Treat Your Company Like an Investment
Most manufacturing and distribution business owners dream of exiting their company with money in hand. But interestingly, they often are not strategic about how to make this happen.
While they may talk about the future and what they expect in terms of financial gain, they don’t necessarily make decisions based on that goal. In other words, they don’t treat their companies like an investment.
In order to get the most value from the business when it’s time to exit, you must think strategically about the future of your company and make decisions accordingly. Here are five areas of your business to look at with this in mind:
1. Look beyond current income. Running your company day to day isn’t easy. There are a thousand decisions to make about everything from sales to inventory to process improvement. Treating your company like an investment means taking a long-term approach. Today’s decisions should be made with a rich and vibrant future for the company in mind.
This requires an “investment” mindset. In addition to making money today, you must plan for profitability years down the road.
2. Look at second tier management. Who’s on your bench? If you’re planning to sell your company or transition ownership to the next generation, you must have a strong management team in place.
Now is the time to identify tomorrow’s leadership team. Training and grooming future leaders will be a long-term process, not a quick fix. While it can be difficult to let go of the reins, an investment mindset requires that you prepare others to lead the company after your exit.
3. Look at relevance.Is your product line a little stale? Is your equipment becoming obsolete? Are your processes inefficient? No one wants to buy a company on the decline, so make it your goal to streamline, update and sharpen your operation.
Examine your company’s standing in the marketplace, its competitive position and corporate culture. Are there areas where the company is lagging? If so, act now to make it “dressed for success.”
4. Look under the hood. Every business has certain areas the owner would rather avoid. For some, it’s human resources. For others, it’s a legacy product line or environmental or safety requirements. What aspect of your business is difficult for you personally to tackle? The very thing you’re avoiding may be what’s getting in the way of your future profitability.
Having an investment mindset means facing the tough decisions. Overhauling the sales team, for example, may be what’s required to restart the financial engine. Or, dumping an unprofitable product line may free up resources so you can grow.
5. Look at value.It’s not unusual for business owners to have a skewed view of their company’s value. As a reality check, consider having a business valuation done by a credentialed valuation professional.
You may be pleasantly surprised at the number or you may be dismayed. Either way, you’ll know where you stand. Arming yourself with realistic information will likely strengthen your resolve to do what’s necessary to maintain or build value.
Finally, ask yourself this question: If I were an outsider, would I invest in my company? Work on these and other areas of your business until the answer is a strong and resounding “Yes!”
Cindy S. Johnson?>
CPA, CIT, CGMA
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