When the world’s greatest investor, Warren Buffet, deems the current market ripe for US$8 billion cash investments in two of America’s blue chips (Golfman Sachs and GE) – even when the majority is engaging in panic selling and fleeing the market – it reinforces the fact that uncertain economic conditions give rise to some of the best opportunities.
The professional investor mantra “buy low, sell high” defines in simplistic terms one of the keys to creating wealth. Mr Buffett is one of our greatest living examples of this philosophy applied in the real world over a long period of time.
Even though you may not have the scale of resources available to emulate his exploits, there are many ways in which the business owner can apply this principle in today’s volatile climate to lay the foundations for successful growth in the next cycle.
Acquisiti’s Top 10 areas for investing in your business during challenging times
1. Staff. When everyone else is trimming their workforces, remember that Australia is suffering through a severe talent shortage (which is likely to continue with the change in demographics). What better time to replace underperformers with talented individuals, who in this climate will be more productive, more committed, have more realistic expectations and less likely to leave?
2. Acquisitions. The current market offers ideal conditions for making sensible, strategic acquisitions to accelerate your business’ medium-term growth. With the volume of available businesses for sale, take the opportunity to broaden your revenue base, expand service lines and increase the size of your team.
3. Information Technology. As spending is slashed, demand weakens sending prices down. Providers of hardware, software and systems will be more likely to squeeze margins when times get tougher, giving you more leverage when negotiating deals.
4. Premises. Demand for commercial space in major centres is softening, giving the SME owner more power when negotiating a new lease or extension. You may want to upgrade your space, expand (to accommodate your growing team) or simply renegotiate to cut your expenditure.
5. Marketing. What better time to invest in building your brand than when competitors are slashing marketing budgets. Again, less demand tends to equal lower price, giving you more effective access to media, advice and PR opportunities.
6. Sales. In boom times, sales teams often become “order-takers” as customers are plentiful and driving the sales process. However, in more challenging times, your sales approach requires “hunters” instead of “farmers”, so take the opportunity to introduce new blood, invest in more appropriate training and update reward systems to reflect the new paradigm. Your focus should also be on developing a more recession-proof client profile, with more emphasis on secotrs such as Government, pharamaceutical and healthcare.
7. Innovation. If Australia really is “the clever country”, innovation needs to be an ongoing process. Perhaps the slowing market gives you an opportunity to invest more in innovation/R&D so you’re ready to ride the next economic wave.
8. Personal development. “you don’t know what you don’t know”, as the old saying goes. To help give you the skills necessary to grow your business and navigate the contrarian path, take time out to develop some new skills or behaviours.
9. Real estate. Commercial and residential real estate values in major centres appear to be softening as a glut of property hits the market, whilst demand for rentals has reached acute levels. Perhaps this is the time to start investing in this asset class if you haven’t already – maybe even purchasing the premises within which the business operates!
10. Sharemarket. Many companies generate a significant percentage of their net income from investments in financial instruments. Take some professional advice before following Warren Buffett’s lead, but it’s definitely worth consideration given the recent return to 2004 valuations.
Taking a contrarian view can be difficult, when the majority are treading a different path. As counter-intuitive as it seems at first glance, the underlying logic is sound for building a long-term platform for wealth creation.
Andrew Cassin is an Exit Advisor and Business Broker licensed in Queensland, New South Wales and Victoria. His company, Acquisiti is premium business brokerage and advisory firm, providing services aimed at maximising the exit result for its clients. Andrew holds a Bachelor of Business and has pursued post-graduate studies in financial services, corporate governance, mergers & acquisitions, and change management. For more information contact Andrew via email at email@example.com