Business owners often times get caught up in phenomenal early success and, as a result, fail to equip their organization with business strategies to accommodate the 3 stages of entrepreneurial growth: (1) Startup; (2) Growth; (3) Exit.
START UP
Aside from the obvious… have adequate resources and good management, entrepreneurs from the very beginning should establish a business development plan. The foundation for your business. At this early stage of growth, the strategy should be somewhat informal, a vision, if you will. You can’t allow yourself to get stuck on a plan this early.
As the company evolves, you’re looking for a pattern of decisions to develop to justify your strategic planning. You must learn to adjust to the feedback. BE FLEXIBLE IN YOUR PLANNING. Your company is taking shape.
THE GROWTH PHASE
As the company grows, you can now see and feel “the business” and structure a more formalized business plan.
Business strategy, however, can never be fixed. Your customer needs will change, your competitors both existing and new will introduce new products and services…meaning your going to have to continually rethink your strategy to compete in changing environments. There will always be external changes in the market, competition, technology, and economical and political changes.
Managing the Growth
- You have to hire and continually train good people. Train them to acquire future skills.
- Establish organizational policies and controls to continually monitor cash positions.
- Accounts Receivable
- Inventory Systems
- Accounts Payable Policy
- Monitoring Tools to Track Financial Performance
- Financing-it’s all about cash. For current and future growth.
You should always be looking to improve your cash flow. Try and avoid borrowing. You can factor receivables, maintain a stringent collection policy, negotiate better payment terms with suppliers, discount to customers for early payment. Maybe even increase margins if warranted.
SO YOU’VE CREATED THE VALUE-HOW DO YOU EXIT?
What most entrepreneurs don’t understand is that you need to develop your exit strategy early on in the growth stage. Understand the important value issues essential to the success of your entrepreneurial journey.
The return on invested capital must be greater than an investor’s opportunity cost of funds i.e. operating profit margins and use of capital invested. Is there an opportunity for a new set of owners to create more value than you? Is your business scalable…does it have upside potential? An excellent way to create value.
What are your options?
- You Can Sell Your Company
- Strategic Sale to a Competitor-may pay a premium.
- Final Sale based on cash generating potential
- Employee Stock Ownership Plans (ESOPs) sold impart to employees.
- IPO…for a multitude of reasons but primarily to provide a liquid market for company stock.
How to value your company?
- Market Comparables
- Free Cash Flow Valuation
Terms of the Sale
- Take cash as opposed to cash and stock.
Investors are always concerned about how to exit. Entrepreneurs should also make exit an early consideration. Don’t wait for something to go wrong to structure your exit.
When it’s all said and done. Invest carefully and know what you want out of life and go get it.
by Bill Bradley
bbradley@AmericasBestFranchises.com
Bill Bradley is the founder of Americas Best Franchises. America’s Best Franchises provides a content-rich informational web portal with a mission to match prospective entrepreneurs with the perfect franchise or business opportunity. In addition, America’s Best Franchises provides a superior, results oriented, economical advertising solution to the franchisor and business opportunity community. www.AmericasBestFranchises.com
