.
Acquiring "Pre-Owned" Cash-Flowing Assets
The ideal entry point for aspiring entrepreneurs is buying existing absentee-owned enterprises. Assuming leadership of a profitable brand with existing momentum minimizes disruption in a business that is already profitable in a founder's absence. Calculate the Investment Cash Flow Index to assess the actual return on investment based on reliable metrics. Since positive monthly cash flow covers acquisition costs and small business loans, buyers often sidestep start-up struggles plaguing most new ventures.
Income streams from day one eliminate the need to quit a day job, while household revenues theoretically can double when retaining their traditional corporate roles. Though past generations progressed linearly through corporate ladders before shifting to fixed retirements, today's opportunities can reward creative strategists integrating multiple cash-flowing assets.
Building wealth through business ownership requires skillful navigation across multiple fronts. Surrounding oneself with supportive mentors maximizes the probability of success. The local Canton chapter of SCORE can also provide voluntary mentorship insight when acquiring, growing, or buttoning up an enterprise's 6Ps to prepare for a future exit.
Approached strategically with proven fundamentals guiding decisions, entrepreneurship unlocks powerful tools for funding the futures we envision. With hard work and patience, cash-flowing assets cultivated methodically over time can offer lasting independence and fulfillment in work + life.