There are three main ways of making money as a business owner:
- Taking a salary for the time, effort and expertise provided. For a dentist practice owner, this usually means their 40% commission.
- Generating profit. What the business makes after all expenses are paid, including the principal’s salary.
- Realising capital growth via the sale of your business. Buy low or start up a practice, build up and sell.
Most business owners have a general understanding and are actively in pursuit of the first two categories on a regular basis. Somehow though, for most business owners, it seems to be accepted that generating wealth via the third category - the sale of your business - should only happen once… at the end of your career.
Why is that?
Why do we all want to be entrepreneurs (getting into and running businesses) and not “exit-preneurs” (who plan their exit from the beginning, own and sell several successful businesses over their career)?
Why is it that we, at Practice Sale Search, rarely get business owners coming to us saying:
“I want to sell this successful practice because I realised that, with my skill set, I can easily build a practice to $1M-1.5M turnover but will struggle to get it further than that. My time and effort are best spent selling this and then doing it all over again”.
The tendency to overlook and undervalue wealth generation through capital gain is due to many factors. It is a reflection of:
- Dentists viewing their practice as a job, NOT as a business. They see the main benefit of their business ownership as having more control over their job, NOT overall wealth creation.
2. A more traditional view of a career that usually entails hard work at a singular pursuit, to gather and save as much salary and profit as possible. Business capital growth is an afterthought at best…
3. A more traditional view of what it means to be successful in business. In this simplistic view:
- A successful business owner will only ever buy, grow and accumulate businesses.
- The pinnacle of success is owning an empire.
- Selling shows a lack of resilience and is only a valid path when there is something wrong with the business or the seller.
4. Business owners’ lack of confidence in their own skills. Many successful businessmen underestimate the extent that their skill played in their success and overestimate things like “luck”.
In so doing they do not see how replicable the process could be.
The greatest indicator of any business’s future success lies in the skill and track record of the owner. This is why banks are much more likely to lend money to a business owner who has been successful before.
These views are clearly limiting in terms of wealth creation.
Some of the wealthiest people I know have become so from being both an Entrepreneur AND an “Exit-preneur”.
By focusing on wealth creation via salary and profit alone, Dentist business owners are ignoring the value of their business and a significant part of their wealth.
If they kept a keen eye on the value of what they are creating, they would realise:
- that often, much of the capital growth they are creating happens quite quickly at the beginning of their ownership.
- that later, the growth of that practice will typically diminish and start to plateau, despite the effort expended.
- that on a return for effort basis, their time was often best spent earlier on, creating this capital value.
If they thought about it, they would also realise that the process of building capital is a skill that is reproducible…, and well worth replicating.