The Business Owner’s Dilemma

Share This

Thousands of small business owners will be facing a huge dilemma over the coming weeks. Should they close their business or keep going? To what extent should they pour more of their own money into the business to prop it up?

It is normal to have economic cycles which result in a ‘weeding out’ of weak businesses. When times are good, it is easy to make money. Bad times deal a cruel blow to those who haven’t thought about how they would survive in different conditions. Given the depth of this economic cycle, the survival hurdle for businesses will be high.

Strong businesses have a sound balance sheet, with a good ratio of owner’s equity to debt. They are in a situation where they could, if they wished, borrow more. They have a diverse customer base so as to avoid being adversely affected by the loss of a client or revenue stream. They adapt their products and services to changing market needs. Above all, they have the ability to turn adversity into opportunity.

The wealth of many small business owners is tied up in two significant assets – their business and their house. Those who are smart will have built up other assets such as investment property, shares or cash reserves. The temptation for those in a weak position will be to put personal assets at risk, for example by mortgaging the house to raise funds for the business.

Business owners need to take a hard look at the viability of their business, including access to any Government support. Business costs should be scrutinised. Landlords may need to come to the party with rent reductions. While banks may approve new lending under the Business Finance Guarantee Scheme, that debt will need to be repaid. This is a time for careful forward planning but also for thinking outside the square and tapping into the expertise of others to find a way forward

Related Articles

Investment
Liz Koh

Responsible Investing

There is a worldwide trend for investors to want to make a positive contribution to the world by investing in companies that are socially and environmentally responsible. If you are passionate about the effects of climate change, the scarcity of food and water, and social or environmental policies in general, then you will no doubt wish to ensure that the companies in which you invest are going about their business in a manner that is consistent with your views.

Read More »

Stay in the loop

Keep up to date with the latest developments from Enrich Retirement