Buying my company off myself
Notes on accounting, social enterprise and 5 year plans
Being an entrepreneur means staying dynamic and open to change, whatever happens. It’s how you react to that change that defines your success.
However, I can say that I never imagined I’d be in the position of buying my own company off of myself; certainly a strange process to be a part of but one I now fully understand and hope that by the end of this short post, you will too.
Around 4 months ago I started to consider taking YENA on full-time, it was only a part-time business then, well more of a hobby as it was pre-revenue so still just an idea finding it’s financial feet as it were, even if we were 3 years into development, sometimes these things need to be built before you know how you’ll monetise them.
During this process I started to think about the implications of turning it into a business. In truth, YENA started to represent so much opportunity that it wasn’t just an obvious decision to move onto it full-time but it was also an exciting prospect that could become a ‘high growth’ business that covers multiple markets with many revenue streams.
“it’s absolutely key to stay working ‘on’ the business not ‘in’ the business”
This realisation made me look at the bigger picture. You may have heard that, although difficult, it’s absolutely key to stay working ‘on’ the business not ‘in’ the business as the day to day can bog you down and keep you out of the vital strategic thinking required for growth into new markets or indeed, your current one.
Looking at the potential future of the business, I made the assumption that based on the potential that YENA was presenting, it could easily be a company of large value within a short space of time.
We’d spent 3 years working on perfecting our processes, our events, our value proposition and our marketing strategy – a joy that not many have the chance to do before having to shut up shop (growing the brand alongside my other ventures proved key here but I’ll talk about that more in another post soon).
[Here it’s worth noting that I am not an accountant nor am I very good at accounts generally. This doesn’t constitute advice, it’s just an description of my thoughts & actions during this change in my business. Heck, some of it may even be wrong but it’s the way I’ve understood a highly confusing situation.]
At the time, YENA was a social enterprise; more specifically a C.I.C. or, ‘Community Interest Company’. This meant that we were limited by guarantee not by shares, so if we wanted to raise investment at some point in the future we’d have to become a Limited entity (by shares) in order to have equity to sell.
The other realisation was that if YENA did become a high growth business with growing revenues, as a social enterprise salaries would be limited, as would other remunerations, and so the company would be less of an interesting prospect for great talent which, in turn, would limit our growth.
The final nail in the coffin in deciding to become a Limited company was also linked to remuneration. I couldn’t imagine the hilarity of growing a company that may end up being worth something but then not being able to take my just reward for my years of hard work because the majority of profits would need to be left/reinvested into the company.
I remarked regularly at this time that I’d ironically still sell a lot of books though if that did happen about being the guy who grew a £m company but didn’t make any money from it.
In saying of this, my decision was also swayed by the fact I saw zero benefits from being a CIC during that time. The grant funding we had a chance to be opened up to, although we ticked every box possible, just never came and we got multiple declines without any feedback for improvement – a big fall-down that means social enterprises and charities don’t develop as fast as they should, in my opinion. It’s like getting an F in school but never being told why. How are you supposed to improve if you don’t know what you did wrong?
All of these factors made me decide to change the company into a Limited entity but this wasn’t as simple as I first thought it would be.
“You can just change from one to the other, right?”
You have to set up a new Ltd company and that Ltd company has to buy the assets from the old company.
“But that’s fine because you’ll just do a nominal value purchase for £1 and you’re good to go, right?”
The new company has to buy everything off the old company at market value because the old company is asset locked. It’s attached to a charity entity and all parties have to be remunerated properly at market value before you can own the assets.
I then found myself in the position of having to find thousands of pounds to pay for the assets of a pre-revenue company that I’d worked hard to build a brand and database for just so I could freely make more profits anyway.
At this point it’s worth mentioning that regardless of our entity now, we are still, in essence, a social enterprise. We have a committed social goal, to connect young people interested or engaged in business all over the world to improve their opportunities for success. 20% of revenue from Business Memberships are reinvested into a grant fund for young entrepreneurs starting up and growing their businesses and we run quarterly free events to help people connect even if they don’t have a budget for networking.
So, there I was, having to pay an independent valuation officer to value my company to give me a number that I would have to pay for the stuff I already owned in my current company. Confusing but I was starting to get it.
Ever the optimist, I didn’t really mind when the realisation occurred to me that had I not done this for another 6 months, or a year, or more or I’d started to generate revenue and high growth before discovering this aspect that the bill I’d have to pay myself would likely have been multitudes higher and when running a pre-revenue company it’s much easier to find a few thousand pounds than it is to find a hundred thousand pounds, as you can imagine.
So now, the transfer is done and the business is well on it’s way to sustainable revenue, we’re working on a very cool online platform, have demand from across the world (not just the UK), plans to launch more event locations and other standalone services being worked on in the mean time.
I’m more excited for the future of YENA than I have been for any company I’ve run or worked on in my 7 year entrepreneurial mess of a journey. It’s been fun but now it’s time to make a difference in the world… and some money along the way.