LEGACY

MOST ENTREPRENEURS START OUT WITH THE HOPE that, in theend, they will gain the freedom that supposedly comes with working for oneself. The truth is that many self-employed people retire broke, tired and unable to sell their businesses because the business never progressed beyond subsistence level. The business is, in fact, worthless as soon as they leave it.

For me, this is the biggest reason that one should seek, from the outset, to build a legacy business. Yes, there are all the achievements of self and ego, and these should never be discounted. It is a wonderful feeling to have an idea and follow it through to success. There are also many things to consider, aside from your personal objectives. Many of the people involved in your operation will want to build it into a long-term, sustainable business. Why? Because these types of business create meaningful life and career opportunities for many people. Maybe the question should be, why not? If you create a legacy business, you are effectively creating (from your sweat and imagination) a talent pipeline that will create opportunities for the country.

In countries such as South Africa, with its issues of unemployment and poverty, this is indeed meaningful. There is, in addition, the matter of the wealth you leave behind for your family. Creating a legacy business will leave them with a tangible, accessible fiscal legacy. Expecting your children to step into the chaos of your one-man employment show, is not a legacy that youwish to leave behind!

I believe that the dominant force should be a quest to create something of value for yourself – to use or not, as you see fit – at the end of it all. There is something especially compelling about being able to leverage an asset that you have created through years of hard work.

One of the hardest lessons that entrepreneurs and leaders of legacy businesses face is the eventual sale of equity, or indeed the entire business. Nonetheless, the sale of a business remains one of the best markers of a true legacy business.

You might not be considering selling your business, at least not in the traditional sense. Regardless, you need to understand the nuances of the options.

The principles, that should be applied to growing the value of your business, are very much the same, no matter if you plan to just sell a portion of equity or the entire business. For this to happen, you need a business that runs effectively, without the involvement of the owner in management or client-facing activities. Simply put, the more the business relies on the owner, the less value one can get out of the sale.

It’s a sad fact that, out of all the small- to medium-sized businesses trading today, only about 10% are sellable. Only 25% of these are able to sell outright – able to sell, in other words, without the owner being locked into performance “earn out” deals. These play out over a couple of years, and only after this time can the owner completely leave the business and receive the balance of the proceeds.

ONE MORE THING…

SO, HERE’S A FINAL – but very important – exercise for you. Instead of allowing yourself to dream about all the money you will make when you sell your business, try to go through the process of actuallyvaluing your business.

When the time to sell comes, this will be a complex process, but John Warrilow has written a great book on the subject, called “Built to Sell”.  Of course, along with the book comes a website (www.builttosell.com), including a quick and easy valuation tool.

Brace yourself. Get ready to have your heart broken. For most entrepreneurs, including those who have been running companies for many years, the objective valuation is nowhere near what the owner thinks, in his or her heart, the company is worth. Many operations are, in fact, worthless once the time and talent and energy of the owner is removed from the equation.

Why go through this process?

Dreams can run away with us. This is as true in business as in any other part of life. When we detach ourselves from reality, we set ourselves up for disappointment. By making sure you keep an eye on the true value of your business, as you go, you can make objective decisions that stand the best possible chance of delivering positive results.