Business Management

When to Exit – Some thoughts

One of the more interesting and challenging questions as a business owner is “when should I be thinking about exiting this business? There are many factors to be considered but here are a few thoughts.

1. Business Health
Is the business operated from strong principles of strategy with a clear vision? Can that vision be expressed and understood by those who manage the business or potential buyers? If you the owner cannot clearly state the purpose or reasons that you exist don’t expect new owners to invent it for you.

2. Maximize return
In cases where management/ownership is dominated by a single individual it is important to maintain a high degree of confidentiality so that employees do not become insecure and unsure of the stability of the company or their jobs. This instability can easily be communicated to a potential new buyer and create a poor impression.

3. Need change?
Factors that may support your decision to leave can grow out of many conditions. The most common is an age derivative. A long career leading to a desire for more personal time; reap the rewards of your career. Age may not be the prime driver but longevity at the job could be creating burn out. Time to move on.
Another good time chosen is driven by a need for change. You may feel you have achieved all that can be achieved and you wish to quit while on top of the game. This may also provide a high rate of return if the business is at a high level of performance. Selling now may produce the equity needed to finance a new opportunity.

4. Exit from strength
Look for opportunities to exit from positions of strength. A well trained and competent management group may provide the opportunity to offer management buyout.  Managers may be able to pool resources to fund the buyout, you as owner may offer to finance all or part of the buyout or there may be an option to use company assets to finance the loans needed for the buyout. This is often referred to as a LMBO – Leveraged Management Buy Out. It also provides good opportunities for maintaining stability in the organization.

5. The market
The marketplace may facilitate determining the right time to exit. Poor economic conditions or competitive activity can have a huge impact on if or when you should exit. Positive conditions too might bring a competitor to the door with a buyout offer.

So the options are many but not always easy to sort through. Timing is critical, business life changes, choose wisely. These are my thoughts, care to share yours? gerry@polarisgroupmc.com

Business Management

Common Cash Flow Problems Faced by Small Business

Cash Flow is an essential ingredient to the survival of your small business. It is the flow of money in and out of your business, and the quantity as well as timing of that flow is critical to the continued operation of your business.

Cash helps your business purchase material it needs for production and services thereby helping your business to generate more cash for its operation. If customers are slow to pay or your pricing structure does not adequately cover the cost of production, your business will not have enough cash to continue operation. Even if your business is turning in a profit, you can still be forced to close if your business runs out of cash.

Here are a few common problems to watch for:

1. Manage your receivables
Try to turn your receivables quickly without antagonizing customers. Advise key customers what you’re up against, and arrange more favorable terms if it will expedite payment. This will create cash that can be reinvested in the business.

2. Weakening Sales
Sales are the heart of your cash flow. The persistent lack of sales can affect how your cash is       coming in to your business and weaken liquidity.

3. Excess Inventories
Inventory greatly impacts cash flow, too much inventory is as dangerous as not enough, since money tied up in inventory can severely hamper a small company’s cash flow.

4. Manage Staffing
Ensure new employee hiring is necessary. Employee salaries are a significant cash drain so efforts to maximize productivity from current employees are paramount.

5. Protect working capital.
If cash is tight don’t pay for long term investments in equipment. It is better to use debt to finance these projects. Debt can be used to re-finance fixed assets to free up capital.

These are just a few suggestions to improve that most vital business tool – cash flow.
I hope you agree, please let me have your comments. gerry@polarisgroupmc.com