Wednesday, June 4, 2008

SMEs - harvest planning is so critical yet so often ignored (2/2007)

How many entrepreneurs have you met who have to work until the day they die?They do not plan to sell their business, they become emotionally attached to the business, they steal the cash sales to avoid tax. They die old, without wealth and exhausted.

It is simply a case of not thinking ahead. Business ownership must not be seen as a source of salary for you as an entrepreneur, but rather as a means to create wealth. To create wealth you need to convert the value you have created in the business, into cash.

So when you start a business ask the following questions:
1. Who will want to buy this business?
2. Why will they want to buy the business?
3. What do these businesses normally sell for?

Remember that often we initially start a very small business that does not have the capacity to grow big. So we need to keep selling the business and buying/starting a new one that has the capacity to grow even bigger. This way we can grow our wealth.

It is a business, not a family member! Plan for how you will harvest from the business you have created. In many countries the tax on selling a business is classed as a capital gains tax, and is either not levied or levied at a very low tax rate. I have started or bought 30+ businesses over 25 years. A few failed, but the rest have been sold.

Rob Smorfitt

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