I was talking to a business owner today and asking him some questions regarding how to buy businesses.
One of the things that he said that he does is alway look for an exit point at the point of entry. If you bought the business today could you sell it tomorrow for more than what you paid for it? If you could not there would be more risk associated with doing the deal. He always is trying to figure out what an exit point could be and how to grow the business to that point.
As you evaluate opportunities always be thinking about what your exit points can be, who might be a potential candidate to buy the company from you, and what you need to do to get to that point.
This brought back to me the Seven Rules of Carney which I read in a book a few years back called Ugly Americans.
The Seven Rules of Carney are:
- Always land on your feet – Never land
- Always look for an exit point
- Never take anything at face value – look at intrinsic value
- Change is always something to celebrate – It means that you are still alive
- Don’t make bets with no upside
- Find the solution in the problem
- Don’t hold a position in something that you can not get out of.
As you look at these seven rules number 2, 5 and 7 all specifically deal with this point. The other points are not bad to keep in mind either.