On September 27, 2016 the Wall Street Journal published an article titled, “Doctors Give Pre-Surgery Orders to Get in Shape.” The first sentence is, “Are you healthy enough to have surgery?”
Let’s change that sentence to business terminology, as in, is your company healthy enough to:
- Consider a growth strategy?
- Grow by acquisition (the subject of my upcoming book)?
- Go the market, to sell for what you want (as in the title of my book If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want)?)?
One doctor quoted said, “We often bring patients into surgery without fully addressing their chronic medical conditions.” The same can be said for the above three questions, “We often undertake initiatives without fully addressing if the company, its owner, and its staff, are ready and capable (to implement the initiative).” So what makes a company not ready for “surgery?”
Growth: Besides a good product and solid reputation it takes a few other things to grow. On the top of the list are money and time. It’s hard to grow if your people are already stretched thin, especially if the skills you need are part of the tight labor market.
And growth sucks cash. It takes money to grow as you may need to buy new equipment, invest in inventory, hire more people, and wait for your (accelerating) accounts receivable to be collected. So, how do you grow if you don’t have the right people, enough capacity, and proper working capital? (Answer: you don’t, at least not effectively.)
Acquisition: It sounds simple, and I am a proponent of it¾grow by acquisition. In fact, in my upcoming book on the subject I list 19 reasons to consider it (if you want a copy of the list just request it by email). However, it’s not simple and it’s not for every business.
The stars must align, just as they do for other growth strategies. You need the bandwidth, the right people, cash, and patience. If the company isn’t ready with any of these factors you’re like the patient not ready for surgery. If your people have full schedules now how do you bring on another business? Plus, they have to be willing and able to integrate another firm, willing often more the issue than able. And then realizing it takes cash to buy another company. Now, cash isn’t as big an issue as with other growth strategies and here’s why.
Imagine you go to the bank, request a loan for $1 million so you can double your business in a couple years, using this money. You show nice projections, explain why it will work, etc. Many, if not all, bankers will be skeptical as they’ve seen every pitch possible. Now imagine you go to the bank with a projection showing you’ll double your business in one year by acquiring another company. A company with enough proven profits so your debt payments are only half of those profits. In other words, a lot less risk than sticking money into a marketing program. Think your banker will look at it a bit more favorably? (Darn right they will.)
Sell: This is the big one. Let’s face it, the vast majority of companies are not ready to sell for the price the owner wants. Perhaps they’re in the middle of a growth cycle and the seller wants to be paid based on the fact the growth will actually occur. Or, they don’t have the processes, people, or profits necessary. As I’ve written many times, and emphasize in my book, a company ready for sale should (must) have the following for the owner to exit with style, grace and for more money. The obvious one is profits. Lots of profits, especially sustainable profits, cover a few warts, which all companies have. Profits that will withstand a Quality of Earnings report. In addition I state there are three key issues.
- Reduced dependencies, especially any dependency on the owner.
- Solid financial systems and accurate financial statements (sounds easy but it’s amazing how many companies screw up this one).
- Not just talking about it but doing it. Proving it can be done and showing how.
But wait, there’s more. Since my book has some out I have a fourth reason, because of today’s tight labor market.
- Retaining and attracting great people. Having a culture where solid employees are seeking to work for the company versus having to scrounge around for someone to take the job.
Surgery is a major undertaking and it seems some doctors are recognizing not everybody is ready for it. Give your business an exam and see if you’re ready of your version of “surgery,” whether it’s growth, an acquisition, or a sale.