Picking Up Your Marbles - Your Exit Strategy
By Dr Paul E Adams | October 31, 2003
Coaching Your Business
"For everything you must have a plan." Napoleon
Inexperienced new business owners may be so hung up on cheerleading their way to success that any possibility of error, poor judgment, or changing business conditions are not on their radar scope. Their exuberance puts a mist over reality and they wind up zooming along with a fogged windshield without wipers. If you are planning to go into business, or just starting out, have a contingency plan in case "Murphy's Law" throws your plans and goals into a dither.
If your business is losing money and headed down the slippery slope of failure, be prepared for the day when your cash and credit are no more. Your money is gone, you are angry, you are frightened, you feel friendless, you have tensions at home, you hide from the mail carrier and the sheriff, and to top it off, you feel betrayed. The American dream did not work for you.
Realize that the majority of new businesses fail for a number of reasons. If you accept the possibility of failure when you plan your business you will have better chance of success. You will be more cautious and view risk as a condition of going into business and not something to discount and not plan for.
Seasoned and successful entrepreneurs take risks but they are so-called calculated risks-meaning they limit their losses. Not easy to do if your business is losing money as the natural tendency is to hold on in the hope that next month will be better,as you say to yourself I will just borrow enough to tide me over until things improve-which I know (hope) they will. And when next month is not better-ou take another trip to the loan office. So the bills pile up, the collection calls start-nd your anxiety level shoots up like the recent Chinese rocket to outer space.
But of course, you have faith-or hope-t can be confusing-fter all, you have invested all you have, so why not pledge your home? Why not give personal guarantees each time a creditor asks? While mortgaging your future may buy you time-it will-without drastic changes-not buy success and when the end of your world comes, and you are broke, deep in debt-kiss goodbye your chance for success the second time around.
As I say, you need an exit strategy. The day the shovel goes in the ground, your contingency plans should be prepared. And what should such a plan consist of? A set of rules you pledge to follow when the start of problems.
- Underestimate your first year's sales volume. Pessimism can lead to profits.
- Calculate your break even sales volume.
- Have a plan to curtail expenses if you are losing money.
- Set a limit; yes a limit on how much money you are willing to lose. Not a wait and see amount but an absolute limit.
- Manage by the cardinal rule of no personal guarantees to creditors.
I don't have space to write about all the details you need to think about and plan for if failure does happen-it is a topic that requires as much planning as your business plan-so think about your risk limits and be sure you can leave the poker table with your car keys and top coat.