Overview: The owner of a regional telecommunications equipment wholesaler decided that the work load was just too much. After 30 years spent building the company the owner suddenly reached the decision to offer his business for sale. The owner approached a noted transactional law firm for advice. The law firm sensed that while the owner was willing to sell, the necessary preparation had not been conducted to initiate and complete a transaction.
Analysis: The operation of a private business differs in many ways from a publicly owned business. Frequently the private company is run for the personal benefit of the owners. Often the business fails to invest in the systems, personnel, and expertise to grow and sustain the business. As a result, the challenge becomes conversion of the business to a real operating entity with business planning, sales management, marketing, and executives that will support the company after the owner sells his position. The questions to be answered are: “How healthy is the business that the owner is leaving behind?” and “What is this business worth without me?”
The company’s business planning effort was weak and failed to utilize a profit-by-product-line approach. The business plan relied on the company’s historic relationship with a major telecommunications utility at a time when the industry was in consolidation. Finally, the business plan failed to use a sensitivity analysis approach to fully gauge the impact on the company’s performance should revenue from its major customer slow.
The company had not evaluated potential improvements in operational efficiency and cost reduction. A list of potential cost savings, including subletting of excess leased space, was developed for approval and implementation.
The CFO consultant worked closely with the company’s CPA firm to upgrade the level of accounting services provided to the company. The improvement in accounting services required new process and control reviews that identified additional areas for cost reduction and process improvement. The CFO consultant also coordinated his effort with the company’s existing commercial lender to explain the process, intended outcomes, and actual results as the consulting assignment unfolded.
Finally, the management team’s performance was assessed based on performance during the last several years. Gaps in key business functions were identified, and some team members were terminated due to inadequate performance. A target listing for recruitment was prepared and benchmarked for appropriate compensation levels in the local market.
Result: After implementing the improvements noted above, the owner realized that the business was easier to manage, more rewarding, and not as time consuming. In many respects his role shifted from a “doing it all” approach to being a coach for an emerging team of more competent managers. In this new role, the owner realized he was more energized and satisfied with the new management challenges and decided not to sell the business.