You probably know your industry. Maybe it’s construction, retail, healthcare, manufacturing, or another. But have you thought about how the economy affects your industry which affects the value of your business? Some industries feel the impact of the overall economy more than others. For example, if interest rates go up and your business relies on customers who buy on credit, they may buy less because it will cost more to borrow. In this scenario, a homebuilder will likely feel the impact to their business and its value more than a dentist. What can you do to prepare for changes in the economy that will impact your industry?
Decide Which Metrics to Follow
You’ve heard experts talk about consumer spending, GDP, unemployment, and many other economic metrics. The key is to pick the few that are most likely to impact your business and follow where they’re expected to go. Every industry goes through a business cycle. If you’re up now, you’ll probably head back down at some point. If you’re down, you can expect to go back up if you make the right moves. What are some of those moves?
Pick Products and Services That Hold Up When It’s Bad
Your business will be better positioned if you sell products and services your customers think they must have even when the economy is poor. The alternative is to follow the metrics and make the shift to different products and services before a downshift. That can be difficult if you have limited capital, people, and time. There is something you can do that few have the discipline to follow.
Invest in People, Equipment, and Technology at the Top of the Cycle
When your business is firing on all cylinders, there’s a temptation to take a bigger salary or dividends for yourself. You’ve worked hard and you deserve it, right? That’s okay if you’ve made investments in your business first. This is one of the biggest separators between good and poor businesses I’ve seen. The good ones make investments in people, equipment, and technology when they’re flying high. You will then think clearer, run faster, and be more effective when sales inevitably drop. You’ll also be better positioned to run circles around your competition.
Many economic metrics can be found on the FRED (Federal Reserve Economic Data) website here.
Thanks,
Josh
Sign up for this blog here if you want tools to increase the value of your business or want a refreshing view on business valuation from a recovering CPA. I’m Josh Horn, CPA, CVA of Horn Valuation. I value businesses for owner exits with a focus on HVAC and trade contractors. I also assist litigation and divorce attorneys as a business valuation consulting or testifying expert. My clients are business owners and attorneys. If you’d like more information, email me at [email protected], or call me at 217-649-8794.
I’m a licensed Certified Public Accountant (CPA) and credentialed in business valuation (CVA). I’ve been a tax and business consultant in a top 100 CPA firm and a controller in a large international company. I’ve also valued and advised small family-owned and multimillion-dollar companies. You can connect with me here on LinkedIn, Facebook, Twitter, YouTube and Instagram.
“Once-in-a-lifetime events demand an expert.”
Josh Horn, CPA and Certified Valuation Analyst
