Do You Have A Lifestyle Company?
By Katie Burns
Sep 12 2018
A lifestyle company is a business operated with the purpose of providing a level of income or particular lifestyle for its Founder. There is nothing wrong with having a lifestyle company, but the founder/entrepreneur must understand that the “lifestyle company” mentality does not fully align with building enterprise value or creation of a sellable company. Again, nothing wrong with either approach, but make sure you understand the pluses and minuses and that your choices are intentional.
A lifestyle company might be sellable, but below are some “lifestyle company” choices that could negatively impact your ability to sell your company and/or achieve maximum value:
- Your business would not be sustainable without you. You have not developed a solid team or business processes that would allow the business to move forward without your involvement.
- You’ve not properly managed your financial accounting. When making financial decisions and preparing annual financials, you’re more focused on limiting your annual tax burden than increasing revenue.
- You manage your company year to year with little to no long-term planning. At the end of the year, you are thankful to have made it through another year and do not strategically plan for the next one, five, or ten years.
- You don’t invest in the future growth of your business. You are not seeking to grow your business or not willing to make the investments necessary to do so. You draw and spend all profits and do not reinvest into the business.
- You mix personal and company assets. Examples of this include: your company paying a relative that does not contribute much/any to operations or your company owns a recreational property (beach condo, hunting club, etc.).
The way you run your business leads to a certain destination. The destination is not the problem; the problem is arriving at a destination that you didn’t want or didn’t intend.
This article was originally posted on Founders Insights.