This article are provided for information purposes only, and are not intended as legal advice.


Business strategy – what is more important short term or long term strategies?

August 20th, 2009

You are growing your business and now you need to make decisions.  Whatever business decision you make, it will have a large impact on the business.  Do you want short term or long term results?  If you have to make a decision, which one would you chose?  Public companies often make decisions which have a short term impact, don’t spend today so that profits are higher and the stock price is higher  but if you do not reinvest in say research and development, there will be no new products for the future.  If you invest in research and development, profits are down in the short term and hopefully you will succeed in designing new products that will result in future sales.

 

Business owners of private companies may think differently.  Decisions can be based where the business is in its life cycle.  Is it in a start up phase, growth state, mature state?  Is the business owner planning to retire and sell the business in the near future.  If the owner is going to sell the business, why would he reduce profits today to help the new owner in say five years time.   The additional costs would depress current year profits which in turn would depress the price obtained for the sale of the business.

 

If the owner is planning a transfer of the business to the next generation, he may want to make sure that the company is viable and has lots of products to sell in the future.  Decreasing current profitability may have an impact on valuation of the firm which would be good family succession plan because there may be less taxes owing when the business is sold or gifted to the next generation.

 

If a business owner only looks at short term strategies, the future viability of the company could be affected or he could be managing from one crisis to another.  In order to avoid this type of management style, planning to the future may be very important.  If you plan for the future, your short term decisions may be different.  You may be able to get to your long term goals sooner than making one decision now, finding out that it would not get you to where you wanted to go therefore you need to correct your plans and change the direction of the company again because you did not plan properly in the beginning. Long term planning may reduce your costs in the long run because you may take the fastest route to accomplish your long term objectives.

 

Your long term goals may not have any impact on your short term goals of the business however, if you do not plan properly, your short term and long term goals may be counter productive and could result in significant monetary burden to the business to correct the errors in the past.


Filed under: Business strategies — Gary Landa @ 3:06 pm


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