How to Treat Your Business Like an Investment

Written by Peter J. Holton, Caber Hill Advisors

What is the difference between an investment and a career? The two words are rarely compared, but in the context of business ownership, perhaps we should pay closer attention to their meaning.  

A career is your occupation or profession, a representation of your life's work and hopefully something you are passionate about. An investment is an asset purchased with the idea that it will provide income in the future or appreciate and be sold at a higher price.  

Whereas a career only provides you with an annual income, an investment can provide you with both an annual income and a return (ideally, a gain) on your invested capital. 

Drawing the Distinction 

Perhaps the best way to compare the two is this: you retire from a career, but you exit an investment. This distinction sums up the difference in approaches — retirement is a highly personal and emotional decision, whereas exiting an investment is a highly rational, non-emotional business decision. 

Unfortunately for many small business owners, when it comes to exit strategy, it's tough to separate the emotional from the rational. Therefore, exit is typically linked to retirement rather than the real factors that drive exit timing. 

At Caber Hill Advisors, we draw the distinction between investments and careers because we know far too many business owners who treat their companies like careers. They purchased their business as a way to further their career and enhance their lifestyle, and whether the goal was to make more money or create more free time, their company supports their goals. The focus is short-term, with the primary concern being to make as much money this year as they did last year in order to fund their lifestyle.  

Cultivating the Right Mindset 

In an idyllic world, owners would determine when and how to sell their businesses. The unfortunate reality is that most don't get to do both; some are forced to sell earlier than expected, usually due to unforeseen circumstances, while others face the harsh reality that 80 percent of small business owners fail when selling their company. 

A strong exit strategy requires a shift in mindset: It requires thinking of your company as an investment rather than as a career. To this end, your company is no different than a stock or a piece of real estate, at least insofar as the determination of when to sell it. Unlike stocks or real estate, however, you have control over many aspects that determine whether or not you will be able to sell it when the time comes. 

Facility services business owners who treat their companies like investments rather than careers embrace this mindset. They take action to ensure that their company can be sold at any point in time. There are four concepts to keep in mind as you continue towards a potential sale: 

• It’s never too early for a strategy: Start planning an exit strategy early in your ownership, before you have a sale or retirement date in mind. 

• Think objectively about your business: The main reason companies don’t sell is sellers’ unrealistic expectations. An objective approach will help you better understand your company’s value. 

• Understand risk and turnkey business: Once you reduce owner, revenue stream and customer risk, focus on building a turnkey business. 

• Determine the right time to sell: Focusing on personal timing, rather than company or market timing can determine whether your business sells. 

By following these guidelines and planning appropriately for the future, business owners can better guarantee success when selling their business. 

Peter J. Holton is Managing Director at Caber Hill Advisors.