Plan for the End Game and Reward Yourself for the RiskChia-Li Chien, Ph.D., CFP®, PMP®, CPBC
Chia-Li Chien | Feb. 15, 2012
How long have you been a Facebook user? How long has your business been on Facebook? Even my 74-year-old Dad is on Facebook! According to Facebook, one out of nine people on Earth use Facebook. To say the least, it is an incredibly popular as a social networking site.
Facebook went IPO early in February 2012. That means Mark Zuckerberg, Founder, Chairman and CEO of Facebook will probably reap a personal net worth north of $20 billion—just in time for his 28th birthday in May.
In the history of IPO, many people have become instant millionaires or even billionaires, like Mark Zuckerberg. When talking to or interviewing entrepreneurs, I often ask, “What does your end game look like in terms of your exit strategy?” Almost 90% of them, to my surprise, will tell me, “I am not ready to retire yet.”
Do you think Mark Zuckerberg is going to retire after the Facebook IPO? As matter of fact, Jeff Bezos, CEO of Amazon did not after his IPO. Neither did Tony Hsieh, CEO of Zappos after he sold Zappos to Amazon. Many privately held business owners continue to work in the same business after selling their firm, regardless of internal or external transfer.
In my experience, when the owner is ready to exit, one-third of all businesses are sold to a third party, one-third are transferred within their own firm, and one-third simply will close the door. So which type of exit is best for you? Most business owners or entrepreneurs focus on growing their company revenue and overall operations. The majority of entrepreneurs really don’t even think about their exit—much less about which exit strategy is right for them.
In general, you either transfer your business internally or externally. In some cases, businesses can be structured so that they have a combination of internal and external transfers to achieve ultimate wealth for the entrepreneurs. But before we jump into each channel or method, try to answer these three questions:
- In a perfect world, how would you want to leave your business?
- Who’s the best candidate to continue your legacy?
- Can the sales proceeds support your next journey?
Let’s take a look at the summary of two major transfer methods: internally or externally.
If you’re going to exit your business someday, I am going to assume you want to exit profitably. Think of it as a way to reward yourself for taking the risk of going into business in the first place. Not only will you need FUNDENMENTAL VALUE for acquisition, but also one of the right exit method(s) above to help you get there.
Yes, you’ve heard me talk about this often, but I must emphasize here that unless you plan early and have an overall strategy in place to grow in value, each of the above transfer methods will be only a tactical exercise. You first must have that fundamental value in your business for acquisition. When you do, you’ll be able to sell your business at any time profitably. You may not be like Mark Zuckerberg but you can join the small percentage of the one-third who do sell profitably intentionally!
Although a business exit can be triggered by different factors, the value varies depending on the exit methods. These factors include 1) personal timing 2) business timing and 3) economic timing. You want to make sure all three factors in timing are in your favor when cashing out!
Even if you cash out due to the need for capital to expand your business you must a have sophisticated key management team within your strategic buyers. You’ve got to make sure all three timing factors are on your side and plan early to have the right transfer method(s).
Why? Claim your reward by compensating yourself for the risk you took in creating and running your business. Don’t wait too long for any of the triggers from personal, business or economic timing. Do yourself a favor—set a goal to be able to sell anytime! Profitably! Make it a win-win for you and your buyers/investors.
Perhaps you don’t want to or need to be like Mark Zuckerberg, CEO of Facebook. But doesn’t it make sense to plan ahead for the wellbeing of your business, you and your family? Think about it—what does your end game look like in terms of an exit strategy?
Facebook Stock: Should You Buy It? By Stacy Johnson
After IPO, Facebook will face pressure to crank up revenue; $4.39 per user won’t be enough, from the Associated Press, February 2, 2012.
Chien, Chia-Li. 2010. Show Me The Money – Run Your Business like a Prosperous Investor. iUniverse. Appendix A: Transfer Methods