San Francisco, CA (PRWEB) January 28, 2013
Running a successful business is like getting to the Super Bowl. It takes leadership, teamwork, great players and most importantly, the right game strategy.
According to a survey by RBS Citizens, nearly 80% of mid-market firms are currently doing or are open to doing an acquisition. One in three are open to being fully or partially acquired by an outside investor. Whether a CEO is thinking about selling or just wanting to make the company more profitable, there needs to be an actionable game plan.
Private business owners should have three key plays in their playbook--Strategic, Financial and Operational—to get the ball in the end zone and beat the competition.
The company's playbook should have one objective: Building the Enterprise Value (BEV) of the company.
The winning plays are:
1. Strategic – position the direction of the company in the market place, via four key strategic considerations (the 4 M’s):
- Market – enable the management team to do what the founder has done to date without a full team.
a. Decide which customers to serve.
b. Develop new capabilities to power innovation, generate sales and operate more efficiently than the company's competitors.
c. Keep the company focused.
- Management – build a high capability management team that can take the company to the next level.
- Model – build a profitable economic model at a higher scale while increasing the leverage that makes the company profitable.
a. Create infrastructure to support growth.
- Money – get access to capital to fund the predicted level of growth.
a. Raise capital to fund growth, consistent with the company’s vision and risk appetite.
b. Understand the operating changes a new capital structure will entail.
2. Financial – Maximize cash flow, balance fixed and non-fixed assets, maintain a current ratio sufficient to cover unforeseen costs and balance short and long term financing needs. This includes optimizing the company's balance sheet, cash flow and income statement. Key strategies include:
- Consider a sale-leaseback of the company’s real estate to free up cash that can be used to expand operations or consider a spinoff of the real estate to the owners. (Companies seldom receive credit from the market or an acquirer for real estate owned).
- Restructure the capital structure to take advantage of lower market interest rates.
- Renegotiate supplier terms, for example to shift inventory storage and maintenance costs.
- Review payment practices – are payment terms with suppliers and sales terms with customers more generous than your competitors?
- Does the company have a large enough cash cushion to sustain the business in the event of a downturn?
- Is the company taking full advantage of tax strategies such as accelerated depreciation and section 179 (first year write-off) and state tax saving opportunities such as inventory location?
3. Operational – fine-tune the company's internal operations. Examples include:
- Supply chain – source and aggregate more efficiently the inputs that are incorporated into products or services (e.g. manufacturing in low-cost locations, reverse logistics efficiencies).
- Sales and marketing - be open to re-configuring the sales and marketing department and focus. For example, replace part of the company's sales force with contract resources that specialize in tasks like direct marketing and prospecting leads; explore “virtual models” including using social and business networks.
- Offshore/onshore – Consider contract services (e.g.. call center, order fulfillment), whether onshore or offshore, to do activities that are not core to how the company adds value.
- Strategic sourcing – Reduce the costs of production by sourcing from new suppliers, avoiding dependency on too few.
There are many sources of assistance to help the private company CEO execute the playbook. Addressing and coordinating all aspects of Building the Enterprise Value of the company can help the company team win its own business Super Bowl--year after year.
Michael Evans is Managing Director of the Northern California practice of the Newport Board Group.
Mark Rosenman is Newport’s Chief Knowledge Officer.