Ellen McIlhenny - The Smart and Savvy Exit – The Merger as an Exit Strategy
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You cannot go long without talking about how inflation is finally starting to heat up. At 4.16% April’s annualized rate of inflation was double what was expected. And I hate to see what the May number will be. First the pipeline debacle – which is the only word I can think of to describe what happened with the Colonial Pipeline. Here in Virginia at one point around 60% of gas stations were out of gas. And our friends to the south in North Carolina saw about 70% of their stations without. What a mess.
Then you must talk about the building construction industry. Because of a lack of supply and booming demand the price of lumber has risen almost 200%. Low interest rates and increased home projects due to more people being at home during the pandemic in 2020 led to a boom in new construction. Supply has not been able to keep up with the demand.
Then there are food prices; especially meat prices. With more people eating at home during the pandemic we are seeing grocery store prices rising in the double digits. Meat processors that were forced to close due to COVID last year exacerbated and already massive problem.
Inflation can be especially devastating for small businesses.
Higher prices from vendors means a decreased ability to hire employees and expand.
Small businesses are often financed by their owners. So, this puts owners at greater financial risk during periods of high inflation.
For so many years Fed policy artificially stemmed the inflation rate with their monetary policy, keeping interest rates low for so long without allowing a slow and steady increase which is both healthy and beneficial. Now the inflation bubble that has built over the past decade looks like it might be ready to burst. The flood of currency on the market that came from the large stimulus bills has brought us to the brink.
In these times of rising prices Small businesses often do not have the same access to financial liquidity as larger companies. Stifling the possibility of growth.
Forecasting becomes more difficult since decision makers don’t know if the current inflation rate will hold or increase over the next 1-3 years. And in inflationary times they are less able to withstand forecasting misses. Cash flow can become a major problem, especially when clients are slow to pay invoices due to their own financial problems.
Small businesses will face the decision of whether to raise prices or absorb the higher cost of Goods. and the effect it will have on their customers. Will they stay with you or will. They may begin looking elsewhere for the same goods usually from the big box stores who can better absorb the effects of inflation.
Reducing expenses is another way to deal with inflation. Smaller businesses usually do not have the leverage to negotiate better prices from vendors, so they may have to change vendors, or go with a lower-grade product. This can affect the reputation of the business and the integrity of the product or service.
While coming out of the pandemic small businesses are having to deal with this, the shortage of workers, and to add insult to injury the possible federal increase of the minimum wage.
Now more than ever business owners need resources like IBGR where there are so many different resources available to address almost any issue you will face.
Show Objectives - The Why
Today I will be talking about using a The Merger as an exit strategy.
Next Week: Management Buy-Outs.
Written by Ellen McIlhenny
Owner of CFO Plus Services, a Fractional CFO services firm which also offers Back Office Bookkeeping Services. Author of the business novel The Big Turnaround; How Bad Management Nearly Destroyed an Exceptional Company. Check it out at https://thebigturnaround.com
You can connect with Ellen on any of her #cfoplusservices platforms or firstname.lastname@example.org
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