MBA sees companies of all sizes. Particularly challenging is the small company, often family lead where the principal has reached the point in their career where they would like, or indeed need, to exit the business. The issues illustrated by the following case study are not untypical and demonstrate that there is an alternative to 'putting the keys back through the letterbox'.
W was a small window fabricator, selling to the trade and retail, with an annual turnover of £2.5m. Business was consistent, having been established over many years through much hard work. A single individual, under whom there was no real management structure, systems or processes, drove the company forward through painfully gained experience and force of personality. For years, the company provided an extravagant living for the owning family. As a result, there was little reinvestment in the company and its infrastructure, the business was run for the immediate consumptive benfit of the shareholding family and there was no ambition to build a business of real substance. The principal fell seriously ill. Consequently, he was unable to manage the business on a day to day basis. Sales collapsed, debto balances soared and entropy gripped the business. Without skilled management and support systems, the business had no autonomy. The fact that certain 'senior-sounding' job titles were in place at the patronage of the principal could not prevent the business from tumbling out of control. A business that once provided a fine living, and created wealth was heading South in double quick time.
MBA were introduced by the Systems supplier, alarmed by what they saw as a spiralling credit risk, and possible large bad debt. They also saw an imminent total loss of profile sales to their customer with whom they had a long and mutually profitable relationship. After discussions and partly due to an uncertain health prognosis, the principal aired his desire to sell the business. However, his perception of the value of the business vastly exceeded any sensible market valuation of it. He saw the value of the business as a combination of its "potential", a nebulous concept at the best of times and the emotional investment made by him over the years. His perception of value was also heavily influenced by his desire to maintain a certain standard of living. Mixing personal considerations with business issues is not uncommon, but it is a sure way to discourage trade buyers or new funders for an incoming management team.
It was clear that W could not be sold at that time for a sum that would meet the principal's requirements. An exit strategy including succession planning was required. More urgently the implementation of a survival and development plan was required to enable the company to recover its position in the market, return to profitability and begin to add real value for the shareholders.
This involved installing skilled management; reinvesting in infrastructure and systems and taking some tough decisions, which challenged the established culture of the business. The owner was persuaded to persevere, although with little day to day involvement, and to support the business financially for a further period of time. Fortunately the Systems Company, the principal creditor, was also prepared to help, largely on the basis of a long established business relationship and the strength of certain key personal relationships.
A Business Synopsis audit was carried out, examining all areas of the business and evaluating it stengths and weaknesses. After consideration of the product markets in which W was active, a developmental Business Plan was formulated. This detailed plan dealt with the thorny issues of resources as well as placing a timetable to events and specifying significant milestones that would be capable of measurement.
Part of the strategy was a succession plan. As the business was almost wholly dependant on a single individual, the plan made sure that this mistake was not repeated. In this case a certain amount of interim management was required to bridge the gap between the 'old' and the 'new'. Another priority was the implementation of systems to efficiently convert sale orders into works instructions and those instructions into deliverable product. The plan crucially included the recruitment and training of people to implement and operate these systems. MBA managed this transistion and development for W.
Once the business was stabilised, MBA re-valued the business as a stable and marketable, profit making asset, which delivered acceptable returns and could clearly claim to have further potential as it now had a degree of autonomy. The incumbent management, some of whom had been recruited with a purchase in mind, was prepared to offer a sum acceptable to the principal and for which they were able to raise the required finance. The vendor agreed to defer some of the consideration to facilitate the deal.
MBA's involvement has been long term, and indeed the process is not a quick one. The decision to exit should ideally be taken some years before the planned sale or handover. Companies have to be 'put in shape' to be attractive to a buyer and indeed some thought should be given, at the outset, as to who that buyer may be. Appropriate grooming of the business will ensure a suitor is more quickly located. A planned exit is almost always going to be on better terms than a precipitous exit. A venture capitalist, for example, will want to know what the exit plan is before they make an investment - if it's good for them, then why not for principals.
The benefits of persevering in this case were clear; the Systems Company had no bad debt or loss of volume and retained a customer that was intent on growing. The Vendor achieved an acceptable capital sum, and the buy-out team has an opportunity to chase their ambitions as part owners of their employer. On that very satisfying note, exit stage left.