We’ve all heard of the 4 D’s of business exit strategy (death, disability, divorce, departure) that frequently lead to a sales price below value if there is no plan in place.
But what about the 5D’s that can cause huge disruption, if not an unplanned sale of your business? These are the things that are a big business risk:
- Dependence on a major customer who is more than 20% of your business. We have seen the effect of this with a business where one of their customers was 30% of their sales and has now decided to go elsewhere. They now have a big hole in their sales forecast and a negative cash flow.
- Dependence on a key or sole supplier – is the supply of key components or services concentrated to a small number of suppliers? We saw a retailer who lost distribution rights for 20 years with no notice. I was recently speaking to a business owner who relied on one supplier in US for 80% of their products. Overnight they withdrew their supply and the owner was forced to close the business down
- Dependency on key people especially the owner as they often hold the key to customer relationships, the DNA on how the business is run, and development of new products and services. And business owners eventually need a holiday or get sick. What would happen to your business if you went on holiday for three months or got run over by the proverbial bus? Talented staff can be a scarce commodity. Treat them like key partners on your road to success. Deepen the bench.
- Debt at high levels can kill even profitable businesses. High debt levels leave no head room to move in the event of any disruption to cash flow. It could put you under pressure from your bank or suppliers.
- Digital Disruption is changing the way businesses operate and how they engage with their customers and suppliers. Sectors such as accounting and finance, retail, media, and information and communications technology are being hugely affected and have to find ways to evolve.
Anyone these 5 D’s could have a serious impact. Worse would be a “perfect storm” with a combination of the D’s occurring at the same time.
“Disruption isn’t about what happens to you, it’s about how you respond to what happens to you.” Jay Samit
Want Help? Call Warwick a call on 021 951076 now to arrange a free assessment. Or email [email protected]