The Compan(ies) You Keep
When it comes to building your wealth, it’s just not about how much you earn that is important. Those seeking significance make sure they focus on earning with a purpose. One of the best ways to earn with purpose is through the company you keep… that is, the actual companies in your portfolio.
On your wealth-building journey, there will be times when growing your net worth will require buying or building a business.
IF YOU WANT TO BUY AN EXISTING BUSINESS… keep in mind that it’s not always as easy as it seems.
Sure, buying an existing business can lead to significantly faster and less risky returns on an investment. Your acquisition usually gives you an established and proven business…. instant team, established customer base, cash flow, inventory, distribution, etc. You’re able to get into an existing market fast and are able to get instant returns in most cases.
Buying an existing business though also means taking on someone else’s vision and framework. Although you can always work towards tailoring the business to your own specs, you’ll have established infrastructure to work around.
Buying an existing company usually follows one of four paths:
- The Turnaround: These companies are usually in disarray which makes them great targets for takeover by someone who can create immediate value by improving existing systems.
- Eternally Profitable: The proverbial cash cow company. These established companies have no obvious threats to their model which makes them pricier for acquisition but more valuable in the long run.
- High Growth: These opportunities come around when an existing owner is typically overworked and is looking for an exit from a business that has remarkable numbers in terms of growth, revenue, and earnings. Keep in mind that exits tend to equal pricey, but you get a business ready to deliver in return.
- Platform: This is for the buyer who has a proven skillset that can solve the deficiencies in an existing company. They buy with an intent to pivot the business towards a new way of operating, hoping this change will quickly move the company to the next level.
To make an acquisition work for you:
- Make sure you have someone on your team with development experience. A development executive can quickly understand the needs at the new company and outline the opportunities.
- Integrating an existing piece of business requires finesse and careful consideration. You’ll want to keep IT, HR, accounting, and other systems in mind, determining how to integrate them into your existing platforms or figuring out ways to efficiently run them in parallel.
- You’ll likely need more than just legal assistance. Have solid financial controls in place ahead of the acquisition to protect your existing investments. If the new addition to your portfolio fails, you don’t want it to crash your entire empire.
IF YOU WANT TO GROW YOUR BUSINESS… make sure to be realistic about the work it will take.
Investing in real estate is one common way investors build wealth. Building and growing a business is another key approach that generates income that can impact your overall net worth. Growing something from scratch can also offer independence, flexibility, and the thrill of fleshing out your own vision.
Making your business a wealth-builder and not just an income-generator requires creating value. This means moving beyond producing a commoditized product towards offering something unique and hard to replace. You want to turn your business into something that will be missed if it goes away. Growing your business with this kind of value in mind makes it an asset on your balance sheet, alongside property and investments, that can eventually be sold. Making your business more than a side hustle can turn it into a prime contributor to your overall wealth.
To make expanding your business work for you:
- Ask yourself if your business offers the growth opportunity you are seeking. Nothing is worse than scaling a business that doesn’t have adequate demand.
- If your market is mature, you may not be able to extract the level of return you desire, even with an infusion of cash and time. So, do extensive research into parallel industries or other segments of your current industry that you are not engaged in to see if there is space for innovation.
- Plan ahead for potential costs related to an expansion, including building & equipment costs, new tax implications, inventory, and supply chain needs, and of course, expanded personnel.
Whether you choose to buy an existing business or expand your own company, the wealth advisors at Mosaic Family Wealth are available to provide guidance along the way. From cost-benefit analyses to mapping out the best strategic routes, our team is available to make sure that your journey towards significance is as smooth as possible.
Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice. If you would like investment, accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs.
Mosaic Family Wealth, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Mosaic Family Wealth, LLC and its representatives are properly licensed or exempt from licensure.