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 due to the weaknesses in the other. Not all problems or weaknesses can be resolved or fixed, but most can be mitigated. Fixing or lessening company weaknesses can not only significantly improve the value, but also increase the chances of finding the right buyer. 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 is in place, there is no one in place to take over if he gets by the proverbial truck. He is the typical one man band; and, as a result, the company is not an attractive target for acquisition.
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, switched over to making personalized polo shirts. A company can still make ties but has to have the foresight – and ability – to move into new product areas.
This is a major concern of most buyers. It is not unusual for one man band to concentrate on what made the company successful – one or two major customers. He has built the 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 run 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 what 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 & Equipment
Young people are not entering the trades, leaving such jobs such as tool and die positions filled with “old hands” who will soon be retiring. Technology may be able to replace them, but that decision has to be made and implemented. No one wants a business that will have outdated idle machines with no one trained to operate them. Care should also be taken to the overall appearance and cleanliness of the place to attract buyers willing to pay a fair price for the business.
There are many other areas that could be considered company weaknesses. If there is a Board of Directors or an Advisory Board, perhaps they can help the one man band create a succession plan and just as important – a potential successor. 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 weaknesses will have positive impact on the business and create a win-win situation when the business is eventually being transferred
Celine Dufresne, CGMA, CMAI, Certified Value Builder, Broker
Florida Business Transfer Specialists, Inc.