Strategy considerations - Wealth Creation
The recruitment industry has made many business owners wealthy. Low barriers to entry, substantial industry growth, and current opportunities to outperform continue to provide wealth creation opportunities better that are better than most alternatives.
Most recruitment agency owners know the recruitment industry is their best chance of generating personal wealth as many (not all) have received their start in the industry without prior business experience and this industry provides a lower risk entrepreneurial activity.
Unfortunately, many do not create lasting wealth from their opportunities. A combination of poor focus on company performance, poor strategic decisions, or a lack of discipline towards the task of accumulating wealth have reduced wealth potential.
George Soros said “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring”. This could equally apply to wealth creation for business owners.
We are not financial advisors and don’t give personal advice. However, we do question business owners who approach us to exit their business. For many, no matter how much they are frustrated by the recruitment industry, the available alternatives are not as lucrative and “getting out” needs to be carefully thought through.
Each year a business should be managed to make a profit and to generate excess cash. That sounds logical.
The challenge is what to do with the excess cash. For most organisations most years it is a balance of the three uses of excess cash – build working capital (which includes paying down debt); reinvest in the business; and take rewards as a shareholder.
Making the right strategic decisions is difficult. It is even more important when making decisions that balance the future of your business with your own personal aspirations.
The challenge for recruitment agency owners is to make right decision based on the type of company they own (or the type of business they are trying to create). A careful assessment of the business (that is, lifestyle, owner dominant, or corporate) is required to allow that decision to be made. You need to make a conscious decision about the balance of wealth creation goals and personal lifestyle requirements before you decide how you want to structure your business.
Those who are involved in lifestyle businesses need to concentrate on building their wealth a little each year as the opportunity for a meaningful equity event is less likely. Don’t get to retirement age before considering this issue!