“Trees Don’t Grow to the Sky,” a popular German proverb often used in financial sectors to describe the dangers of maturing companies with high growth rate. It suggests that there are natural limits to growth and improvement.
With the right conditions, a young tree will grow quickly but, as it matures, its height growth slows to the point where it no longer advances. The same principle can be applied to business. Whether a large publicly traded company or a small privately held business, all go through cycles, which are unique and at any given time difficult to predict where they are in the cycle.
Like the growth of a tree, the early stages of a business may be characterized by rapid growth. In reality, your business will not continue to grow forever. As your business progresses, there are factors that come into play that will cause your business to pull back. Generally speaking, the larger a company becomes the more difficult it becomes to achieve a high growth rate.
Valuable lessons learned
To put things into perspective, there are valuable lessons a business owner can learn from observing trees. Trees sway and move with the wind. They survive storms and other harsh elements, but are strong enough not to break. It is critical that a business move with the times and adjust accordingly to stay on course without compromising values or integrity.
No matter how short or tall a tree is, it tends to spring back to action after an unfortunate incident. Similarly, a business must possess flexibility and be ready to bounce back after facing challenges and experiencing the peaks and valleys that come along with owning a business.
Trees grow before our eyes, but you won’t notice the growth on a daily basis. It continues to grow at a slow and steady pace, inching towards the sky. The same should hold true for a business—continuous growth by taking small steps every day and inching upwards gradually. A business that grows at a healthy rate, is better positioned to sustain an unexpected shortfall.
Know the value of your business
Situations, both personal as well as in the economy can change rapidly. As a business reaches maturity and growth begins to slow, standing idle is not an option. To elevate the company to the next level, considerations such as selling the business or acquiring new businesses may come into play.
Regardless of where a business is in the cycle, a business owner should know its value. A valuation should be done on an annual basis, as it is vital to know how a business compares year over year. Determining the market value of a business takes a multitude of factors into account. Clearly, a business’ financials are highly important—profits and losses, current payroll, lease obligations and other related figures. Tangibles and intangibles like location, personnel, unsold inventory, vendor/supplier relationships, loyal customer base and professional connections all affect the market value. Many of these matters may go overlooked or be miscalculated if not done by a knowledgeable broker.
Knowing the value of the business, helps to navigate where its heading. In order to take full advantage of opportunities, a business owner should be ready if one presents itself. An annual evaluation provides a valuable option whether you choose to exercise it or not. A certified business broker can assist with this process.
Corporate Investment Business Brokers have the experience and expertise to help you. Please contact us for a free consultation. Call (239) 936-1718. Online at CIBB.com.