Your Business – What You Can Do Now About the Future
If you own a business interest and that business interest is profitable, certainly you have done some things correctly. But what will you do now to affect the future of your business interest? You have worked very hard and created value in that business interest. You have made good decisions. That is an accomplishment, no question.
Now, are you relying on fate or luck, hoping that the future will bode well for your business interest? Situations change and the actions that created progress in the past may not work to get you to the next point in the direction you want to go. What will you do now with the business interest you own? What is the goal of your business interest ownership?
There are two broad categories of answers: sell or liquidate the business interest for cash or hold the business interest to realize future growth and value.
There are a variety of reasons why an owner might want to hold a business interest, even when that interest already has created significant value. Frequently, there is a desire to maintain the business within a group such as a family. There often is a life-style factor, the conduct of the business being a way of life an owner does not want to leave.
The danger of holding a business interest is that often the owner’s wealth is invested in the business and that value is subject to business risk – a much higher risk than that typically experienced with personal investments.
Often, it has been my experience that in holding a business interest, an owner becomes complacent and negative events (from business risk) are more likely to happen. If a business is not growing but deteriorating, a sale to capture the remaining value might not be possible. The best solution is to maintain growth and increase business value as much as possible as though planning for a sale, even if there is a reason to hold the business interest.
The rational long-term goal for the owner of a business interest is to liquidate that interest for the maximum amount possible. There will be a period of time where the value of the business interest grows, then the business interest is sold to capture the increased value. The business interest is “cashed out” to be transferred from business risk to investment risk. The amount of growth possible and the period of time it takes to realize the growth will vary with the business.
The reason for the rationality of that long-term goal is at the basis of wealth creation. Funds created by business activity should be transferred over time from business risk to investment risk. Wealth occurs when personal funds invested at low risk sustain the expenses of living at a desirable level. Funds invested in a business are subject to high risk and often cannot sustain wealth over time.
If you got to where you are now with planning and hard work, continuing with that is not a bad idea. You should continue on a dual-track: build value in the business by creating a group decision-making process that provides the business with consistent good decisions and at the same time develop ways that the value now in the business will be transferred to you as an owner to increase personal wealth. It is through these endeavors that personal wealth will be created.
Your good decisions have placed you where you are now. How do you develop the decision-making capability of your business to ensure future value? You will need help creating planning and executing actions to create business value. The services of Business Transition Consulting may be of interest to you. As the principal consultant, my work is to help business owners act now to create wealth in the future.