The Exit Strategy
When I take on a new business one of my first questions is; what is your exit strategy?
I think this is an important question for all owners of businesses wherever they are in their business lives. For this article I will assume I am talking to someone who is thinking about setting up a business but most of the content will apply wherever you are in your business life.
When do you walk away from your business.
You start a new business with enthusiasm and passion, but you need to think about how much time and money are you willing to put into the business before you make the decision to walk away from the business
As an example, I had a client who opened up a café who said she had $100,000 to invest and a year to see if she could make a go of it. After a year she had spent the $100K and was still losing money. She closed the business and walked away poorer but happy, she had always wanted to own a café and had given a good shot and now realised it was not for her and she learnt a lot on the way.
You need to make a call before you open your business how much time you can afford to make the business profitable to the level you require and how much money you can afford to lose.
Remember that a year away from your job will not be considered as too bad by future employees but three years will limit the people willing to risk hiring you.
There is always a cost benefit analysis with a business.
Your business is giving you so much income/profit what could you be earning if you were working for someone else.
What are the benefits/ downsides for working for yourself compared to those of working for someone else.
Long Term Leases
When starting up many businesses you will need to rent a premise. These can be expensive and have a lease term of 3 years. As a retail business it is important to have a long term lease. If you build up a good business you could lose it all if your lease expires and you have to set up a new shop in a different location.
However if you are starting up a new business do you want a 3 year lease which you may have to keep paying even if you have shut down the business. It is best to try and get a 1 year lease with an option to have the lease extended if the business is successful.
If you have partners, what happens if one of the partners wants to leave the business?
Going into business with partners can be a great idea. You can bring together different skill sets which could help the business be a success. However 5 years down the track you and your partners may be heading in different directions for various reasons. What happens when one of the partners wants to sell their shares in the business?
Questions when this happens can be problematic. What is the business worth you might think it is worth X your partner may think it is worth Y. If the business is worth $500k how do you pay them their half being $250K.
With one business we dealt with we had a shareholder agreement which stated how the business was to be valued and if the payout figure was more than $100k it would be paid out over 4 years with a minimum payment of $100k per year till the payment had been fully paid.
There are many things to think about when starting or running a business and your accountant is one of the most important people discuss issues with as they will have seen other businesses who have had the same issues that you are dealing with