Don’t “Milk” Your Business
In your excitement of a rapidly growing SME/MME do not get lured into “milking” your business, particularly when the future economic climate remains uncertain?
Over decades of practical business experience I have seen owner/managers lecture staff and others about the importance of saving money/resources, especially when trading conditions become very challenging.? Suddenly the same owner/managers drive up in a new “flashy” car (for snob value and a little attention seeking), start taking more frequent holidays and buying “little” luxuries for their family/spouse because “they” worked really hard, and “deserve” it!? Whilst nobody denies that they do put a lot of effort into the business and make many a sacrifice, however, so do the staff, suppliers etc. – without whom there would be no business?
They (the staff, suppliers etc.) are not blind; they see and hear what is happening and can become extremely resentful that they are constantly being asked to make sacrifices whilst the owner/managers do not practice what they preach!
This problem becomes even more acute when a business transitions into the next (spendthrift) generation – the founders may have (out of necessity) had to be rather strict with cash flow/profit retention.? Having to daily account for every single penny; because if they did not they may not have been able to open the “doors” the next day?
Build a bigger “beast”: most of your profits should be used to keep gearing to a manageable level, to cover contingencies, for R&D/product/service innovation, to reward staff and to help fund continued (controlled) expansion (up to 90% of nett profits retained, as a guide).
If you wish to create “regular” liquidity events and take some “money off the table”, apart from some “enhanced” dividends, you can do this by incrementally selling a fraction of your business at regular intervals to your “ideal” buyer/investor; such as to your staff (via a Trust, MBO/I or other arrangement), to a respected sector partner and/or to an outside “patient capital” investor(s)/fund?
Let the “fruit” ripen before you choose to eat it.? If you impulsively decide to consume it whilst it is still maturing it may taste very sour, you may get belly ache and regret it soon afterwards?
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Kip
The EBO Guy??????
…Acquiring businesses for employees
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