Weigning options: turtle or invest

Blake Doyle
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Humans have a basic psychological response when faced with a serious threat to their survival; it is “fight-or-flight.” For example, if you met a grizzly bear on the Confederation Trail, your adrenaline would go wild and you would chose to either fight the grizzly or run for your life.

Business owners routinely face similar challenges, and in an environment of economic challenge the options are turtle and weather the trial, or go headlong at the issue and invest into the storm.

Either approach can be effective, but the best option will depend on individual circumstances.

Many businesses simply need to batten down the hatches and manage expenditures. Today, this is the most common response to economic challenge.

Labour Market Information (LMI) suggests that hiring has slowed substantially, Islanders remain unemployed and many have given up the search for employment. This is a very troubling anomaly during the busiest cycle of our seasonal economy.

An alternative strategy is to make investments during a downturn. For businesses in the fortunate position of having available cash or credit facilities, now is an opportune time to invest. Many businesses are at a stage where owners are considering succession paths and a sale is an option. Based on demographic data, this market is getting more active.

Advocating a turtling approach is a self-fulfilling prophecy. Reduced spending contracts the economy, further reduces employment and cycles back to business as shrinking sales.

Lets focus on the positive and consider the investment approach. This is a market where talented people can be acquired and added to a team. Financing rates are excellent to purchase facilities or invest in equipment. But another consideration is acquisition. Acquiring a near competitor or complementary business unit can augment your business in a downturn.

What are some considerations when contemplating a business investment? I asked Brian Morrison, a senior manager and chartered business valuator at Grant Thornton.

“It’s crucial for business owners to take time to understand what drives value,” he said. “Business valuations are essentially based on two assessable components, sustainable cash flows and the mitigation of risk. Controlling the factors that negatively affect cash flows and risk will increase value.”

Is there a business that can augment your core enterprise, can you increase the generation of free cash-flow by making an investment?

There are many organizations contemplating their succession strategy or exit upon owner retirement. Examining our Island demographics, this is an opportune time to explore acquisitions, and not just locally but in any market you might be considering. This is a great time to contemplate how value is created in your firm and what might extend or accelerate your value creation.

Today, as much as ever, ‘cash is king’. If you have it use it wisely. If you can access it, be strategic. We should prepare for a period of business environment discomfort and we should be looking at a horizon of twelve months. If ever there was need of a good short-term plan, it is now.

Blake Doyle is The Guardian's small business columnist. He can be reached at blake@islandrecruiting.com.

Organizations: Grant Thornton

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