Strictly Business

Thursday, Nov 01 2012 12:00 PM

RUSS ALLRED: Three strategic choices for businesses to make

BY RUSS ALLRED Contributing columnist

As a business owner you only have three strategic choices: Continue as you are, accelerate growth or retrench. Every business owner should ask him or herself this question: Is it acceptable for the business to continue as it is?

And then ask some follow-up questions: Am I happy with the money I'm making? Can the business support my growing family? Will this path offer me an acceptable retirement? What if the market shifts and sales decline? What if something happens to me and I can't work?

If the answers to your rhetorical questions are unsatisfactory, then you must implement one of the strategic choices above.

If you determine to continue as you are, your business must be very profitable. Otherwise, if you die or get sick or injured or the market shifts, your life may be ruined (especially if you die). The choice to continue status quo also assumes that you have adequate insurance and or personal equity to survive future problems. Many entrepreneurs neglect to protect their family's security with life insurance, disability insurance, lost income insurance and other protections.

If your business is profitable and you don't project future growth, then you may consider purchasing the real estate where you are located. Real estate is one of the best hedges against market shifts because it usually increases in value and can normally be leased, leveraged or resold.

If a market shift or other condition has made your business unprofitable, then retrenchment is your best option. Problems often force a business owner to contract to their core competence. The owner of an engineering firm may contract to design work or the owner of a clinic may return to practicing medicine.

For some, simply downsizing will not solve the problem. They can choose bankruptcy. Small companies usually choose a Chapter 7 bankruptcy that requires the owner to sell all the business assets and use the proceeds to pay creditors a fair proportion. Because most choose this option, the system is often misunderstood. The law allows companies that have sufficient assets and strong prospects for survival to file a Chapter 11 bankruptcy that allows them some latitude in negotiating a reduction in debts and other liabilities.

For most businesses, the best option is growth. Not just the incremental growth offered by increased marketing, but exponential growth offered by a change in the scope or scale of the business. A good analogy to define scope is a telescope. Optical scopes limit and magnify focus, as in the number and definition of stars that you see in the field of vision. In the case of an engineering firm, the business could focus on road construction. The more narrow the focus, the broader the scale must be.

If you specialize in road construction you may need to offer your services to a broad geography. The combination of scope and scale help to target what advertising and service will cost. Start-up entrepreneurs seldom consider scope and scale. They simply have a dream and some skills, but scope and scale are very productive variables to consider if you choose to grow.

-- Russ Allred, MBA, is a business consultant and author with Sunbelt Business Brokers & Advisors. These are his opinions, not necessarily those of The Californian.

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