Strategy or Tactics?

Many business advisors bandy around the words “strategic” and “tactical” but for me, the only real difference is the timeframe.

There will be times when you have to take a decision to solve today’s problem, but it comes back to haunt you at a later date.

It’s a bit like buying something you can’t really afford on a credit card. If you are not careful, you end up paying for it twice over (or more) by the time you’ve paid the interest.

A client of mine has been approached to sell his business, and I am helping him through the process and we are providing information to the buyer.

One piece of (quite important) information is the share structure and ownership of the business.  The MD and his wife are the majority owners, but two key employees (Nick & Bob) were given a small shareholding many years ago.

When the MD declared the shareholding, he included Nick & Bob as owning 5% of the business each, but when I looked at the accounts there were far more shares that he had declared.

Several years ago, when bidding for a large contract, a director’s loan was converted into share capital so that the business could obtain finance. 

The MD had forgotten all about that transaction. It had to be done at the time, his money was already committed to the business, and it didn’t matter to him.

But Nick & Bob don’t own 5% of the company each, they own 0.05%.

This business will sell for about 5 million pounds; Nick & Bob will receive a few thousand pounds instead of the £250k they would be entitled if they still owned the 5%.

If my client wants to do the honourable thing and give Nick & Bob the difference (I am sure he will) then taking into account the various tax implications he will be about 500k worse off.*

If, after taking the undoubtedly short term decision to convert that loan to share capital, the MD had thought through the implications for Bob & Nick in the longer term, there would have been a way to make sure they still had the 5% he had promised them.

So when the answer to the short term problem is obvious, and you just get on and do it, try to take a step back every so often & ask yourself the question

 “How will that affect me / us / the business in 3 years’ time?

*(Now I think I have a solution for this problem – I just need the corporate lawyer to check)

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