Monday, July 15, 2019

Prepare your company to be bought

Editor's Note: Over the last three years, several of our clients received unexpected offers to sell their businesses. Because they were prepared, they held the line and the prospective acquirers significantly bid up the offers to a range that the owners decided they could not refuse. Two of them closed in 60 days. Two companies decided to run a competitive process and generated exceptional interest from additional buyers. This is still a sellers' market. Well-prepared companies are receiving very high selling prices.

Many business owners fail to prepare their businesses for a sale either because they believe that a potential sale is far off in the future or because they are focused on current issues and do not consider preparation to be a priority. We would submit that companies need to be "prepared to be bought." Sometimes lucrative offers come unexpectedly for companies that are well-positioned. We typically recommend that a company engage an experienced investment banker to assist them in a sale - often even if they have received an offer - in order to generate a competitive environment.

Some business owners who have tried to "time the market" at some point off in the future have found that unpredictable events such as the 2007-2012 recession, credit and stock market crunches, tech bust(s), 9/11, industry issues, etc. can derail their ability to sell at maximum value. We recommend to our clients to work each year to make certain that their companies are currently desirable to buyers.      - dpm]


How best to position a company to be attractive to buyers:
1.   Demonstrate Strong Financial Performance
 
   a. Historical Financials
Consistent revenue growth (at least upward trend)
  • Recurring revenue is a plus
  • Strong operating margins
  • Increasing profitability
  • Importance of last twelve months
  b. Operating Cash Flow
  • Focus on hitting projected revenue and earnings numbers
  • Review net profitability of customers and products
 2.    Maintain "clean" financials

  a. Audited or "auditable" Financial Statements
  • Have your financial statements audited with a reputable firm to add credibility
  • Use GAAP accounting. If not, identify how practices differ from GAAP
  • Understand cash vs. accrual accounting - timing differences can be material
   b. Income Statement Adjustments and "Add-backs"
  • Buyers are skeptical of earnings that rely on substantial add-backs (one-time, non-recurring charges, private company expenses, etc.)
 3.    Diversify your customer & supplier base
  • Diversification signifies a healthy business and reduces risk
  • Buyers will pay less for companies dominated by one or two customers
  • Examine what % of sales your top 10 customers represent?
  • How stable are your top suppliers? How stable are their terms?
  • Do you have multiple suppliers for critical components/services?
  • What % of total purchases does your top supplier represent? Top-5 combined?
  • What % of the company's sales are related to a few key employees?
4.    Develop a Strategic Growth Plan
  • Maintain a clear strategy and be able to demonstrate your history of execution
  • Be able to articulate specific future growth opportunities
  • Position your company to take advantage of them
 5.    Build a capable Management Team
  • Invest in training and key strategic hires, if needed
  • Motivate management to add value to the company through a potential sale
  • Focus on building a deep management team that can thrive without your continued leadership
 6.    Eliminate potential "Gotchas"(these are items that could result in significant discounts to value)
  • Maintain legal documentation (licenses, regulatory filings, contracts, intellectual property, incorporation, etc.)
  • Clear title to all assets
  • Document processes and procedures
  • Resolve legal disputes
 7.    Build a team of Qualified Advisors 
  • Minimize distractions from running your business effectively
  • Get advice from professionals who have expertise in areas you do not and have done it before
  • Beware of advisors that outstep their areas of expertise 
Are you and your company ready if a buyer appeared on the radar?
Most business owners who have executed a successful sale of their business will tell you the most important thing is: BE PREPARED.
Selling a business is very different than operating a business. As a business owner you know your industry, your product or service, your customers and your markets. Most business owners will only sell a business once in their lifetimes - and it can be by far the most important financial transaction of their lifetime.
 
The Mead Consulting Group  has been helping clients develop and execute Strategic Growth& Execution plans for many years. We focus on helping companies "prepare to be bought." Check out our website for descriptions of some client success stories.
 
If you would like to discuss how we might help your company begin the process, please contact us for a free consultation.
 
 What are your thoughts? Is your company as prepared as it should be?

Monday, July 8, 2019

Abundance vs. Scarcity Mindset. Which do you have?

Editor's Note: What kind of Leader or Team Member are you? In many cases it comes down to whether you have an "abundance" or "scarcity" mindset.  I thought these two graphics might be good for each of us to ponder.  -dpm]

Abundance vs. Scarcity Mindset. Which do you have?

Collaborator or "Smartest person in the room"; Embrace Change  or Fear Change; Seek the credit or Share the credit; Horde information or Share information. Whether you are building a team or a company, which traits/attributes do you want in yourself and others? The best organizations do not tolerate "scarcity mindsets" - they sap the energy and votality out of an oranization.

Individuals and Team Members
Leaders

What are your thoughts? 

The Need for Focus

Over the years we have found that the strategic planning processes for companies in the middle market vary widely and some are counterproductive. There are some common issues that are listed in this article. Do you recognize any of them? 
Too many strategies and initiatives
Often we see plans that have numerous strategies and initiatives. In one $60M revenue company, there were 17 major initiatives and strategies - so many that all of them couldn't be listed on an 11x14 sheet. When we asked the senior managers to list the top 3 priorities, we got a different answer from each of the managers. An organization can't tackle that many priorities at once. Not surprisingly, this organization had a history of not completing projects. 

Shiny Rocks - moving quickly from one idea to another                              
Sometimes the CEO has one great idea after another and overwhelms the team by abandoning one strategy or initiative to move to another. In these companies, strategies are never fully executed. There becomes a tendency for employees to just duck their heads down and wait for the current "new project" to blow over. There is little commitment to the "strategy du jour." These companies have flurries of activity, yet few accomplishments.  

No "what we are not going to do now" list
As important to narrow the focus of a company's strategic priorities, it is important to develop of list of things that the organization won't do. This is the most difficult task for companies. No one wants to move worthy projects or initiatives to this list. However, if an organization is to accomplish the top priorities, the others must be tabled - at least for the current cycle.  

No agreement on the priorities  
In some organizations, the plans are developed but there is no agreement among key functions and managers about the priorities. These organizations fail to mobilize to necessary resources to execute well.

Developing strategies that the organization cannot execute well
Many organizations develop strategies that either the market won't accept, or that the company does not have - nor can get - the resources or talent required to execute. I tell a story (somewhat tongue in cheek) about a mythical meeting at Kmart where some manager recommends a strategy to emulate the Nordstrom model. No matter how much money is spent, there is no way the market will accept Kmart adopting a Nordstrom model.

The Power of three 
We believe that for lower middle market companies, there should be no more than three major strategies undertaken in a planning cycle. When companies execute two of these strategies +well, they will be very successful.
The Mead Consulting Group has been helping clients develop and execute Strategic Growth& Execution plans for many years. Check out our website for descriptions of some client success stories.

If you would like to discuss how we might help your company begin the process of adding value and moving your company to the next level of performance, please contact us for a free consultation.

 What are your thoughts? Is your company as focused as it should be?