Saturday, October 24, 2020

THINK STRATEGICALLY: Groundhog Day, Pandemic Style

By on July 21, 2020

Photo by Danny Wage on Unsplash

When and how to sell your business?

One of my favorite movies of all time is “Groundhog Day,” starring Bill Murray, who plays Phil, a weatherman who relives each day, again and again. Each day, he begins to change his personality, becoming a better person. The groundhog is also named Phil. Hence, the groundhog becomes a literary double. As the legend goes, every February 2nd, the groundhog is supposed to forecast the weather by looking for his shadow. If it’s a sunny day, and he sees it, there will be six more weeks of winter. However, should the day turn out to be cloudy is alleged to mean an early spring.  However, if the groundhog sees his shadow using literary and psychological terms, the shadow symbolizes the aspects of our personality that we want to keep at a distance, very much like the character in the movie. 

The current COVID-19 environment has forced a total revamping of the global economy.

We have seen once-mighty corporations fall as the novel coronavirus has impacted their business so dramatically that it forced them to file bankruptcy. It’s always a good idea to be one step ahead of the herd. As our business environment changes, every entrepreneur has to ask the tough questions:

  • Is it time to sell my business? 
  • How can we avoid bankruptcy? 
  • How do we get fresh capital?

However, before we can answer that we must also begin to answer some critical questions:

  • How much is my business worth?
  • How do I sell equity and keep going?
  • What could my exit strategy be?
  • How do we transition to the next generation? 

For most corporations near term, survival is priority One, while Others were attempting to see beyond the Crisis to determine how to position themselves once the COVID-19 Crisis has passed.

The critical question is, ‘What will the new standard look like?; Do I see myself in that environment?

Currently, more than 60% of business owners are baby boomers, or people born between 1946-1964. As most of them are between the ages of 56-74 and by most metrics could be more than ready to sell their business, if you add the coronavirus pandemic, many business owners may be looking for a way to sell.

To determine these opportunities to sell or acquire a business, we share the five types of entrepreneurs with you: 

  • Lifestyle Entrepreneur: Those who stop growing their business once they reach their lifestyle. For everyone, it’s a different bar. For some, it’s having a house, beach house, boat and plane. For others it’s being debt-free, and for others it’s having 2,000 branches. The key is that once you reach that goal, they stop growing and maybe it’s time to sell.
  • Innovators: Are the type of entrepreneurs who create an original idea and can turn them into a viable business model. Some come to mind: Apple, Google, Uber, Amazon and Microsoft.
  • Hustler: is the type of entrepreneur who starts small, with little or no capital, and works their way up; they are opposed to other stockholders, capital raises or even partners. They focus on building their business from the ground up.
  • Me Too: These entrepreneurs copy ideas from other entrepreneurs and improve them enough to make them feel new and innovative. Innovators are 50% hustlers and 50% lifestyle and won’t stick to anyone’s terms but their own.
  • Buying into Entrepreneurship (BIE): These are individuals with the resources to purchase a business because they have both the wealth and savvy to do so. They more often than not avoid risks and don’t worry about innovation, and their focus is building upon what is already there. Cemeteries are full of all types of entrepreneurs, but the most common kind is the BIE.

The challenges of selling a business? 

As the time to sell nears, as a business owner you will face certain challenges:

  • What happens to family members who work here?
  • Is the money I saved enough to help support my lifestyle?
  • How do we clean up my financials to show the business’ real value?
  • What happens to me next?

If you think you are ready to sell your business, look to have an in-depth discussion with a trusted financial adviser to maximize your life’s work. As the groundhog legend states, you cannot wait and hide until you see your shadow.

Week in markets: Will the coronavirus derail the economy?

The U.S. stock market ended the week with mixed results as investors are in a more analytical mood. News of higher than expected corporate earnings, critical economic data and the surge in coronavirus cases in the United States has impacted investor sentiment. 

The concern as the higher than usual U.S. unemployment benefits are to elapse on July 31, a large number of Americans who live paycheck to paycheck will lose a critical safety net. As a matter of reference, the U.S. had recorded its most massive household debt burden in history even before going into lockdown. So far, the higher than usual benefits have averted a wave of bankruptcies. If Congress does not act soon, we will see the most significant personal and business bankruptcies in modern history. 

Additionally, on the economic front, the following key benchmarks were reported last week:

  • New Initial Claims for Unemployment benefits: 1.3 million, down 0.76% from the previous week; this is higher than the consensus estimates. 
  • U.S. Retail & Food Service Sales: Increased by 7.5% in June, and are close to their pre-COVID-19 levels. 
  • U.S. Industrial Production month-over-month (MoM): Rose to 5.41%, compared with 1.38% last month, for the most significant increase since 1959.

Over the next few months, we can predict that most investors will continue debating the uncertainty of not having a vaccine for COVID-19, mixed with the dire reality that the new wave of coronavirus outbreaks could derail any economic improvement that has occurred so far. 

On to the markets. The Dow Jones Industrial Average closed the week on July 17 at 26,671.95, a gain of 596.65 points, or 2.29%, and a year-to-date (YTD) return of minus-6.5%. Besides, the S&P 500 closed at 3,224.73, up 39.69 points, or 1.25%, and a YTD return of miinus-0.2%. The Nasdaq index closed at 10,503.19 , dropping 114.25 points, or 1.08%, and YTD return of 17.1%. The Birling Puerto Rico Stock Index closed at 1,463.34, up 65.84, or 4.71%, for a YTD return of minus-28.19%. Meanwhile, the U.S. Treasury’s 10-year note closed at 0.64%, a change of or 1.54% lower, and YTD return of minus-1.3%. The U.S. Treasury’s 2-year note closed at 0.14%, a change of minus-12.5%, and a YTD return of minus-1.5%.

The Final Word: Birling Top 5 U.S. Bank Index Performance from Jan. 1 to July 17

During the week, some of the U.S.’s biggest banks reported their earnings:

  • J.P. Morgan Chase: reported 2Q-2020 net revenue of $33.8 billion and net income of $4.7 billion after increasing loan loss reserves by $10.5 billion. A return of minus-29.58 YTD 
  • Citigroup: reported 2Q-2020 net revenues of $19.1 billion and net income of $1.3 billion after increasing loan loss reserves by $7.9 billion. A YTD return of minus-37.14.
  • Wells Fargo: reported 2Q-2020 net revenue of $17.9 billion and net net loss of $2.4 billion after increasing loan loss reserves by $9.5 billion. A YTD return of minnus-53.62 
  • Bank of America: reported 2Q-2020 net revenue of $22.5 billion net income of $3.5 billion after increasing loan loss reserves by $5.1 billion. YTD return of minus-34.07 
  • Goldman Sachs: reported 2Q-2020 net revenues of $13.3 billion and net earnings of $2.42 billion after increasing loan loss reserves by $1.5 billion. Return of minus-8.05 YTD

The five banks collectively increased their loan loss reserves by $34.1 billion for current and future loan losses. The loan loss reserves provide a bird’s eye view of the amount of business that will face undaunting challenges due to the COVID-19 pandemic once the government safety net is removed.

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