The need for solid business strategy planning becomes painfully clear in a crisis. The Covid-19 pandemic has posed a threat – not only to the physical health of individuals but also to the economic survival of many closely-held businesses. The nation has been put into a medically induced economic coma, and every means is being used to survive it. Employees and owners alike are resorting to emergency measures to survive: drawing down savings, relying on government support, and even taking withdrawals from retirement accounts.
Like all crises, this crisis exposes gaps in planning. As Warren Buffett has said, “you find out who is swimming naked when the tide goes out.” Common issues include inadequate cash reserves, excessive leverage, unnecessary expenses, and outdated – or nonexistent – estate plans.
For business owners, the need for planning is even more important. Owners are vividly aware that so much and so many –family, employees, customers, investors, local community groups, charities, and their own future – depend upon their financial success.
Business Strategy Planning
Your ability to survive today and thrive tomorrow depends on a sound business strategy. This process begins with a careful assessment of your strengths and weaknesses, opportunities, threats, and risks. As noted, it is the risks that are exposed and can become impending problems during a crisis. Here are a few examples of the questions you will want to ask as you start this process:
- Do you have sufficient reserves and/or credit facilities in place to ensure that you have the resources you need to endure unforeseen challenges or pursue opportunities?
- How much of the business’ day-to-day success depends on you? Business owners are often their own best employee, and the survival of the business may depend on their efforts. What have you done to make sure that other people can pick up the mantle should anything happen to you? Building your “human capital” is necessary to grow your business beyond the limits of your own abilities, and to preserving your legacy after you have moved on.
- What can you do to strengthen, expand, and diversify your customer base?
- Do you have a contingency plan in place for your business? When was the last time you reviewed your corporate structure, buy-sell agreements, or the business implications of your estate plan?
- Does your retirement plan match your company’s needs and your personal needs?
Your planning will also need to address personal concerns. As a business owner, there is often no clear dividing line between your personal life and your business efforts. Since the business is typically the owner’s largest asset, it is vital to attend to both sides of this equation. Failing to address the one will invariably and adversely affect the other. On the personal side, you will want to ask:
- Assuming that you want to have a life after your business, do you have a current financial plan that can guide you to a successful retirement?
- What steps have you taken to build wealth OUTSIDE of your business? No one needs to tell you that good times don’t last forever. The shocking reality is that most businesses won’t be transferred or sold; they will simply close. Whether or not this is true for you, it is critical that you accumulate assets outside of your business so you and your family can enjoy the fruits of your labors in the future. A well-designed portfolio allows you to diversify your risk, participate in the growth of other well-run companies, and generate reliable cash flow (dividends and interest).
- Given how much depends on you, when was the last time you reviewed your contingency plans, insurance coverage, estate plan, advanced directives, and beneficiary designations?
Once we begin to emerge from this crisis, it will be an urgent priority to attend to these concerns so you can reduce your vulnerability to unexpected shocks in the future – and they will happen. A sound plan that addresses both business and personal goals is key to helping you realize the future you want.
Does this feel overwhelming? That is understandable since doing these things takes time and attention. This may well be why you put it off planning to begin with. Since your day-to-day responsibilities already consume so much of that time and attention, we recommend that you take advantage of the expertise and guidance of professionals to help you address these concerns. The first step is to make an appointment with a seasoned financial advisor as soon as possible who is qualified to assist you in business strategy planning. Give us a call. Our advisor, Chris Chaney, is a Certified Exit Planning Advisor (CEPA). If you aren’t familiar with it, the CEPA Program is the most widely accepted and endorsed exit planning program available, focused around cross-functional consulting and value acceleration.