Business owners in the produce industry face a convergence of factors that make this a unique time to exit their business. For some it’s age and energy. Others lack interested family members or prepared successors. And some simply do not have the capitol to invest in the improvements needed to stay relevant or competitive.
Economic conditions have also never been better, and we’ve read with great interest about the merger and acquisition activity in our industry and others.
So we scratch our heads with dollar signs in our eyes wondering …. Is it time to cash out?
How do business owners even begin to grapple with their decision?
During my first executive career, I worked with Stephen Covey, author of The Seven Habits of Highly Effective People. His second principle, Begin with the End in Mind, tells people to think about their ideal future so they can work and plan toward it.
Easy right? Not so fast.
In a recent survey of private business owners considering an exit strategy, many reported being stuck. Here’s why:
● 27% said their retirement and estate plans were non existent or out of date
● 35% said they had partnership or family issues
● 38% said the business was not ready
Years ago, many entrepreneurs had an aggressive and clear entrance strategy but are now in unchartered territory thinking about an exit strategy. So they worry, procrastinate, ignore Father Time or cross their fingers hoping for an offer they just can’t refuse.
In other words – they stay stuck.
Let’s say the business owner wants to exit – what are their options?
In very basic terms, there are three avenues for exit: 1) family or employee succession 2) sale to a private equity group 3) sale to another produce or food company wishing to advance its own strategic position.
But if the business is not prepared and positioned, the owner may be facing option No.4 – fire sale.
How does someone prepare to get the most value out of the their company – can’t they just put it up for sale?
The best analogy is one that most of us have experienced – selling a house. A house with an outdated kitchen and bathrooms can still be sold, but the offers will be lower and reflect the investment the buyer will need to bring it up to date.
And what if there’s water damage in the basement and hail damage on the roof? Again, the offer price will take into consideration the cost of making these repairs.
Business owners in the best position have continually invested in the business – whether in operations, people, technology, new products, culture or the customer experience. Not investing in the business but expecting a huge return at the end just doesn’t happen.
You should also develop a confidential strategic plan to sell if that is the option that you choose. Leaks of information can be damaging to your company’s employees, customers, and suppliers if it gets out before you are prepared.
Besides keeping a business updated, are there any business practices that add value?
The presence or absence of best business practices and fundamentals also impact whether an investor looks at your company as an opportunity or a fixer upper. During the time-frame before a potential transaction, I look at any gaps that can be closed in the leadership team, company culture, financial performance, sales and customer growth plans, new product development, annual budgets, performance metrics, etc.
So many owners just focus on the EBITDA (earnings before interest, taxes, depreciation and amortization) multiple rumor du jour — not realizing it’s the whole package that impacts value and return. Having best business practices and taking the time to strengthen them where needed will add value.
Let’s say a company has a strong business practice foundation – is that enough to create a good financial return for an owner?
Again, we are talking about how to create maximum return. The time-tested vehicle to take a business beyond basics is a Strategic Plan. In simple terms, a Strategic Plan is an articulation of the future and specific actions needed to get there. Don’t get lost in consultant jargon or approach – what you’re looking for is whether the sustained profitable growth path of the business is clearly defined, successfully executed and shared with everyone in the company.
The catalyst for growth is created with a proprietary model I built for the industry that aligns best practices with the strategic plan direction and integrates it into the everyday work and focus of the entire organization.
If an organization does not take the time and devote the resources to define and build something exciting for tomorrow, it is just running a day-to-day transactional business – with nothing more in sight. Would you want to buy a company with no future?
What final thoughts would you like to share with owners who find themselves at the crossroad of the future?
You gave birth to the first version of your business, and now it’s time to usher in the next one. The possibilities for owners, employees and customers are exciting and endless - but realize that it’s not going to happen without the best management practices aligned with a strategic plan.
In 2017, Julie Krivanek of Krivanek Consulting Inc. in Denver and Steve Grinstead of The Grinstead Group in Dallas partnered to help owners looking to sell their businesses.
This is part two of four in a series of stories for produce businesses and their business partners, written by Krivanek and Grinstead.