Spring Cleaners for Baby Boomers – Part I

Risk assessment

Whether you’ve taken on extra debt to grow your business, merged with another business or worked your fingers to get your latest promotion, chances are that at some point in the last decade or so, you really overcame yourself in to get to the place you are today in your career. For many of us, our success has come only after learning from a few mistakes that one would expect given the principle of risk return. In fact, it could be argued that your willingness to take risk at some level has been the biggest factor in achieving success. Many thought leaders over the years have talked about this principle, but the following quote seems to capture it particularly well:

“There are risks and costs to an action program, but they are far less than the long-term risks and costs of comfortable inaction.” – John F. Kennedy

Whatever risks you have taken during your professional life, now may be a good time to take stock of the amount of risk you are currently taking in every aspect of your life. If you are a business owner, then it is probably time to start thinking about how much risk you have taken with the company and how you can start striving for more stability and ultimately an exit strategy. If you are an executive in a company, it may be time to record where you are in your career and how to make the most of the rest of your time with the company. When you retire, it’s probably also a good time to take a closer look at your finances and your personal affairs.

As a business owner, there are countless risks to your livelihood that you may face regularly. Competition from other companies, production problems, employee turnover, government regulations, theft and material damage are all good examples of some of the risks you may have as an owner. Although you are likely to deal with these issues routinely through tight management, legal work and insurance, there may be other areas of your business that are slipping through the cracks or have become less of a focus over the years.

Company balance sheet

As the business has grown or moved into various business areas, the balance has probably grown in complexity. As you take the opportunity to investigate the full situation in your business, you may want to take a closer look at your balance sheet and see if there may be some ways to clean up and reduce some of the apparent inherent risks. For example, if receivables and receivables have sprouted a bit during these growth times, it might be a good idea to evaluate your checks in these areas. Similarly, inventory may have ballooned over the last several years. These types of changes to your balance sheet not only increase the risk you take, but can also have a serious impact on your cash flow. As you approach retirement, starting a plan to clean up the balance sheet can save you a lot of time and effort on the road. While you may not have thought about this yet, turning the reins to your successor with a cleaner balance will be a lot easier. Further, if you plan to sell the business, potential acquirers are more likely to pursue a business that appears to have its finances under control.

As part of this thorough assessment, the various types of outstanding debt can guarantee a deeper inspection. Over the years, the company may have changed lenders several times or simply added new ones on top of the old ones. You may now find that you have a confusing mix of different types of debt. As a result, the company may risk delayed payments or violate covenants only because of complexity. In addition, you may lose money on unnecessary transaction fees and variable rates. Again, this is probably a good time to plan some measures to clean up your debt structure. The same can be said for balance on balance. Over the years, you may have taken on shares that are no longer active in the business. While issues of this nature are unlikely to be cleared up overnight, it is a good idea to simply identify such issues that need to be addressed at some point.