In the first part of this series, we introduced the five stages of entrepreneurship we work with on a daily basis.
Sometimes, we have clients whose business is going well and who believe they’re in good shape for whatever lies ahead. We call these folks The Contented because they are happy with their business lot in life and are willing to “milk the cow” for what it’s worth.
That’s all well and good, but we can tell you from past experience–and if you don’t believe us, just read any business news website–things (especially finances) can always be better. And businesses that just tread water eventually fall behind hungrier, leaner competitors.
One way to be prepared is to do something we suggested when talking about The Stuck: Secure a line of credit.
The best time to secure a credit line is when you don’t need it. Because your finances are sound, you’ll get a good rate. And a credit line carries minimal risk. Note that interest is only charged on the portion that is used; if you don’t use the line at all, there’s no charge.
Having that line of credit, however, might prove useful. Say you get a chance to buy mass quantities of raw materials at a steep discount–the credit line allows you to do that. Or maybe your most important piece of equipment unexpectedly breaks down and can’t be repaired. Again, the credit line could be your saving grace.
In any case, a credit line prepares you for risk in your business, including cash shortfalls.
Now let’s talk about interest rates.
When is the last time you looked at your loan portfolio? Perhaps interest rates have dropped and you can secure better terms. Maybe you’re now eligible for the gold standard, Small Business Administration (SBA)-backed loan program. Or there’s the possibility that some favorable government loan programs have cropped up in recent years.
In addition, are you hedging your interest rate risk?
Sure, fixed-rate debt mitigates risk, but it’s likely not all your loans have fixed rates. And in a world with a true global economy, cross-border commerce can leave you at the whim of fluctuating foreign currencies. That can make it crucial to accurately manage the value of future payments and receipts.
That isn’t always easy, which is why we recommend developing a hedging strategy with a long-term perspective. Those strategies can be complex–more complex than can be explained in a few paragraphs–and requires an experienced hand.
Without getting into too much detail, The Contented entrepreneur has other financial issues that require examination: Do you have a personal guarantee? How collateralized are your loans? How capitalized is your balance sheet?
It goes without saying that all those questions need a definitive answer.
Finally, is there a succession plan in place?
As with a line of credit, it’s always better to develop one when there isn’t an urgent need.
SCORE, which is a nonprofit, devoted to helping small businesses, suggests a five-step approach.
First, a successor must be chosen. Follow that by developing a training plan for the successor, then establishing a timetable for when control is shifted. Meantime, prepare for your own retirement (or your next venture) and, finally, install your successor.
In summing up, it turns out there’s plenty to do for even well-run, successful companies, but that really shouldn’t surprise any smart entrepreneur.
It takes hard work to build–and maintain — a successful business, so keep the good times going with a little extra work instead of turning on the cruise control.