How To Insulate Your Business From Uncertainty Ahead
Every new day comes with a slew of predictions that can be concerning. Will a new superbug take hold? Will the stock market crash? Will the economy tank? Will a new disruptive technology emerge?
There are three practical steps you can take to insulate yourself and your business from whatever the coming day, quarter or year may bring.
Strategy #1: Stop Trying To Time The Market
Many founders try to time the sale of their business to coincide with the peak of an economic cycle, reasoning they will get the best price for their business when the economy is booming.
While this is true in theory, when you sell your company, you need to do something with the money. Perhaps you’ll consider investing in real estate, buying another business, or retiring and investing the money in stocks & bonds. Most investments are impacted by the same macro-economic environment your business enjoys, which means you will be buying into just as frothy a market. The alternative to timing the market is to consider selling when your business meets two criteria:
First, if your company is on a winning streak, it will command a premium compared with average performers in your industry. Pick a time to sell when your revenue is growing, gross margin improving, employees are happy, and customers satisfied.
Second never sell before you have all the information you will need to survive due diligence. After you agree to terms with an acquirer, they’ll need some time to verify every aspect of your operations, including your financials, customer contracts, employee agreements etc.
You can’t wait until due diligence to prepare this package of information. The way to immunize yourself against whatever the economy may be in the years ahead is to sell when you’re on a winning streak, and you have the data assembled to skate through due diligence with ease.
Strategy #2: Pick Your Lane and Stay in it
The global economy has been expanding for several years, fueled by low-interest rates and optimistic consumers, which can be a dangerous time for founders. When the economy is hot, it's tempting to expand outside of your original product and service category as customers seem to be willing to buy just about anything from you.
Too much diversification can make your business less attractive to an acquirer over time. Acquirers buy what they could not quickly build on their own. When you diversify too broadly, a buyer may pass reasoning, that it would be relatively easy to compete with your similar products or services. They know you'll want to get paid for all your business, yet they may only want a small part of it.
Remember that acquirers only buy what they could not quickly build themselves, so they place a premium on buying a business with a definite competitive advantage — for example, a proven brand that consumers prefer or a protected technology innovation.
No matter what the economy has in store for the years ahead, do one thing better than anyone else, and you’ll always have a ready pool of potential acquirers for your business.
Strategy #3: Create A Vision Board
A vision board is a display of images that illustrate where you want to be in the future. Creating one by grabbing a stack of magazines and cut out pictures that appeal to you and communicate the life you want to lead.
A vision board is a compelling way to immunize yourself from the inertia that sets in once the startup years of your company are behind you. When you’re no longer struggling to find the next customer or wondering how you’ll make payroll, running a business may become less exciting. When you no longer need to draw on your creativity and problem-solving skills, one day may flow into the next, and you can become content, but perhaps not truly happy.
Think about a time when you were happiest. You were probably doing something new, perhaps in a new place with new people, learning, contributing, and growing. Most owners are happiest when they are starting and growing a business, but when a company matures, it can become stifling.
The problem is it can be challenging to leave a successful business. Your lifestyle needs are satisfied through your company, so why go? That’s where a vision board can be handy. It allows you to decipher the difference between being happy and merely content. When you find yourself feeling comfortable but not necessarily happy, that might be the perfect time to sell – regardless of what’s happening in the economy at the time.
If you have reached that point in your business cycle and would like to discuss your options call us at 732-741-7024 or email email@example.com