Monday, April 27, 2009

SMEs - step 1 in the business planning process

Once you have a basic idea of which new business you wish to start up, give a thought to your harvest strategy.

Firstly, remember that the reason for creating a new business is to create wealth for yourself, not to create a salary. The salary is simply the reward for the work you do as an employee of the business. The wealth is the reward for being an entrepreneur and taking the risk in starting the business.

But so long as the business is being run by you, it is highly unlikely that you will be able to extract the wealth you have created.  The best way to extract the wealth is to sell the business. This simple fact is one that many entrepreneurs and business owners often miss.

So before you start a business, decide what your harvest  strategy is for the new business. Who will buy a business of this sort? What basis will they value the business on? What profit and turnover levels will you have to achieve to be able to extract the amount of money you want in the selling price? Remember that the selling price is a function of turnover, profit and sometimes assets. It is not a figure you suck out of thin air. 

So understand the process and plan accordingly, and if the business cannot give you the required selling price in the allotted time, decide whether you want to proceed, or whether you want to find a different business. 

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