What causes successful entrepreneurs to leave so much hard earned money on the table and commit some of the common wealth building mistakes many business owners make? The main issue many successful and savvy entrepreneurs have is being too busy running the business to contemplate all the issues that can affect the value of the company and also protect their business interest. Many business owners can boil down their focus to five main issues.
Working capital which is not really working- Many institutional accounts I see have too much cash on the sidelines or are not taking advantage of opportunities that present themselves on a timely basis. Focusing on running the company and indecision can affect working capital performance. Since the business is the primary driver of daily activities, the time required running the company does not allow most people to investigate the available options. Tying up capital in illiquid investments can also hurt the agility of the firm when new opportunities arise.
Owning vs. Leasing-Age old question for many owners that want to build equity to supplement their personal balance sheet which is always worth looking at but does it make sense for the enterprise? You may find you grow too rapidly and have to relocate or the business changes and can make the premises obsolete. Great planning with some luck can make owning the best of both worlds if you can fashion the right building at the right price for the right company.
Not having a Succession Plan- This must be in place to both maximize business valuation and be able to plan to retire or sell on your terms. The first step to this process is having a business valuation which is relatively easy to do but will also educate the owners on any issues that can impact profitability and competitiveness of the firm. Having this blueprint will allow you to make informed decisions if any offer is presented and be able to negotiate from a position of strength.
Buy/Sell Agreement Review-Along the same lines, not having or updating and funding a Buy/Sell Agreement among the owners can ensure the business will struggle if tragedy strikes. Approximately 10 percent of companies nationwide either do not have a Buy/Sell Agreement or adequate funding for this important tool. A lot has happened since the recession so as your business grows or changes, the agreement or funding has probably become out of date and should be reviewed periodically. Everyone hates Life Insurance until the policy is needed when it becomes a savior for the survivors and even the business itself. Not placing Key Person Insurance can have a similar if somewhat smaller effect.
Implementing Retirement and Benefit Plans-These plans are a requirement in a growing economy to attract and retain good employees along with providing a nest egg and diversification for the owners and executives. A retirement plan can be designed to fit the needs of the company and its employees and has many advantages over not offering one. For instance, the State of Oregon will mandate starting in 2017 a state plan if you do not have a plan in place by then. Don’t overlook Profit Sharing options or Defined Benefit Plans including Deferred Compensation for key people instrumental to the success of your firm.
We are blessed with extraordinary talent in the Central Oregon area as many wise people choose to make their home here so it is always wise to help the local community by seeking out professionals in the area to help with these essential requirements.
