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How to get in (and out) of small business

You’ve got a great idea for your business and you can’t believe no one’s thought of this before. It’s exciting!

Before you go dashing to market it’s important to take time to crystallise your vision and create a business plan – and, importantly, an exit strategy in case things go wrong.  

Here are six tips for getting into small business – and another six for getting out. 

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Solve a problem

Many businesses start because they’ve identified a problem that needs solving. Start-up advisor Rachael Neumann says having a strong understanding and articulation of the customer problem is vital.

“Before you go dashing to market it’s important to take time to crystallise your vision.”

“The way you solve that problem may evolve and change over time and the product you build may change and evolve,” she says. “If you deeply understand the customer pain point [that] will be your guiding light.”

Once you’ve solved the initial problem, make sure you have a constant feedback system in place so you can address your customers’ changing needs, and that will help you drive your business. 

What to consider when preparing an exit strategy

Planning ahead is crucial to building a sellable business. Economic downturn, changes in market trends and legal regulations are just some factors that may influence a sale.

If you haven’t considered your exit strategy from the outset, it’s never too late, according to Brendan Campbell, associate director at Prosperity Advisers Group.

Prepare at least five years in advance

“Preparing at least five years in advance will give you time to make improvements to the financial performance,” Campbell says.

“If the business is sold on a cap rate or multiple, these improvements are exponentially higher in the sale price.”

During this period, be wary of changes within your industry and how they might impact your ability to sell at the price you want. Choose your timing wisely.

“Make sure you sell the business before it is too late; no-one wants to buy a video rental store anymore,” Campbell says.

Think about any leases

The last thing any prospective buyer wants is uncertainty. Make sure the sale of your business is not impacted by the lease you have on your business premises.

This can work both ways, as some purchasers want to buy the property and the business, and others want a secure location and lease.

“The key is understanding your industry, and considering the potential purchasers: will they want a business with an uncertain lease ending shortly after they buy it?” Campbell says.

Present information clearly

No one likes clutter or miscommunication. Show exactly what a purchaser needs to see and ensure it looks professional. 

Most buyers are looking for a business which is growing. A business with declining sales and profits will put most purchasers off (and reduce price expectations).

The new owner will typically be looking for happy, effective staff who will be continuing with the business. Keeping staff through the transition will make things a lot smoother for your buyers.

 “The adage you only get one chance at a first impression is very true when selling a business,” Campbell says.

Consider the impact

If you’re thinking of passing your business onto a child or family member, make sure you’re doing it for the right reasons.

Are they actually interested in running the business? And are they capable of doing so?

Let go

Deciding to sell means accepting it’s time to relinquish control. Whether you are selling to strangers, your family, managers and/or employees, be ready to step down.

“If you are passing on the business to the next generation, guidance can be appreciated,” Campbell says. “However, you will also need to be prepared to let the new owners make their own decisions – and their own mistakes.”

Seek advice

Do you know financially what you’re getting into? What about the tax implications of your decisions? How does your business structure affect the sales price?

“The tax consequences of selling a business will vary, depending on structures, price, and conditions of the contract – make sure you are getting it right,” Campbell says.

Apply unit economics

Once you have a clear picture of who your customer is and the problem you’re solving, it’s time to dig a little deeper into the unit economics of your business.

Know your numbers. How many customers are out there for you to capture? How do you plan to acquire, and retain, them? What is each customer worth?

“While fast growth and huge marketing opportunities are really exciting, if you’re actively losing money on every customer, the faster you grow equals the speed at which you fail,” Neumann says.

Write in pencil, not ink

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Be prepared to be agile and go off-script.

“Businesses today – especially highly innovative ones — are moving into big unknowns,” Nathan Sampimon, founder of Inspire9 and Moonshot Labs, says.

“Throw out your first business plan on day two based on what you learned on day one.”

“You do need some sort of systematic way of measuring success – some sort of game plan you can iterate on. Build something, measure the success then learn from it to build into your next product.’

Assess to evolve

“Very rarely do I see successful businesses two, three or five years down the track doing exactly what they said they’d do in their business plan,’ Neumann says.  “Good businesses evolve.”

Sampimon takes a ‘Sudoku’ approach to assessing where a business is at

“Look at the opportunities for growth, double-down on the things that are working, look out for other disruptors in the market and innovate quickly,” he says.

Customise your tool kit

Get some tools in your back pocket before you start formulating your business plan.

Neumann suggests shopping around online for business cases which resonate with your vision of your business.

“Don’t try to force your business idea into a templated plan,” she says.

Create a pitch deck

By creating a pitch deck in parallel with your business plan you confront tough questions a bank or an investor could ask.

Whether or not you show the pitch deck to anyone, you can have confidence you’ve addressed financial projections and viability both short- and long-term, meaning you’re much more likely to succeed in the future.

Gab Mitchell is a bluenotes contributor

An edited version of this story original appeared on thesbhub.com in two parts.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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