“I hate my business now. I just want out”.
Unfortunately, we have heard this desperate plea too many times over the years. For some of those business owners, it was… too little, too late. Big losses, big debt, big task ahead. At best it might just be a fire sale. At worst, bankruptcy.
In our old firm, we had a bankruptcy team that dealt with business owners who had not been able to reverse the slide into red. It was sad for them. Often, they lost everything, and they (and their families) had to start again. Pride takes a huge fall. A world of grief.
Other times, once profitable businesses have dropped performance, and urgently need to be fixed. There may be still enough time and resource left to rescue the problem.
One thing for sure, something must change. Invariably an analysis of the problems will show several key issues and probable fixes. The business owners sometimes can’t see the problems or simply can’t believe they can be fixed. It is hard to be objective about your own business.
If the business is making no money, it may have little value. It may just be worth the sale value of assets, less the debts. Remember that the value of any business is determined by the profitability (generally measured by EBIT) and its likelihood of continuing into the future (generally expressed as a multiple of the EBIT). Zero profit x the best multiple is still zero.
As interest rates continue their upward trend, the RBA’s desire to slow the economy could eventually bite deeply into the performance of many businesses. If a business is not performing well now, then in six months, it might all be too late.
Last year, we explained to a particular business owner that their clock was running… fast. They needed urgent action to rectify a disastrous trend. The owner CEO agreed that he and his team needed to come and see us and develop a strategy, but he was too busy (fighting fires) to fit it in. Six months later, they finally arrived.
Better late than never, but by then their resources were thin. Big mortgages over family homes, overdraft at the limit, and worst, the core problem would give them grief for a long time to come. Time will tell if they make it. So far, so good.
How do we help business owners turn their business around?
Like all our problem-solving processes, we start with a Strategic Plan, with the owner and often their key people. A situational analysis generally reveals the fundamental issues. Of course, the issues vary enormously, from marketing to pricing, from manufacturing to management, from processes to plant, and from gearing to funding. Can be a long list!
How often does it work?
Mostly it works well.
That is probably because if a project is too far gone, we won’t take it on. Chris learned that the hard way… lots of work and the best intentions in his younger years… and we don’t end up getting paid. His partners didn’t like that!
What if the business is going okay but could do a lot better?
These are the fun ones! These are the ones where it is relatively easy to help the owner understand what they need to do to drive the business better, to make it less dependent on them and to build profit and thereby value.
These are the ones where the owner’s spouse says “honey, why didn’t we do this years ago?”.
Oddly enough, many of those people who ‘wanted out’, whose business were performing poorly, invariably need to follow a three- or five-year business strategy. Not the easy way out, but they know in their heart that they must do this.
In the end, they usually deliver exactly what they wanted through the strategy and no longer want to sell. They have a high performing business and get their lives back. “This is what we always wanted”.
That gives us a big smile!
CHRIS ALP & ANDREA McNAMARA