What Small Business Owners Need to Consider In a Volatile Market
Core insights and options for small business owners in a challenging economy.
Think positively.
You may have less competition in your market as businesses either reposition themselves or go out of business.
You may have the opportunity to buy the talent you need to expand your market if a competitor is retiring or closing his business.
You may consider a joint venture with a competitor in your industry which will reduce competition and hopefully increase sales.
If you are in a service business and you offer a compensation package to your employees that is equal to what other companies in the same industry are offering to their employees, you may not have any setbacks. It may be the right time to expand your marketing budget and expand your market. Your primary concern should be to retain your qualified employees and avoid internal disruptions due to employee turnover and the need to train new employees.
Or
You might consider offering a valuable employee an equity position in your company to retain his or her loyalty. It is important to evaluate how new shareholders will affect the compensation (salaries and periodic distributions) intended for the current shareholders.
Or
Perhaps you, acting as CEO, are considering retirement. If your company has salable assets such as inventory and equipment, has little or no long-term debt, and you are approaching retirement age, you might consider this an option. A buyer should pay a substantial downpayment (30% or 40% of the asking price) and, if no third-party financing is available from a lending institution at favorable rates, you might consider holding a 1st lien for a term of not more than 5 years, at a market interest rate. You can price the sale based on 2024 tax returns. You should not consider seller financing if the seller’s lien would be subordinate to third party debt.
I would recommend that all small business owners prepare conservative operating statements for the upcoming 12 months. These monthly pro-Formas should include all the potential increases in inventory costs, adjustments in gross profit margins, sales volume, salary increases and possible reduction in the major shareholders/s revenue. This is a worst-case scenario, but it helps management determine what are the best options for survival.
I would also recommend avoiding assuming long-term institutional debt while rates are at the current level. It would be advisable to ask suppliers for a deferred payment schedule which would reduce your financial pressures and reduce the need for additional debt.
It is important to keep a good personal FICO score. Even if the company does not borrow third party funds, if the company’s major shareholders maintain acceptable credit scores, the company will provide a more positive perspective for its suppliers, landlords, bankers, and employees. You do not have to divulge the details on the credit report, and you do not have to allow a third party “pull” if you are not seeking a loan. Ther average FICO score from all the major shareholders in the company should not be less than 670.
Good planning in difficult times is why many businesses succeed.
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