“My business was the best investment I had. In the old days, I’d invest capital, hire, train, and nurture the workforce, build and coddle my customer base, and earn a decent profit. We’d take that profit, reinvest a chunk in the business and payoff debt, share another chuck with the team and stash the rest for retirement. But the world changed and we hit the wall. Job orders were scratched, assets declined in value, and the workforce was trimmed to the bones. It’s not as fun as it used to be. We’ve got some big decisions to make about the future.” ~ A discussion with a business owner in Spring 2010
Do you have a similar story?
Small business plays a huge role in economic progress, innovation, and social responsibility. According to the SBA, they comprise over half of the nation’s non-farm GDP and account for about 65% of net new jobs created over the past 17 years. Some businesses soared throughout The Great Recession. Others struggled. And economic, political and global uncertainties continue to tax business growth. This article discusses several trends, dilemmas and planning opportunities for business owners.
Bumps in the Road
• The Economy Stole My Retirement – An aptly titled WSJ article (August 30th) described two common issues or realities. First, values are down – many owners in their 60’s or 70’s can’t sell their businesses in this environment (or lower than expected buyout offers). Deflation often accompanies economic slow-downs. As earnings decline (e.g. profits or net rental income), so do asset values. Second, they’re under-diversified – a significant portion of their nest egg is wrapped up in their business. Thus, owners face two choices: lower their retirement goals, or work longer and rebuild their business. A recent Vistage International CEO survey reported that 38% of business owners extended their expected retirement date.
• Struggle to Find Talent – A good man or woman is hard to find in today’s labor markets. A recent US Labor Department reports 12.7 million unemployed workers – yet there have been 3 million job openings monthly since February 2011. Vistage recently reported that 41% of small manufacturing companies had at least one unfilled position. Owners cite the difficulty in finding skilled workers, or their reluctance to train the unskilled and risk losing that employee to greener pastures.
• Rebuilding Business Value – Competition demands strong branding, a compelling product or service niche offering, and using a realtor’s phrase, being move-in ready. The latter is all about what Collins and Porras wrote in Built to Last about building enduring companies – adapting core values and processes that will transcend time.
• Diversification – Business owners tend to be risk takers and navigate change. However, they lean towards greater risk management (less volatility) in both their business income and portfolios. The career wing walker often opts for greater certainty with his or her money.
• Team Approach – The brightest surround themselves with stars. Running a business and owning a comprehensive personal wealth plan requires expertise, and often, multi-dimensional ‘outside looking in’ perspectives. Build your team of trusted advisors.
We play on a challenging field with large-scale uncertainty and risk a tipping point of economic and financial point of no return. Fortunately, we all have choices… remain on the current paths, or employ the fixes. Good luck.