4 Reasons Why a Stock Market Drop May Be Good For Your Business
(This post originally appeared on Inc.)
A precipitous drop in the stock market can of course have a negative effect on your business. It creates uncertainty. It holds back your customers from spending. It gives you pause before you invest. It has an overall negative psychological effect on everyone, dampening spirits, cutting wealth, giving an indication of tough economic times ahead. It effects jobs and livelihoods. We know all this.
But a stock market drop also brings a few benefits to your business too, both tangible and intangible. Don’t believe me? Here are just a few.
A stock market drop validates you.
Remember how you were telling anyone that would listen that those stocks seemed overvalued? And you resisted investing in those tech stocks because your gut told you something didn’t make sense. You were right. You’re a business owner. You see three kids from Stanford start a company that’s loosely based around texting friends where they’re having dinner and then a year later that same company is valued at over a billion dollars and you scratch your head and say out loud “this doesn’t make sense.” Yes, you were right. Like every bubble, there is a limit. And you saw this coming long ago. That’s because you know that the true value of a company is based on a combination of real and intangible assets, infrastructure, contracts in place, processes, customers, revenue streams and market sizes. Those companies that have those traits will continue to build their value and create real, long-term wealth. When you see the stocks of those companies that don’t have those traits suddenly fall down to earth you’re sad, but feel a little vindicated too. Common sense prevailed. There is order in this crazy world. Your gut was right.
You are reminded where the real value is.
And the real value is in your own business, not the stock market. Who knows better what to do with your money than you? You’re a business owner, not an employee. You have the ability to spend your money on something that employees can’t: you. You can buy assets, acquire property, hire people, invest in training, upgrade technology, scoop up extra inventory and a whole bunch of other things that can provide you with a better and more reliable return on investment then just handing it over to some Wall Street mutual fund manager who’s following a textbook and taking his cut regardless of how well or poor your investments fare. The more you invest in yourself the more you are in control of your fate. And what, like those overpaid CEOs know more about running a business than you do? Pfft….give yourself some credit. And stop giving them your money to use in their businesses. Use it for your own.
You get a basic lesson in overhead management.
And that is: keep your overhead low, watch your cash and pretend there’s a stock market crash every day and a recession is just around the corner. Because this stuff happens. Everything’s a cycle. When things are too good to be true they generally are. But then again things are never as bad as they seem because there’s always a tomorrow…assuming you’ve got enough cash in the bank for your business to see tomorrow. A crash in the stock market tells us that it’s all transitory and that much of wealth is an illusion. So you don’t get starry eyed and you hold your feet to the fire, every day, good economy or bad. You watch every dollar like it’s your last. If you operate under that assumption then, like many of my successful clients, you’ll weather the good times and bad.
Finally, you can buy.
When the markets fall, people lose wealth. They get scared. They have bills to pay and sometimes overwhelming debt. And they’re forced to sell off their assets at much-reduced prices in order to (hopefully) survive. And that’s where you, the smart and savvy business owner with cash in the bank comes in. You haven’t been caught up in the stock market frenzy because you’ve held on to your cash and invested in your business. And now there are opportunities to buy inventory, assets, property and (in some cases) people for just a fraction of their cost from the guy who wasn’t so careful. Market declines create huge opportunities for buyers with the capital to jump and get bargains. Hopefully, that’s you.
A client of mine who runs a construction firm has, multiple times over the years, seen his business go from ten to eighty people…and then back down to ten. He’s in his sixties now. He’s watched the stock market rise, fall and then rise again. He’s been through a handful of recessions and a few boom times in the industry. And throughout it all, he ran his little company out of the basement of his house and drove a Chevy. He saved money prudently and invested his excess cash in his business by using it to keep his key people on payroll when there wasn’t any work, getting deals on trucks and other equipment needed for jobs and investing in real estate where people paid him rents. He’s still around and he will be for a while. And another drop in the markets isn’t going to faze him. It just makes him better.
How about you?