By Brett Pittsenbargar
Consider this: If something catastrophic were to happen to your company, how prepared would you be? It’s risky to invest significant amounts of time and money to build your business without properly understanding how solid your business foundation actually is.
While there are many strategies out there to help transform your business into one that can stand the test of time, these three can be the best ways to help your business perform better and protect it from legal, financial, or competitive threats.
Create a Safety Net
In business, it’s always a good idea to guard your company against liability. A limited liability company (LLC) structure protects business owners from any kind of personal liability for business-related debts or lawsuits against the company, similar to the structure of a corporation. LLCs are also typically easier to set up than other kinds of legal business structures, such as corporations. However, an LLC’s assets can still be vulnerable to creditors, if there is no separation in place.
For business owners that have assets, it may make sense to create an organization with two LLCs – one that is focused on operating and one that is focused on holding. An operating company does things like selling products, hiring employees, and entering into contracts. A holding company owns the business’ assets such as real estate, equipment, or intellectual property. The holding company can own the operating company – creating a subsidiary relationship – or, in the case of an LLC, may rent out its assets to the operating company for a fee.
This route does require more paperwork, but by utilizing an LLC holding and operating structure, you can maintain your business’ integrity by protecting its assets – and yourself.
Divesting a non-critical portion of your business could actually lead to higher profits. How? A carve-out allows a company to sell a minority equity stake in the business that can boost the valuation of that portion of the business.
Another way to do this is by, in effect, licensing your secret sauce to others in the industry. Let’s say Owner A has a great sales and marketing system that he teaches as a side business. Owner A decides to spin that business into its own company separate from his primary venture. Owner A then offers Owners B, C, and D a minority stake in the business enabling them to use this sales and marketing system while Owner A receives cash flow as a result of licensing this system.
Buy Your Weakness
As with everything, each business has its own set of strengths and weaknesses. One way to remedy a potential competitive threat is by buying a competitor that strengthens your business’ weakest link. Perhaps your competitor has a stronger product but is new to the market, whereas your business is one of the top players. Buying your competitor early on could potentially strengthen your company’s position as the market leader by improving your product offering. This may be a risky move, and one that should involve a lot of homework on your competitor before you move forward, but it has the potential to pay off in a big way.
Another way to strengthen your business is by setting up a joint venture with another company. For example, if Company A is looking to break into a market where Company B already has a stronghold, you may want to consider setting up a joint venture with Company C (which offers something your company does not or does it better) to improve your chance of success when breaking into the market occupied by Company B. This is a win-win situation for both companies involved in the venture since each company shares the risk and rewards.
In all of these instances, be thorough in your research beforehand. After all, the health and longevity of your business should be the primary factor to consider when undertaking any of these steps.
Disclaimer: This article is intended to give you general business information, not to provide specific legal or financial advice. Be sure to consult your attorney, accountant, and financial professionals for any specific questions relating to your business.
Brett Pittsenbargar is a savvy business investor and turnaround strategist dedicated to assisting business owners reach their objective at every growth phase. With a background in business development and investment experience, Pittsenbargar understands that business is much more than written contracts, it is about the people working every day in the business that matter most for small and medium sized enterprises generating $1-5 million in revenue annually. He invests in, mergers and acquisitions, growth partnerships, cash out purchases and adding shareholder value.