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“Time for a Reality Check?”

17 December 2014

With the Festive Season looming and a New Year approaching, it’s an opportune time for business owners to take stock of business performance over the last 12 months, consider what challenges and opportunities lie ahead and map out key priorities for 2015 and beyond.

Whatever the priorities and issues facing the business today all roads should lead to the creation of sustainable financial performance and competitive advantage which will, ultimately, translate into shareholder value.

Business needs and priorities will vary by sector and will change over time depending on where the business is in its development cycle and wider macroeconomic factors.  Of critical importance is to have a clearly defined strategic game plan which articulates what the priorities are, the key commercial issues and risks facing the business and how these will be mitigated.

At some point the ownership of the business will change and whether this is to the existing management team, family or an outside purchaser it is the clearly defined strategic road map and delivery against this that will both attract and excite “buyers” and help secure investment from funders for a change of ownership.

It can sometimes be a lonely place being a business owner who has to deal with the concerns and issues of all employees but often has no obvious place to turn to for an independent perspective or a sounding board.  Seeking external opinion should be viewed as a positive step - we have witnessed countless examples where at times owners are unconsciously blinkered yet passionate in their view of the business and its prospects that they can’t see things which are obvious to an outsider and may need to change.  Two heads are invariably better than one.

So what are some of the key areas that business owners should be considering?

First and foremost owner managers should concentrate on the business model and challenge whether it creates value for customers and returns to the company.  Avoid the business plan trap of extrapolating historic trends into the future, which is neither stable nor predictable.

Does the business produce the right level of relevant financial information on a timely basis to monitor business performance, evaluate commercial opportunities and promote effective decision-making?

Would the business benefit from a “Value Maximisation Review”, an objective assessment of the company’s operations to identify gaps and areas for improvement, mitigate risks and optimise positioning of the business in anticipation of a transaction.  Any review should include areas such as:

  • assessing the sustainability of the company’s competitive positioning in its key markets including the impact of new technology on delivery models
  •  reviewing the effectiveness of the company’s sales and marketing strategy in terms of product positioning, routes to market, customer development, retention and relationship management
  • reviewing and assessing the organisation structure and reporting lines to identify gaps in skills and competencies of the management team
  • assessing the company’s employee strategy in terms of retention and incentivisation, training requirements, succession planning
  • reviewing the company’s compliance with existing and pending regulatory requirements

Does the business have sufficient working capital and is this managed effectively?  How do the company’s working capital ratios compare against other businesses in the same sector?

Are current banking arrangements sufficient and can they meet the requirements needed to deliver the strategic business plan?  How do the quantum, cost and terms of the company’s facilities compare against market rates?

Would the business benefit from the services of a Non-executive director?  An effective Non-executive director can bring substantial value to a business by acting as a sounding board for the CEO or owner, improving Board effectiveness, introducing incremental commercial opportunities and identifying areas for operational improvement.

Do the shareholders have a transparent and deliverable exit strategy to transition ownership of the business?  A critical, often overlooked area for owner-managed businesses.  Creating a well thought through exit strategy will make any transition of ownership less disruptive and will deliver a better outcome for the shareholders.