What does your End Game look like? If you have ever played chess, you know the end game is the last few moves of the game, when the battle is won or lost. This is the most important part of the game. Every move that you make throughout the whole game is leading you up to this crucial time, and everything is on the line.
The end game for any business owner should be to sell your company for the highest possible multiple. But the big question is “Have you envisioned your end game and planned out how to get there?”
For most business owners, if they answer that question honestly, the answer is no. I can promise you that if you do not spend the time and energy thinking through and planning out your end game, long before you get there, it won’t go the way you want it to. You may never even get to an end game at all.
So block some time this month to really think about the exit strategy for your company. No one else is going to do this work for you and in the long run it could be some of the most important time you spend…
Last week I was on a conference call with the owner of a manufacturing company in Atlanta. He was referred to me because he was trying to raise $500,000 to keep the business above water. This had been a solid, profitable business (generating over $1,000,000 in yearly net income) for over 20 years. Things had been going well until 12 months ago when his largest customer defaulted on a $14,000,000 contract. Without that monthly revenue, they got behind the eight ball with some of their expenses.
Unfortunately, he had waited too late to work on raising new capital. The bank was calling some notes due, and he was at risk of losing his entire company. If he had developed a solid capitalization plan for his growth plan, he would have been in a better position to weather this storm.
I admit, I have made the same mistakes in the past when building some of my businesses. I have seen a lot of very talented entrepreneurs do the exact same thing. It’s important to think about and plan for raising the right kind of capital to meet your growth plans, before you need the money.
There was an article yesterday in Investor’s Business Daily about a recent failed IPO attempt by Metastorm, a smaller privately held technology company. The article highlights how Metastorm had to pull their IPO filing, after having spent a couple million dollars on the filing and compliance expenses. This is a common risk involved with a traditional IPO. You never know for sure if there will be a market once you get through the initial stages, and even if there isn’t a market, you’ve already spent the money.
Becoming a publicly traded company can offer many benefits to a smaller private company, but there are often more cost efficient ways to get there. Depending on the company size and dynamics, often a reverse merger or a self-underwritten IPO can get the company the same benefit of becoming public, but without the upfront expense of a traditional IPO.