Evaluating Your Business as an Investment

entrepreneurshipAs you review the performance of your investment portfolios, there is one investment that you might want to look at as well – your business. There seems to be an emotional blindness to looking at one’s business like you would any other investment, but CEOs and owners need to be paying attention to what is likely their biggest investment as an investment.

If a stock or a fund does not perform, you discuss it with your broker or advisor and make a change. Done. However, if your business is not producing the return on investment you had hoped, what do you do? Most entrepreneurs chalk up the failure to meet projections with a list of things that prevented revenue from hitting the forecast. Would you let your broker off the hook with a list of excuses or reasons why a fund didn’t hit the mark? Probably not.

Your business is likely one of the biggest investments in your portfolio and you should treat it as such. You have a significant amount of cash, time and resources tied up in this asset. Is it performing? Are you getting a 20% YOY returns? 10%? Anything? Ask yourself these hard questions and you might make some changes to how you’re doing things. You are the biggest stockholder, what do you expect?

After the great recession, a number of entrepreneurs started hoarding cash. It was not available from banks and so many good businesses went under because they didn’t have it on hand, so the hoarding started. Entrepreneurs were reluctant to invest in the business, (or asset), because no one really new whether it was going to get better or when they might need the cash. Now what I’m seeing is a lot of cash in essentially no return money market accounts, lines of credit not used, reluctance to hire to grow, and reluctance to invest in infrastructure to reinvest in the business. These behaviors are not how your financial advisor would be directing you to look at your portfolio.

If you have a time horizon of 5-10 years, some of that cash needs to be invested now, back into the business to generate a healthy return. If you’re not willing to take a risk on your business, it’s time to sell it and cash out. Successful entrepreneurs are able to predict what’s going to happen in the future and make “bets” on what that looks like. Sometimes that bet is to sell. In my upcoming book “Solving the Entrepreneurial Puzzle,” Chapter 10 is all about the exit strategy, or as I like to say, “begin with the end in mind.” Serial entrepreneurs are always going to have a business, but make sure you’re investing in something that at the end of the day, has a good return for that investment. What is the return on your investment? Should you still have this investment in your portfolio? It’s good to at least ponder the answers for yourself – an investor would.

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