Increase Business Valuation and Decrease Business Dependence
The Holt method of creating a safe income without working (if you so choose) is based on the principle of developing a turnkey business. The turnkey solutions used in this method create enough profits to pay the owner through net profit rather than salary.
The reason most owners are unable to create a turnkey business is that they don’t understand the value in having advisors and employees think through the development of the systems required to enable employees to perform their jobs effectively.
Jobs must be performed at the lowest cost possible and without the owner having to do any of the work or providing any oversight. Typically when people create a business that succeeds, it’s because it is valuable. Unfortunately, owners fail to transfer that value to themselves for moving out of the business.
Look at your current activities. Are you filled with responsibilities and spending time that you would rather not be? When you reach a point where you have accumulated all of the wealth or income you need, would you like to create a new calendar for yourself that allows you to do what you really want to do? Would you like to create an Organization where you don’t have to worry about failure or being responsible for business success every day?
An exit strategy doesn’t necessarily mean retiring from the business. (Learn more about what exit strategy is all about here.) A very popular option is to create a strategy for moving out of the business. This option is dependent on a turnkey approach.
There are three steps in creating a turnkey business:
Step 1 – Determine how much income is enough.
- When determining how much income is enough to meet your financial needs; you need to keep in mind the cost of living (with inflation) as well as extra expenses such as repairs, gifts, travel, and leisure.
Step 2 – Analyze your current situation and develop turnkey solutions that will get you from where you are to where you want to be.
- After you have decided on an appropriate amount, you can begin to look at options to achieve your number. For example, if your answer is $200,000 per year, you might consider the following options:
- Creating a business that can pay you $200,000 from its net profit indefinitely. This is excess income.
- Selling your business for enough money to create $200,000 of income annually based on a safe return of 5% of capital, or $4,000,000.
- Creating a combination of income streams such as; real estate, business profits, stock portfolios, savings, and so forth. If your income goal is $100,000 or $50,000, the formula remains true.
Step 3 – Determine your objectives and have the discipline to execute your exit strategy at the right time.
- A huge mistake in discipline that I have often seen owners make is a lack of oversight. They can be financially independent in October and have lost half of their net worth in December through no fault of their own other than the aforementioned lack of oversight. Unfortunately the reality is that they have nobody to blame but themselves.
- Without a timed exit strategy, all wealth can be lost and bankruptcy is more of a reality than most people know. One cannot underestimate the critical importance of creating a turnkey business or organization and the timing of your exit if you are the owner. The best proven way to do this is to start the transition process now.
An important point to remember is that a business exit strategy isn’t about stopping anything you love to do. An exit strategy for your business should be about having the insight to ask yourself if you are really enjoying what you do or if it is just a habit that you have convinced yourself that you love. If you had $10,000,000 would you still be doing what you are doing?
If you would like to create your own turnkey systems, it is important to take action immediately. We would like to help you with this by giving you a free copy of our Action Plan form to get you started.
We also encourage you to contact us directly with any questions regarding the form and the actions you need to take to complete your turnkey system.
We hope to have you back as we add more posts to the series. This blog series will continue to discuss the important facets of your exit strategy including; turnkey management, how to sell a business, how to shut down a business, and how to determine which of these exit strategies is best for you.
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