Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
HOW TO TURN AROUND YOUR DISTRESSED COMPANY
02 :: Evaluate where your company is.
by Andrew Tellijohn
DEPENDING ON THE INDUSTRY in which your business is involved, the indicators will differ. So the first thing a business owner should do is make a list of the indicators that will determine the future of the business.
In general, the biggest characteristic to factor will be cash flow. One of the first clues business owners should see when they think their company appears to be distressed is cash flow. Entrepreneurs must be confident they have enough cash to meet monthly obligations ? payroll, taxes, bills and other basic everyday requirements ? and if they determine that they don?t, they need to consider finding a way to turn that around.
Signs that a company is headed toward a cash crisis include rising accounts payable and decreasing accounts receivable. Pay close attention to bank loan covenants so lending agreements aren?t breached. Other indicators can be customer complaints, rising returns, and an increase in product recalls.
Assuming a business has sufficient cash flow, a second item generally high on the checklist will be a peek at the company?s debt-to-equity ratio, which measures the level to which a company is leveraged. A strong company has less than a 2-to-1 ratio; 1-to-1 is very strong. If you reach a 3-to-1 ratio or higher, bankers and creditors will begin to take notice as that puts them at risk of not getting their investments back.
A third factor in determining a company?s level of distress is its assets. Bankers will be more willing to take a chance on lending to a business if there is more collateral to support their investment.
For businesses that aren?t bankable, there are alternatives, such as asset-based lenders. Even those potential sources will want to see that companies have taken a hard look at and begun seriously cutting expenses and have sought solutions for lagging sales problems. They?ll also want to know that potential borrowers are doing their collection calls to turn receivables into cash and are selling off unnecessary equipment.
Most businesses are distressed due to cash issues. Cash is king and companies that are going to turn will do so by seeking working capital so they can make payroll, buy inventory and keep the lights on.
One thing a business owner should do when starting the business and throughout that company?s life is refer to and update the business plan. That can provide a guide for where the business should be and can help guide changes going forward that are necessary to adapt to changing conditions.
A well-written plan will also help identify risk and operational issues before they become problematic.
Finally, talk with your bankers. Most will stay with partners through thick and thin, and many are trained to recognize problems early. They can help fix things so let them in to assist with your struggles rather than keeping them secret.
CHECKLIST
? Cash is king. If cash flow isn?t enough to cover payroll, buy inventory and keep the lights on, the business is in trouble.
? Create a checklist of indicators that apply to your industry.
Refer to and recreate your business plan.
? Look at sales to determine whether or not they are providing the profit to grow.
? Examine expenses to see what can be cut.
? Determine what macroeconomic factors are at play in terms of competition and the strength of the market.
? Rising accounts payables and decreasing accounts receivable are signs that cash flow is headed in the wrong direction.
? Work with your bankers.
As the name suggests, Owatonna-based Kamp Automation looks for customers with a process they’d like to automate. It could be a small, inconvenient, tiny part that people can’t assemble. It could be a high-volume product so needed that the customer can’t find enough labor to produce it in the necessary quantities. “We’ll work anywhere from medical device companies to the seed industry for corn and soybeans,” says Kent Patterson, co-founder, president and CEO. “We just jump all over wherever there is custom automation.” The company started in his garage. Patterson and his partners built a machine. The company started to grow to the point where now it has 48 employees — and had a bunch of people and stuff in different locations. “We went from a garage to a shop to a shop and just kept moving to new places and signing leases,” he says. “We got to a point where it’s like, OK, this is getting big enough and sustainable — we felt that we wanted to look for our own space.’”
