- Category: Industry News
- Created: Sunday, 06 July 2014 18:03
- Written by Peter Holton
What is the difference between an investment and a career? The two words are rarely compared, but in the context of business ownership, perhaps we should pay closer attention to their meaning. A career is your occupation or profession, followed as your life’s work and hopefully something you are passionate about. An investment is an asset purchased with the idea that it will provide income in the future or appreciate and be sold at a higher price. Whereas, a career only provides you with an annual income, an investment can provide you with both an annual income and a return (hopefully for a gain) of your invested capital.
Perhaps the best way to compare the two is this: you retire from a career, but you exit an investment. This distinction sums up the difference in approaches—retirement is a highly personal and emotional decision; exiting an investment is a highly rational, non-emotional, business decision. Unfortunately, for many small business owners, when it comes to an exit strategy, it’s tough to separate the emotional from the rational. Exiting is typically linked to retirement rather than to the real factors that drive exit timing.
At Caber Hill Advisors, we draw the distinction between investments and careers because we know far too many business owners who treat their companies like careers. They purchased their business as a way to further their career and enhance their lifestyle, and, whether the goal was to make more money or create more free time, their company supports their goals. The focus is short term, with the primary concern being to make as much money this year as they did last year in order to fund their lifestyle.
Creating a strong exit strategy requires a shift in mindset; it requires thinking of your company as an investment rather than as a career. To this end, your company is no different than a stock or a piece of real estate, at least insofar as the determination of when to sell it. Unlike stocks or real estate, however, you have control over many aspects that determine whether or not you will be able to sell it when the time comes.
Landscape business owners who treat their companies like investments rather than careers embrace this mindset. They take action to ensure that their company is in a position to be sold at any point in time. We all like think we control our own destinies, and in the case of business ownership that means determining when to sell and doing so on our terms. The unfortunate reality is that most don’t get to do both; some are forced to sell earlier than expected, usually as a result of unforeseen circumstances (divorce, illness, other hardship), while many others face the harsh reality that 80 percent of small business owners fail when trying to sell their company.