BACK WHEN I WAS SEVEN, my parents took me to the house of a friend of theirs for a barbecue. I knew him, he was our milkman, but what I didn’t know was that I was about to get the best business lesson of my life from the Milkman.
When we arrived we pulled up to a massive house with really expensive cars and I was really confused. I asked my Dad, “Dad, is the Milkman rich?” He told me to go see his friend and ask him about it.
Being seven years old, I was extremely tactful of course. “You’re our Milkman right? … how does a Milkman get to be rich?” His reply set me up for where I am today.
Now, remember I was seven so this is paraphrasing his response… “Son, you don’t make money selling milk, you make money selling milk runs. I buy a milk run, build it up and sell it on, then I go and buy another run, build it up and sell it on. Each time I sell a milk run, I have another big amount of cash to invest. Most people think that running the same company all their life is the way to go, but it’s not, it’s about making capital every few years and investing it.”
The essence of what he taught me is that you don’t make money running businesses; you make money building them up and selling them. You have to realise a capital gain to be able to use it.
Yes, of course the profit and wages you pay yourself along the way are great, but shouldn’t you at least examine what you might get if you put your business up for sale.
Many business owners we work with are amazed at what capital value their company has. It’s often enough for people to retire on, but they don’t know it yet.
Think of it this way: if every couple of years you bought a rundown house and renovated it and then on sold it, you’d make good money.
But what if you bought a small beach shack and over many years built it into a beachside mansion, what would it be worth today?
I just think you should be looking at business the same way. You have invested a lot of time and effort building an asset, and it may be time to sell it and turn your skills to another business or opportunity to build. The best part here is that, unlike property, business values are solely determined by the revenues and profits.
Buying a run down or — as the Milkman did — a business in a newly developing area and building it up over a year or two adds great capital value. But for many business owners, what if you built it over 10 or 20 years, where would its value be?
Now, here’s the challenge. Some of you have positioned yourselves so tightly into the day-to-day of the business, that it’s a trap. In other words, the business won’t work unless you’re there. So, when you go to find out how much it’s worth, the number will be a lot lower than you expected.
Not only that, if the value is lower than you expected, I’ll bet your not pulling anywhere near the profit you should be out of it month-to-month.
If you’d built it with a view to selling it, I’m certain you would have done a few things differently and made it not so reliant upon your skills, your ability and your work ethic. Every business owner has a choice and possesses the ability to learn how to make their business work without them.
If your plan is to sell it, how can you extract yourself over the next year or two? Who knows, if it runs without you, then maybe you’ll want to keep it.
And the bottom line is: if you value your time in building an asset, then sell the asset and use your time to build another and another.