In order to achieve a well-rounded approach to business strategy, it’s important to understand the world around you. It can be especially valuable to learn about how government entities may affect your businesses profitability and valuation in the future. As you probably know by now, the Exit Mindset is the idea that putting yourself into the mind of a potential buyer will lead to a more successful business and eventually a higher valuation.
Have you ever asked yourself, does the success of the economy influence my revenue? The answer is yes, and in more ways than you may have originally thought! After reading this article you’ll have a clearer understanding of government deficits, taxes, and how it could affect your sales and profitability. We’ll also dive into the idea of an exit product, and how a tough economy allows existing cracks in your business to expand.
Federal Budget Deficit & Taxes
As a business owner, being in tune with your surroundings is a superb way to gain an edge on the competition. One of the biggest factors that may be affecting your business without immediately grasping your attention is the federal budget deficit. For example, the United States, one of the wealthiest countries in the world by a lot of people’s perception, is operating with a deficit of over $20 Trillion. This may or may not be a similar number to the deficit of the country where you live if you are outside of the United States, but it’s an important number to know! Understanding the debt that your country is in can give you powerful insights into what is happening at the government level, and whether there may be tax increases in the future.
So where do governments get their money from anyways? If you haven’t figured it out by now, the money is accrued through taxation of individuals and businesses. Local and Federal governments tax the citizens of the US and then use the money they get from taxes to spend on things like infrastructure, public education, and more.
The Goose Laying the Golden Egg
It is easy to think that raising taxes is the right direction to head with a federal budget deficit of over $20 Trillion, but is that really the answer? If we look closer, it is easy to see that there is a balance that needs to exist between governments and businesses that allows for the generation of revenue, so that taxes can be collected. The more the government taxes the US citizens, the less disposable income the country as a whole has to spend with large US based corporations and other small businesses.
If we take one employee in the US as an example, it is quite easy to see how taxes will affect their purchasing habits. To start, let’s imagine that this individual is paying higher taxes next year than they had been used to paying. What decisions are they going to have to make? They will likely have to choose from goods and services, then establish their needs vs. their wants when it comes to purchasing luxury goods. If your company was selling a luxury good as opposed to a good that was perceived as a necessity, you will likely end up selling less products as taxes increase and a consumer’s relative income decreases. In this scenario, nobody wins! The government collects less taxes, the average American has less disposable income, and businesses are less profitable. At the end of the day, the purpose of this illustration is to demonstrate that you need to position your business to move forward and thrive through hard economic times.
For a lot of experts, it is difficult to see the public sector and government entities of the United States ever fully understanding business. As you begin to master some of the basics of the Exit Mindset principles, you should start to focus in on your product and whether it could be considered an exit product. An exit product being a product that people would need, even if there were hard economic times ahead. Creating enough value in the eye of your target consumer will lead to future success, even through an economic downturn or time of higher taxes for businesses.
Be sure to revisit your product, infrastructure, and conversation when you have a chance. Is there anything that you can do to increase your products’ perceived value? Focusing in on a specific target market during a time of economic uncertainty will keep your business alive!
Keep in mind, the purpose of the Exit Mindset is not to convince you to sell your company. If we use the analogy of a ship sailing the rough seas of the ocean, you want your business to be a well-made, tough ship when it comes time to weather the storm. A weak ship is not likely to survive the turbulence and, in the end, will reveal itself when the rough weather rolls in. Good companies built on solid principals are bound to survive. There may be some damage along the journey, but if you focus on situational awareness and adaptation, there is nothing that can stand in your way.
For more information about how to prepare your business for an economic downturn, visit the website Exitmindset.com.
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