The Following is an excerpt from Privately Held Company Newsletter
Every company has weaknesses; the trick is to fix them. There is a saying that the test of a good company president or CEO us 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 weaknesses in the other.
Not all problems or weaknesses can be resolved or fixed, but most can be improved. Fixing or improving comapny weaknesses can not only significantly improve the value, but also increase the chances of finding the right buyer.
Here are some common weaknesses that could cause concern for acquirers and lead them to look elsewhere for an acquisition.
"The One-Man Band"
Many small companies were founded by the current president who has made all of the major decisions. He has not developed a succession plan and has no one in place to take over if he gets hit by the proverbial truck. He is the typical one-man band and, as a result, the company is not an attractive target for acquisition.
Declining Industry
Companies in a declining industry have to be smart enough to see it and make changes. One successful example was a company that made ties; somebody within the company was smart enough to see the decline in this apparel item and switched their business to making personalized polo shirts. A company can still make ties but has to have forsight-and ability-to move into new product(s) as well.
Customer Concentration
This area is a major concern to most buyers. It is not unusual for the one-man band to focus on what made the company successful - one or two major customers. The relationships with these customers have been built over many years and are seldom transferable. Finding new customers may take time and money, but it is absolutely necessary if the owner wants to sell.
The One Product
Many one-man band run companies were based, and still are, on the manufacture and sale of one product; or hte creation and development of a single service. Henry Ford made a wonderful car - the Model A- but that's all he made. General Motors decided that many people would liek something different and were willing to pay for it. Fortunately, for Ford, he caught on quickly, but Ford almost went out of business with the thinking that one model fit everyone.
Aging Workforce/Decaying Culture
Young people are not entering the trades, leaving many jobs such as tool and die positions filled with "old hands" who will soon be retiring. Technology may be able to replace these workers, but that decision has to be made and implemented. No one wants a business that will ahve idle machines with no one trained to operate them.
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 importantly, a successor. Certainly, the time to do all of this is before the decision to sell is made. Whether current ownership plans on staying the course, or eventually selling the company, the good news is that resolving company weaknesses is a win-win situation.
