By: Celine Dufresne
Published: June 22, 2009
Every company has weaknesses– the trick is to fix them.
There is a saying that the test of a good company President or CEO is what happens to the company when he or she leaves. Some companies – on paper – may look the same, but one may be much more valuable because of the weaknesses in the other. Not all problems or weaknesses can be resolved of fixed, but most can be mitigated.
Here are some common weaknesses that concern most buyers, causing them to look elsewhere for an acquisition:
“The One-Man Band”: Many small companies were founded by the current president, and he has made all the major decisions. Since no contingency plan exists and there is no management or sales team in place, there is no one in place to take over if he gets hit by the proverbial truck.
Declining Industry: Companies that are in a declining market have to be smart enough to recognize the situation and make changes accordingly A real-life example of a ““smart” company is one that makes ties, and, realizing the decline of this apparel item, switches over to making personalized polo shirts. A company can still make ties but must have the foresight and ability to move into new products areas.
Customer Concentration: This is a major concern for most buyers. It is not unusual for a “One-Man Band” to concentrate on what made the company successful-one or two major customers. He has built those relationships over the years. These relationships are rarely transferable. Finding new customers may take time and money, but the effort is absolutely necessary should the owner eventually decide to sell.
The One Product: Many “One-Man Band” companies were based, and still are, on either the manufacture and sale of one product or the creation and development of a single service. Henry Ford made a wonderful car – the Model A – but that’s all that he made. He almost went out of business with the thinking that one model fits everyone. Fortunately, he caught up quickly and the company not only survived but strived—at least until they forgot to adapt again.
Aging workforce/decaying culture and equipment: Young people are not entering trades, leaving such jobs as tool and die positions filled with “old hands” who will soon be retiring. Technology may be able to replace them, but that decision must be made and implemented. No one wants a business that will have outdated and idle machines with no one trained to operate them. Care should also be taken to the overall appearance and cleanliness and the place to attract buyers.
There are many other areas that could be considered company weaknesses. If there is a Board of Directors, perhaps its members can help the “One Man Band” create a succession plan. Certainly, the time to act on all of this is before the decision to sell is made. Whether current ownership plans on staying the course or eventually selling the business, the good news is that resolving the company’s weaknesses will have a positive impact on the business and create a win-win situation when the business is eventually transferred.
Celine Dufresne is the owner of Murphy Business/Florida Business Transfer Specialists Inc. and Quantum Leap Business Growth. She is a Business Broker, Management Account, Mergers & Acquisitions Specialist, and Certified Value Builder.