Which Stage Describes Your Business ?

I’ve been working with independent businesses and their owners for over forty years and from what I’ve observed in that time it seems to me that for the majority of independent business owners their business life can be summarised into the following stages :-

STAGE 1 – THE START UP
New businesses are started for a variety of reasons but fundamentally I think the decision to become a business owner often stems from a desire to ……….make life better.

Better for the business owner and better for those that the business owner cares deeply about.
For sure, at start up the business owner will be full of enthusiasm, excitement and optimism.
Unfortunately we’ve all heard about the statistics which tell us that most of those start ups will have closed their doors forever within five years of their commencement.

Sadly, for many, those feelings of enthusiasm, excitement and optimism will have been dashed on the rocks of hard business reality.
IT’S A FACT – At start up many business owners do not have the combination of skills required to achieve lasting business success ( many hats must be worn and all of those hats must be worn with a reasonable level of competence ) AND there is a failure to recognise their areas of weakness and find ways of bringing those missing skills to the business.

STAGE 2 – STUCK IN GROUNDHOG DAY !
A very smart business man I know once told me that most independent business owners who have, say, 10 years experience of running their own business actually DON’T.

In reality, they only have perhaps one year’s experience of running a business that they’ve repeated ten times !!!
Whilst such business owners have been successful in surviving beyond Stage 1 ( Start Up ) they’re now stuck in a rut and not enjoying their business as they once hoped they would…….. they can’t lift the business to the next level, profits are probably pretty flat and they simply aren’t enjoying the grinding routine of what they come to work to do each day.

Often the owner will have started the business with hopes of in due course :-

Enjoying more free time
AND
Enjoying financial freedom ( to become financially “ well off “ )

For many those hopes are not being realised.

Instead, the reality for independent business owners is all too often :-

Working far too many hours
Constant feelings of stress
Cash flow issues ( not feeling “ well off “ at all )

Even those business owners making decent profits often find that they are spending every penny they earn ( think increasing tax burdens, the costs of a growing family, etc, etc ) making it hard to build up any significant level of wealth in their business.

It seems to me that if you’re not building wealth then it could be argued that, in reality, you have a job rather than a business.

IT’S A FACT – Sadly many hard working independent business owners never manage to get their businesses beyond Stage 2.
They never finds a way to “ break through “ to the next level where the business can achieve significant scale, liquidity, substantial profits and becomes the source of life changing net worth/wealth for the business owner.

STAGE 3 – THAT WELL EARNED RETIREMENT
In the long run, age will catch up with the business owner as it does for us all.

The time comes to start thinking about selling the business that the owner has worked so hard to build over the years AND hopefully for a substantial valuation to allow the owner to finally reap the financial benefits of all those years of hard work and to allow the owner to enjoy some well earned free time in financial comfort in those golden years.

IT’S A FACT – There are a number of reasons why the reality for many owners turns out to be rather different :-

* The business may be lacking in systems and procedures and far too reliant on the current owner for its day to day functioning meaning that a buyer would need to have a very similar skill set to the current owner.

* Banks are often not too eager to lend for business acquisition. Making it difficult for many prospective buyers to raise finance to buy a business.

* The “ Baby Boomer issue “ – there is currently a substantial imbalance between the SUPPLY of businesses for sale and the DEMAND ( i.e. qualified buyers with access to funds ). This is a situation that is likely to continue for at least the next ten years as the Baby Boomer generation moves through the retirement stage of their lives.

Basics economics tells us that PRICE is the mechanism by which supply and demand are brought into balance. Accordingly prices of businesses on the market are likely to be depressed for a number of years to come.

I strongly believe that for business owners who are ready to take a different approach that there is a better way at every stage.

THERE IS A BETTER WAY AT EVERY STAGE

AT THE START UP STAGE
A major reason for the failure of a start up will very often involve some form of financial and cash flow difficulties. Often independent businesses are under capitalised from the outset which only shortens their odds of achieving success.

The longer financial difficulties are allowed to fester the greater the likelihood that they will become terminal !!!
Many start up owners will not be highly skilled in financial management so I think that it is critical that they, at the very least, seek experienced advice and guidance when financial difficulties are in their infancy and while time is still on the business owners side. The later action is taken the fewer options are likely to remain.

Better still…………..if the owner isn’t strong in the area of financial management make sure those skills are brought to the business at an early stage ( prevention is better than cure ).

Above all……….
Think VERY hard before signing personal guarantees to obtain additional funding ( personally I just wouldn’t do it )………..sometimes businesses do fail and sometimes banks do call up personal guarantees. Believe me that’s not a situation you want to find yourself in as a business owner.

In my experience simply pouring more cash down the same “ black hole “ instead of finding and fixing the fundamental weaknesses in the business model is not a solution……it’s lazy thinking and akin to a form of madness in my opinion.

A true solution will only be found by :-

* Carefully analysing the “ business model “ and doing “ hard thinking “ to identify the fundamental issues causing cash flow and profitability concerns and then
* Doing even more hard thinking to figure out the right solution ( strategy and tactics ) to effectively address those issues and concerns.

WHEN STUCK IN GROUNDHOG DAY
A solution to living life in “ Groundhog Day “ is Achieving significant growth in turnover and profitability i.e. breaking through to that next level.

Organic Growth
Organic growth has its merits but, in my opinion, it is too slow to be your ONLY GROWTH STRATEGY ( often you win a few more customers and meanwhile you lose a few customers )………… leaky bucket syndrome !!!

Growth can be painfully slow using only this strategy…………..in reality it’s likely to be a formula for living through many more groundhog days !!!

Growth by Acquisition
Consider a bolder strategy. Consider acquisition as a FAST GROWTH STRATEGY.

A well chosen acquisition could add 50% to or even double your turnover fast AND could transform profitability.

Basically you’ll be looking for ways to make 1 + 1 = 3 from a profitability point of view.Keep in mind that, at the present time, the supply/demand ratio on businesses for sale ( and thus price ) is in your favour as a potential buyer/acquirer.

If your financial resources/funds available are limited. Such limitations can be overcome with some intelligent deal structuring. You need to dig deep in negotiations and find out what the seller really wants.

I find that the main reasons why independent business owners often don’t consider acquisition as a “ quantum leap “ growth solution for their business often revolve around some variation of the following concerns :-

* Not enough MONEY/FUNDS available
* Not enough TIME available
* Not enough ACQUISITION EXPERTISE available

All of those concerns have the potential to be overcome. In overcoming these concerns I truly believe a key differentiating factor is…..DESIRE !!!

How motivated are you to get your business to that next level ?

If your desire is strong enough then I’d expect you to do the necessary HARD THINKING, PERSIST, FIND THE HELP YOU NEED and take the CONSISTENT ACTION to get your business to that next level.

WHEN APPROACHING RETIREMENT
I strongly recommend that you start planning the sale of your business at least three years before you want to start your well earned retirement. I can tell you that I know of a number of businesses that have been up for sale for three years or more and still haven’t found a buyer. Selling your business can be a lengthy process ( remember that SUPPLY and DEMAND imbalance ).

Try to put yourself in a potential buyer’s shoes. What can you do to make your business more attractive to a potential buyer ?

Also consider how you might attract better “ qualified “ buyers who are more likely to have funds readily available to close a deal. Those better qualified buyers are often bigger businesses. It may be that your business at its current size would be simply too small to attract them.

It may seem counter intuitive but consider buying before you sell. Don’t rule out making an acquisition first then selling the combined bigger business. This strategy may also allow you to acquire a younger potential managing director from the business you acquire who you could help to develop into the future managing director for the combined business…………potentially an alternative solution for retirement/exit from the business for the current business owner.

THINKING OUTSIDE THE BOX
I believe that there can be great value in trying to look at your business situation from a new perspective. When running a business day to day the owner can sometimes be so close to the detail that it is hard to see the bigger picture. I strongly recommend building some regular thinking time into your schedule and strive to do some of that thinking outside the box.

I do hope that you may find something in the above that will be useful to you on your business journey and perhaps even something to help you to begin your own “ thinking outside the box “ regardless of the stage you are currently at in your business life.

If you would like to ask me a question on any of the above or in relation to your own particular business then please don’t hesitate to get in touch. You can contact me as follows :-

Email : jim@jwmbusinessadvice-accountancy.com
Phone : 0141-280-0404 ( after 12 noon until 7pm is best for me )