Running a business is a journey and each business has its own unique journey. While the journeys are unique there are many mileposts on the journey that are the same for every business. Assuming the business is able to take flight, these mileposts are the startup, the growth (good times and payback), inflection points and the exit. Let’s take a moment to examine each one.
Remember the first day of your business. It was an exciting time for you and your business partners. You were finally able to realize your dream of being independent and running your own show. It did not take long before you and your partners were starting to feel a bit frantic as you realized that there were a few more things in a business that needed to be taken care of than you originally thought. The company’s legal structure needed to be completed, governmental reporting enacted and employment practices implemented to name just a few. As the weeks and months passed you began to feel more confident in your business and decided to invest in the business. For some this is signing a lease for the office. For others it is buying a fuel truck. No matter what the investment, this is when you as a business owner formally committed to the business. At the start you were investing in hope, now the investment is in real dollars and cents.
Growth – Good Times
Your business is up and running and you are starting to have some fun. Sales are growing not in the straight line you have always seen graphed in textbooks, but in a chunkier manner, jumping ahead and taking a breather and then jumping forward again. You are able to pay your bills, pay yourselves and have money left over. With your confidence growing, you have found the courage to continue investing. We met with the owner of a distribution business in the Bay Area. The business was a rocket ship. Every year was double digit growth even during the recession. Each year new investments were being made. Cash flow was moving into a good place.
Growth – Payback
Eventually you move from the good times into payback. You can do nothing wrong. The business is generating very strong cash flow. You are 10 feet tall and 6 feet wide. The banker, now your best friend, is happy to increase your credit line. You are ready to reward yourself with a second home or perhaps a new luxury car. As for the business, you decide it is time to double down. Time to double the office and warehouse space in anticipation of future growth. You are invincible.
Ouch! What happened? Your business is not growing, in fact it may be declining. You have hit an inflection point in the business. Perhaps it is the economy or a competitor you did not see gobbling up market share. Frustration begins to rise around the office and among the partners. Sales are still good, but you are no longer generating the cash flow you generated a few years ago. In fact, due to the office and warehouse expansion you now need to hit last year’s sales just to be able to pay the bills. This is not fun.
You are entering a brick wall where you are not sure how to get out. New skills and infrastructure are required to start sales growing again. For some they will languish in this brick wall for years, perhaps even a decade before making the necessary changes. Others will see the brick wall coming and will have the courage to position the business so that they can slingshot the business through the brick wall.
As your journey continues, at some point you will decide to transition the business. Perhaps you want your family to take over the business. Or, you are going to sell the business and use the proceeds for your retirement. This is what you and your spouse have discussed. No matter what path you follow, those business owners who have prepared for the transition will have the best transition.