If you’re like most business owners, you probably started your enterprise out of a heartfelt belief that you could provide a better product or service. Wealth creation most likely was not the objective. You hoped to earn enough income to put food on the table, pay the rent and provide for your family. That’s a reasonable approach, yet some entrepreneurs may be selling themselves short because they are not maximizing the long-term financial potential of their enterprise.
There are two basic ways to build wealth through business ownership:
- Pay yourself an increasingly larger salary as you go along; and/or,
- Build a business organically or through acquisition and then monetize the value of the business you have created by transitioning ownership/selling the business in whole or part.
In the first type of building wealth, you work hard and, hopefully, watch the business grow. As profits increase, so does your salary. Eventually, you could be taking perhaps a few hundred thousand a year and still maintain complete ownership.
The second type of building wealth, where some literally have made millions, typically happens when you strategically grow and ultimately sell the company. Bear in mind that there is the potential to make a lot more money by selling the business than running it.
In preparing your exit strategy -- as soon as the first year in business -- you can start by asking yourself some questions:
- Where do you want to be five, 10 or 20 years from now? This will determine what needs to be done with the company.
- Who do you want to pass the company along to – private or public sale, transition to family members or employees, or be acquired by another company?
- What will your role be in the company after you leave?
- What kind of leadership team do you need to pull together now to help you grow and eventually serve as an asset in the ownership transition of your business?
By addressing these issues early on, you’ll be much better positioned to achieve them. And if moderate or even immense wealth is the goal in addition to a strong client base, you will need processes, procedures and a leadership team in place that will enable you to achieve your financial objectives.
Emilia DiMenco, who previously was executive vice president at Harris Bank, is chief operating officer at the Women’s Business Development Center, a service organization that provides prospective and established business owners with the tools they need to grow their businesses.