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Why is now the riskiest time to own your business?

A lot of people think that starting your own business is a risky venture. In one way, it is. You’re committing a whole heck of a lot of capital into something that isn’t completely fleshed out. It’s all relying on your expertise and hard work to get the business off the ground.

However, when you really think about it, you’re not really risking much more than your time and effort. Unless you're dumping your entire net worth into a startup venture, you’re not going out on a terribly shaky limb.

Believe it or not, one of the riskiest times to own a business is when you actually get it off the ground. Now that you’re starting to bring money in and you’ve got more to lose. You’ve got a business that you’ve built from nothing, you’ve sunk your own money into it and maybe you’ve got some employees that are looking to you to help them pay their bills.

In short, the longer you hang onto your business, the more you have to lose. You’re risking more because your business is worth something to you. This means that the owner can go from the company’s greatest asset, to its greatest liability overnight.

 

Here are a few things to look for if you’re exactly at this point in your life.

You’re too attached.
Your company needs to be successful without you, after you’re gone. If you are intrinsically tied to the success of your company, it’s an incredibly large risk to continue to own your business. Seems counterintuitive, right? “If my business needs me, why is it risky to stay on?” Well, it’s risky because you’ll never be able to extricate yourself and sell your business unless you start taking planned, appropriate action now to do it.

 

You work more than you’re home.
You’ve built your restoration business from the ground up. It’s part of you. And maybe your family understands that. However, at some point you need to step back and evaluate what’s important. If you’re putting in 60-80 hour weeks, something’s got to give and it may be your family that gives out first.

 

You’re falling behind
Risk is never greater than when your competitors are out maneuvering you with new technologies and techniques. It’s extraordinarily risky to continue owning and operating your business if you’re at a disadvantage in equipment. Again, seems counterintuitive, but moving forward with a plan on upgrading and then getting out from under the business is the key to reducing your risk.

A Case Study: Cigar City Brewing
Understanding how growth can impact an owner’s appetite for risk can be a difficult concept to fully grasp, so let’s take a look at an example. Joey Redner is the founder of Florida-based Cigar City Brewing. His operation started off in 2009, producing 1,000 barrels, a modest but successful venture. His goal was to produce 5,000 barrels per year, so he was well on his way.

 The brand proved very popular with locals and by 2015 was producing 55,000 barrels. This sharp increase was made possible by a Small Business Administration loan and as his company continued to balloon, he ran out of capacity in his facility.

Here, he faced a choice. In order to get to the next echelon, he’d have to take on a $20 million capital infusion for a major expansion. He was tired, however, of the constant feeling that he was “all-in.” He wanted to be able to enjoy the fruit of his hard labor instead of rolling his hard-earned winnings into debt that he’d have to back himself.

Redner decided to sell the business even though it was still growing quickly powered by Floridians who loved his brand.

 

And therein lies one of the hidden reasons…
Owners end up selling their business because they are simply tired of shouldering all of the risk. Most of us, small business owners or not, have a limited appetite for risk - start-ups aren’t risking much because there isn’t much to be risked. When you’ve built something successful, however, every day you hold onto it you’ve got all of your chips in the pot.

 As Bob Dylan says, “When you ain’t got nothing, you got nothing to lose.” No matter how strong your hand, it can sometimes be best to cash in and hit the hay."

Topics: Insider, Uncategorized, value

Gokul Padmanabhan

Written by Gokul Padmanabhan

Gokul Padmanabhan has devoted the past 15 years to buying and selling businesses, much of that in the restoration industry. His partnership with RESCON Business Brokers strengthens his hands-on expertise with a national presence and infrastructure that is second to none.

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