Any Time is a Good Time to Harvest Some Cash

Your business may be a substantial piece of your personal net worth.   It may also be your most risky investment.  Most business owners fail to recognize that the money they have tied up in their businesses (fixed assets and working capital) is at considerable risk every day.  They believe so heavily in their own ability to mitigate risk that they leave all or almost all their chips in play at all times.   
     
What can happen?  Almost anything can take a small to mid-sized company (say, revenues of $50 million or less) out of business in less than a year.  Like what?   Like death or a disabling illness of the CEO.  Your business is just one stroke or one heartbeat from extinction, unless you have a fully-ready successor just waiting in the wings.  One sexual harassment suit.  One big product liability suit.  One major customer bankruptcy (or multiple small ones), leaving you holding the bag for hundreds of thousands or perhaps millions in uncollectable accounts receivable.  Be aware of the many things completely beyond your control that could wipe out a big piece of your equity in the business.  
    
We insure our businesses for fire -- an unlikely event that could happen and would be catastrophic.  Yet we're unwilling to recognize any of the far more likely events that could wipe our businesses out financially, and against which we may not be able to insure.  For this reason, we incorporate, to put a corporate veil between our personal assets and the company.  I was recently frightened to hear a member of Chief Executive Boards International say that he had $1 million in liquid assets inside his company.  That's an accident waiting to happen.  I don't think he's alone.  
    
What's the option?  Take some chips off of the table.  Take some money out of the company.   To do that, we'd have to borrow money for working capital, you say?   What's wrong with that?  If your credit is good, lenders will loan you money for working capital at ridiculously low rates right now.  So, borrow some working capital and take some cash out of the business and invest it elsewhere.  Almost any mid-to-long term investment will yield you more than you'll be paying in interest, and that money will be out of reach of creditors, judgments and other claims on your business assets.  
    
But "we're debt-free", you say?   Is that a good thing?  It's not typical of any major publicly-traded company.  Why is that?  Because shareholders would rather the company borrowed its working capital from lenders presently willing to take a return in the low single digits than to use shareholder funds for that purpose.  
  
"I don't know where to invest the money", you say?   Now would be a good time to start learning how to invest outside your business, because you'll probably live about 20-30 years after you sell and retire from your business and you'll need to know how to invest for both growth and income.  If you haven't taken time to become a knowledgeable investor so far, it's never too soon to start.  
  
Think about it -- would you rather have $100,000 in debt on the company's books and $100,000 in assets in your brokerage account (or gold or real estate or CDs or whatever) -- or neither?  Replace $100,000 with $250,000 or $1 million, depending on your situation.  Remember, you can ALWAYS loan money back into the company if the bank gets uncooperative in the future.  The point is that debt is a tool by which to leverage other people's money, and there's nothing wrong with it, as long as you have a plan by which to pay it back if you need to.   
  
I know I'm not on the same page as most business owners on this topic.  To post your point of view for the benefit of others, click "Comments" below.   

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Terry Weaver

Advisor

Chief Executive Boards International
http://www.chiefexecutiveboards.com/

TerryWeaver@ChiefExecutiveBoards.com