Myth no. 4: «It’s easy to make money once the business is off the ground»
It is believed that a business becomes a money-generating machine once it is well oiled…this is true with certain types of businesses or those that are well established, but in reality, it’s not that easy to generate profits from the activities of a business. In theory, you project very profitable results, but then there are all the miscalculated risks, the business failures, and the unforeseen marketing investments.
No matter how hard you try to adjust the recipe, the ingredients and parameters are constantly changing, and you must keep a close eye on the financial health of your business, regardless of its level of growth. Profitability can never be taken for granted; it is the result of countless small decisions, potential returns on investment, and timing (sometimes referred to as luck). And every year, when the financial statements are published, we start from scratch and hope to do better than the previous year and learn from our experiences. Want to know more about business growth? This is where it happens!
Myth no. 5: «The entrepreneur will become rich once business is sold»
We believe that businesses are worth a lot of money right after they are established… some are, but the vast majority… are NOT. It takes years and a lot of profits or high revenue peaks to justify high valuations. A company will never be as valuable as the value perceived by its founder or by the partners who sell their shares… They are the ones who will most often overvalue the company.
The future buyers, however, will more likely evaluate the potential to make money and make a quick return on their investment, as in any commercial transaction. This means they will look for flaws and weaknesses so that they can negotiate and pay the lowest possible price. So, it is in the entrepreneur’s best interest to be patient and focus on the profitability of his business if he wants to get wealthy by selling it.
The value paid for small to medium size business acquisitions are therefore far less than one might imagine, and only a small proportion of entrepreneurs will be multimillionaires following the sale of their business. Moreover, this implies that they must sell before shutting down or going bankrupt. Yet the survival rate of businesses beyond 10 years is on average only 40%.
Of course, there will always be stories of transactions of unprofitable start-ups with high valuations in certain sectors, but this remains the exception, and not the norm (which is why we hear so much about them). Here are a few tips to see what you could get out of selling your small business.
Myth no. 6: «Success has a lot to do with luck…»
It is also believed that success in business has a lot to do with luck. It’s true that if the entrepreneur has studied his market carefully, has invested himself heavily to develop his project and has made many sacrifices to achieve his goals… he may have increased his chances for success.
Success in business is not accidental, nor is it based on external parameters beyond our control. When an entrepreneur experiences bad luck, he manages to mitigate the negative effects on his business. When he has a chance to make a good move, he is robbed of his merit and is told that he succeeded because of the context or his environment. However, he is the one who found to the opportunity and he is the one who knew how to exploit the potential of that opportunity. If you want an example of bad luck, read my article on the 9 lives of the entrepreneur.
Now that we’ve brought this whole other perspective on business success to light, you can say to yourself that it doesn’t matter if you’re not profitable after 5 years or if you’re not riding in a limousine — you’re not necessarily on the wrong track. On the contrary, reassure yourself that if you are able to continue your business activities and persevere in complex and difficult conditions, to pursue your mission despite the stress of the financial challenges, you are on the road to success…