By James S. Cassel
Several timely issues and trends — today’s low interest and low growth rates, and the ultimate impact of Brexit — are making it critical for middle-market business owners to continually evaluate their businesses and implement the right strategies to protect their best interests.
While none of us have a crystal ball to know when the next recession will arrive, there is no doubt that every passing day brings us closer to it. So how do we plan for this and continue to grow our businesses without exposing our businesses to excessive risk when the next recession comes? While we should take risks as business owners, we should not bet the farm.
Following is some insight and guidance based on our experience helping clients navigate these issues throughout all types of economic cycles.
It is important to note that current estimates call for as many as three quarter-point increases in interest rates during the next 18 months. These increases are lower than previous estimates. In fact, some believe there will be fewer than three increases. Regardless, since interest rates will remain historically low, these increases should not be significant enough to warrant any concern.
Nonetheless, we should closely evaluate our balance sheets to make sure that we have taken adequate advantage of any opportunities in the near term and that we are well prepared for the downturn whenever it arrives. This includes determining whether we can extend the terms and fix the rates of any loans for as long as possible in order to take advantage of today’s low interest rates.
Now also is a good time to begin looking for opportunities to expand our businesses. While controlling costs is always important, profitable revenue growth is critical for success. We should consider strategic hires. The right hires with strategic relationships with potential new customers or clients can expedite growth. We should look for people with complementary skills that can offer more to current clients or customers can help deepen those relationships.
As the job market continues to tighten and we run the risk of losing some of our labor forces due to immigration policies, it will be important to evaluate new technologies that can help us increase efficiency and reduce the amount of labor required by our companies.
A good example may be found in the emerging trend of mechanization in the fast-food industry. New technologies that enable customers to place their own orders are making it possible for restaurants to need fewer employees. Restaurants also are increasing efficiency by equipping their servers with mobile devices that enable them to place orders online without having to go to the kitchen to place orders. Some restaurants are taking it a step further. Momentum Machines is attempting to replace human fast-food workers by fully automating the production of burgers — everything from cooking patties to adding all the accoutrements.
Car dealerships are another example. These days, they are giving mobile devices to employees to complete forms and speed up the process rather than giving them printed forms like in the old days. Computers, not only mechanics, are currently being used to do the diagnostics on cars. These all make businesses more efficient.
It also would be wise to explore new partnerships, joint ventures and other strategic relationships as well as potential acquisitions to strengthen and grow our businesses. We should consider investing in new businesses and/or new product lines in order to obtain organic growth. Research and development of new products should also continue.
Clearly, the domestic economy seems much better positioned than the foreign economy. No one knows what will happen in Europe with Brexit and what ultimate impact it will have. Thus, we might want to concentrate the majority of our efforts on domestic business, although not to the exclusion of any attractive opportunities for foreign sales. The uncertainty has strengthened the dollar, which will lower exports and make U.S. products less competitive abroad.
Although most U.S. businesses might not be doing great, they are still doing OK, so taking a longer-term view is important.
While middle-market business owners recognize they should be prepared for any expected obstacles and opportunities, they often fail to plan properly because they get too caught up running their day-to-day business operations and handling immediate issues as they arise. However, considering today’s dynamics, it is critical to work with trusted advisers who can provide the necessary guidance and help protect their best interests. Those who do can gain a significant competitive advantage and position their businesses for continued success.
James Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle- market companies.
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