If recent events have taught us anything, it's to always be prepared for the unexpected. Regardless of the type of business you own or plan to create, the ability to be flexible and resilient are as essential as having a smart plan.
“Perseverance and determination have always been requirements for success, although they alone are not sufficient," said Michael Walker, head of Commercial Banking at City National Bank. “A good plan, adequate resources and adaptability are required for success, since markets are fluid and dynamic. A little luck never hurt either."
Of course, many people believe luck is what happens when preparation meets opportunity. For business owners, that preparation includes spending time working “on" your business as well as “in" your business.
“Working 'on' your business is time spent finding ways to maximize business value through expansion, creation of proprietary intellectual property or growing market share," said Walker. “Yet time spent there feels like a luxury because it doesn't address equipment malfunctions, creeping materials costs and customer complaints. Nor does it deliver a more immediate sense of accomplishment in the same way addressing day-to-day challenges can."
While it's common for business owners to focus on the work in front of them, to grow a business it's wise to step back and think about why you're in business, said Bruce Werner, author of Your Leadership Journey and a family business advisor with Kona Advisors LLC.
Thinking about why you're in business requires dissecting the question into several parts, said Werner.
First, what are your life goals and how does the business help you to achieve those goals, whether they are financial security, happiness, family harmony or enjoyment of time well spent? You can make more money, but you can't make more time.
Second, how does your business strategy enable you to achieve your life goals? The business is an asset and should be used to help you to achieve those personal and family goals.
“Answering these questions makes it easier to define a process to help you achieve your life and business goals," said Werner. “With a defined path forward, it's possible to measure progress and identify obstacles when they appear. Ultimately, success is about perseverance and adapting to changes during the journey that are beyond your control."
Whether you plan to grow your business for a future sale, to establish a multigenerational enterprise or simply because you enjoy the challenge of being an entrepreneur, the following actions can encourage and enhance the success of your venture.
1. Develop an ownership strategy in the context of your life goals.
Start with your life goals for yourself and your family and then you can envision the steps to take to achieve those goals. Your business will be an important part of your life, so it's important to understand how your business must perform to contribute to your life goals.
When you're a solo entrepreneur, you can develop any strategy you like for your business. If you have business partners, you'll need work together on a mutually agreeable strategy and then write the details into your operating agreement or bylaws. Ideally, your business relationships will work so well that you'll never need to review those documents.
2. Research and refine your strategic plan.
Once you have the outline of your plan and have identified the required performance metrics required for you reach your life goals, it's time to detail specific strategies. For example, suppose your goal is to sell the business once it reaches a certain value. In that case, you'll need to develop ideas, research the competition and evaluate the challenges to achieving that valuation.
These steps are just as important to increase the longevity of your business for future generations. Growing a business takes time, but it also takes considerable planning
3. Assess the tools you need to execute your plan.
After you have generated strategies for growth, you'll need to determine how that expansion can occur. This is particularly crucial for small businesses with a lean team of employees. If your company lacks the talent needed for your plan, you'll need to identify new resources. If you have someone in-house with the skills needed to take the business to the next level, you still may need to hire additional support for that person.
Whether you need to increase your staff, need additional training or more materials to expand, new financial investment is likely required. That means you need to review your cash flow and potential sources of additional funds. Your commercial banking team can help you with this evaluation.
4. Evaluate organic growth and potential M&A activity.
As you plan for entrepreneurial progress, you'll need to consider how much your expansion can come from internal, organic growth. A realistic analysis of the potential future of your business can benefit from an objective third party such as a business consultant.
If organic growth isn't likely to be enough to achieve your goals, a strategic merger or acquisition may be something to consider as part of your business plan. Identifying potential businesses to partner with or purchase can also benefit from a third party with fresh eyes on your company since owners frequently overestimate their internal growth potential.
5. Know your numbers.
While an array of numbers is part of any business plan, two essential numbers to know if you plan to transition away from your business are your “magic number" and your “walk away" number, said Werner. The “magic number" is the amount of cash you need for lifetime financial security, while the “walk away" number is the net proceeds from the sale of a business after fees, taxes and other expenses are paid.
“A key goal for a business owner is to have the 'walk away' number exceed the 'magic number,'" said Werner. Developing a plan to reach that goal requires a clear-eyed analysis of your personal and business finances as well as the economic environment and other factors that can impact a sale.
6. Develop your governance strategy.
While a business consultant and your commercial banking team can help you with your growth plan, a valuable approach to getting third party input can be to establish an advisory board or a board of directors.
A board can provide an unbiased perspective and establish a culture of transparency and accountability for your management team. In addition to helping you identify ways to grow your business, your advisors can provide risk management expertise.
7. Anticipate conflict.
Conflict among ownership partners and within the management team are a natural part of running a business. How conflicts are handled can contribute to a company's growth or lack of it. It's best if there are mechanisms in your governing documents to address conflicts. If those mechanisms don't exist, each conflict will need to be handled when it arises. Your third party board, consultant or banking team may be able to advise you and assist in resolving conflicts without derailing your growth strategy.
Creating an ownership strategy in the context of your life goals for yourself and your family provides a foundation for your business success, said Werner. That foundation positions you to understand how you need to work on your business, including decisions about strategy, capital, talent or risk management. It also motivates you to focus “on" your business as well as work “in" your business.
“In conversations with business owners who have sold their businesses, they repeatedly emphasize the impact that creating an ownership strategy had on their success," said Werner. “It set a path for them to follow and identified priorities that helped define their success."
That ownership strategy works equally well for entrepreneurs who want to develop multigenerational family businesses. While their long-term objectives may be somewhat different, the strategy to combine personal and professional goals serves both types of business owners well.
For help with your business planning needs, contact the business planning and wealth planning experts at City National Bank today. Our business banking services have been supporting clients for nearly 70 years, and we're ready to help guide you right now.
Kona Advisors LLC is not owned or affiliated by City National Bank or its affiliates.
This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.