Cutting down the net

Like most of America, my college basketball bracket is busted.  Having lost most of my final four picks but not my interest in the tournament, I watched an entertaining and inspirational ESPN special, Survive and Advance, about Jim Valvano and the 1983 National Champion North Carolina State team.

A number of the story’s lessons could easily translate to running a business, but I found one in particular surprising.  Valvano devoted one entire practice near the beginning of the season to cutting down the nets.

For those of you who don’t follow basketball, cutting down the nets is the tradition for the team that wins the NCAA tournament.  Each player and coach climbs a ladder and cuts one of the strings on the net to celebrate their victory.

So what possible benefit could it be to practice cutting down a net?  It won’t help with the fundamentals of play or the conditioning required to make it through the tournament.  But Valvano believed in painting a picture for his team.  He wanted them to see themselves as a team that could win it all, and he wanted them to believe in that dream.  Devoting an entire practice to cutting down the nets was his way of solidifying the end goal in his players’ minds.

Just like Valvano and the 1983 NC State team, business owners need to have a definitive end goal in mind and need to practice “cutting down the net.”  Is your goal to retire, buy a house on the beach and spend your remaining years fishing and sipping Coronas in the sun?  Great!  Do you know how much money you will need to put away to live that lifestyle?  Do you know how much you will have to sell your company for to net that amount?  Do you know what your business transition options are and who the potential buyers might be?

If the answers to the above questions are no, it’s time to devote some time to getting the answers.  Start by thinking about how you would like to spend your time when (and if) you no longer want to run your business.  At what age do you plan to retire?  Once you have a better idea of how much money you will be spending during your retirement and for how long, a wealth advisor can help you determine how much you might need to safely ensure you won’t have to go back to work.

Now that you know your post-retirement plans and financial needs, you can speak with your accountant to find out how much you will need to sell your company for to net that amount after taxes and other costs.  At that point, you’re ready to talk to an investment banker.  An investment banker can help you determine the value of your business today and explain how buyers determine value.  They can also explain different transaction structures (two-stage, earn-out, outright purchase, etc.) and the process and timeline associated with selling a business.

Now, you have painted the picture.  You can see where all the hard work of starting and running your company will lead.  You can imagine yourself post-retirement, whether that means playing golf, volunteering or acting as an advisor to other companies.   You know what it will take to get there and how the process works.  You have dreamed the dream and believe you can get there.  It worked for Jim Valvano and the ’83 Wolfpack team – and it can work for you.

Categories: Finance