True Business Success Requires Liquidity
Everyone feels the liquidity pinch some time or another. Growth, acquisitions, internal investments, taxes, and bonuses take capital and drain liquidity. Business liquidity is the measure of the extent to which the organization has cash or assets to meet the short-term obligations. When you are looking to grow or need cash for improvements, short-term obligations are not that important.
However, as a multi-unit franchisee business owner, you know the internal struggle associated with wanting to grow or improve, while being cognizant of cash flow and capital requirements on a day-to-day basis. Success is defined differently depending on the reasons you started your franchisee business. For some it is about the "lifestyle" and wanting the flexibility to do what you want when you want, and for others it is the monetary and material gains that are more important. Regardless of the reason for becoming a franchisee business owner, it is important to understand that a business cannot maintain success without liquidity.
Many businesses start out with one owner having to provide for the needs and benefits of one family. However, as the business grows and ownership interests in a business multiply, the business inevitably comes under more stress, as it must provide for multiple families. The intention to continue a certain lifestyle requires the business to either expand, or become more profitable and efficient. Growth is needed to provide for future generations. Long hours, dedication, and passion are a must to drive business forward. Hopefully, you are able to pay the employees, pay the bills, and have the lifestyle for which you set out. The only question is do you have enough cash or assets that you can easily liquidate?
Let's use a case study
A 30-year-old wanted to set out and start a business. Working in the franchise industry his entire life, he felt it was time to work toward starting something of his own. He knew he could create a culture focused on customer service, providing career growth for employees, and was willing to put in the hours. Fifteen years later, his business bloomed into a multi-unit franchise business with a diversity of brands and a reputation for being one of the best in the area. Through the years, he married and had four children. Although his individual salary did not increase all that much, his lifestyle demands were met with the flexibility in his schedule.
In an instant, everything changed. He and his wife separated. Divorce loomed. Everything he had worked for in those 15 years was in question. He and his wife were co-owners of the business. They both enjoyed the lifestyle the business afforded them and, in their minds, they had a very successful and attractive business. Unfortunately, the reality was that there was absolutely no liquidity because they were focused on reinvesting in their company to grow and therefore dividing up the proceeds and assets was extremely complex. All the cash was tied up in loan obligations and hard assets that could not be easily turned over.
In the end, it took more than three years for the couple to agree to terms. The company took out a note to pay the wife her share of ownership. The husband was hit hard with the realization that he had a serious liquidity problem and that it was critical to focus on liquidity for the business in order for it to be truly successful and sustainable for the future of his children and leadership who had worked so hard to build the business.
Don't fall victim
Prevent yourself from falling victim to the same scenario. Take an honest look at your business. Is there an income stream to manage debt reduction or support a plan to minimize complexities that are causing a cash pinch? Do you have what it takes in cash and assets if your life perspective changes? Do you have any other sources of income?
If you are currently in a scenario where your business is going along fine but you do not have liquidity, make it a priority to free up cash. Prioritize your debt and pay it down quickly. Focus on your receivables and make sure you are collecting monies in a timely manner.
Divorce and liquidity are just a few of the many contingencies that could impact the current and future success of your franchisee business. As you are looking to diversify brands, develop an area, or grow to a certain number of units, take time to ensure you have the infrastructure to support current and future business ventures.
Share this Feature
Comments:comments powered by Disqus
- Multi-Unit Franchising
- Get Started in Franchising
- Open New Units
- Featured Franchise Stories