(from Issues for Growth Vol.18, No.7 )
In our recent Breakfast briefing series, Dan McCallin former owner and CEO of Timberline Steel made an interesting statement: “We missed the selling boom of the late 1990’s and were determined that we would not miss another opportunity to sell during the next upcycle. We decided to take the steps so that we were prepared.” While Dan originally made that statement during the recession of 2002, and later sold the business in early 2006, it could certainly apply today.
The exit sales process may take the better part of a decade. With credit markets tight, the economy in recession, and bad news seemingly everywhere, it may seem counter-intuitive to be writing about preparing your company to be ready to sell during the next economic upturn. While some business owners may believe they can pull the string when they are ready, the truth is, for many business owners, it may be exit sales cycle may take the better part of a decade to execute. Professionals will tell you that in order to sell at highest value, the process includes 2-3 years to get ready, 1 year or so for the transaction, and then you may have to spend 3-5 years with the company after the sale.
Much of the preparation can be accomplished during the down cycle. Companies can focus on making fundamental improvements to their business during the downturn that will help them emerge faster and healthier than their competitors.
1. Focus on customer net profitability
2. Upgrade management
3. Cleanup business processes
4. Develop a strategic growth and execution plan
5. Position the company for the upturn
6. Never waste the opportunity of a good downturn
Focus on customer net profitability. The tendency during a downturn is to cling to any customers and revenue no matter the profitability level. A common comment is that “at least they absorb overhead.” The notion of unprofitable business absorbing overhead may be one of the greatest false beliefs in business. In many cases, overhead that has been viewed as fixed is really a cost that can be minimized or shed. Carrying unprofitable business will be a continuing cash drain that may inhibit your business’ ability to grow as the economy improves.
Upgrade management. There is a great supply of good talent now available in the marketplace . In many cases this may be talent that would not be available in better times. Take advantage of the opportunity to improve. Similarly, this is a great opportunity to review all of your employees and weed out those with below average performance, poor potential, or unrealized potential. Our clients use a simple tool to rank all employees in terms of potential and performance – the results make it very clear which ones have been a drag on the company.
Cleanup business processes. During boom times, many companies claim they are too busy to scrutinize business processes to make improvements and to streamline in order to increase throughput. That “excuse” typically does not apply during the downturn.
Develop a strategic growth and execution plan. You need a plan not only to help you survive the downturn, but also that will allow you to be agile enough to take advantage of opportunities in the recovering marketplace. There may be market segments that will be slow to come back; some may never come back the same way. Other market segments, however, may present huge new opportunities. Your organization needs to develop a plan and be prepared to execute.
Position your company for the upturn. The most significant competitive gains are made during a downturn. Companies that are prepared and well-positioned can accelerate very quickly as he markets healthy. Competitors that are under stress during the downturn will actually be under greater stress as the economy improves. Cash demands can be low when demand is low. Cash needs, however, will increase as the economy improves. Companies will need cash to hire more people, invest in inventory and equipment, etc.
Never waste the opportunity of a good downturn. During downturns, companies have the opportunity to examine everything, reduce unnecessary expenses, trim those underperformers, examine unprofitable business, streamline business processes, etc.
Take a lesson from the Boy Scouts: Be prepared. These steps can add value to your business – even during a downturn. When the economy improves, your business can accelerate faster and be well- positioned. The market for selling a business will be ripe in late 2010 and 2011. Those businesses that are ready will find a hungry group of buyers and investors who have been sitting on their hands during the recession.