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 get ready for economic recovery
by Beth Ewen When the economy first turned sour, some business owners made the right moves and are now growing their companies again. How can owners make the right moves now to prepare for a coming recovery? Bill Klein, president of M&I Bank Minnesota since 2001, and Margrette Newhouse, senior vice president, shared some tips that they’ve gleaned from recent conversations with customers.
Upsize: I’m hearing from more business owners that the economy is picking up. What are your customers telling you?
Klein: They all think it is.
Newhouse: This spring we implemented presidents’ lunches, where Bill hosts four to six companies, who come together from diverse industries, and talk about what they see and challenges they have. We do that bi-weekly. Our last lunch was with companies under $5 million in revenue, five to 40 employees, and every one said they were seeing improvement.
Klein: Some based that on good solid contracts in hand, some based it on conversations with former buyers.
Newhouse: Some based that on decisions about quality. One was a company that makes cloth banners for places like Saks Fifth Avenue. Before they were getting orders for lesser quality projects, but the orders were going up in quality again. Then there’s just the backlog.
Upsize: We’ve heard a lot about pent-up demand. Is it real?
Klein: Three years ago when the economy first began to turn down, all companies reacted, but all reacted differently. Some thought, it’s one to two quarters of downturn, then it will turn around. Others said, I’ve been through this before and I can smell a downturn. They took quick and decisive action. Then you had some in the middle, where they wanted to wait and see.
The group of people who acted quickly, either in cost-containment or in redefining of revenue sources, they are prospering and have been for a year. The middles, they’re seeing revenue turn up. Then those who thought it would go away fast and didn’t act, they’ve stripped out all the variable expenses, and all the fixed expenses they can, and there’s nowhere for them to go.
Upsize: Are certain types of companies doing better than others?
Klein: Of the people we had at the recent meeting, the leasing guy was doing well, and he doesn’t get leases unless people are acting. We had people involved in building and the trades, like the wiring guy and home repair. The wiring guy’s business is way up. One of the other people is a contractor, concrete for schools, and he said he doesn’t see it happening yet.
Newhouse: We also have several professional service firms among our clients. The law firms have never done better.
Klein: There was only one industry that drove a big portion of the recession, and that was telecom. Companies that served firms in the telecom industry were hit. They’d come in with a client list that seemed blue-chip. No one saw how fast that would turn.
Upsize: Right now, how can a business owner get in that golden category you talked about, the people who reacted quickly to the changing economy and are now doing well.
Klein: This is all in hindsight. The people that quickly did cost cuts, they could have been left out in the cold, if orders had come in again a couple of quarters after the initial slowdown.
Newhouse: A key is understanding what are the big eaters of your cash, for example, an excess of inventory.
Klein: That was a big symptom of the problem, inventory buildup. If we’d look across the board at those companies that had trouble, there was inventory buildup. Certain business owners understood the component parts of their business. They knew what was sucking up their costs. If I said, you have to cut $10,000 out of your costs right now, could you answer? A lot of people couldn’t answer that.
Newhouse: Plus there were lifestyle things that people couldn’t give up.
Upsize: I still want to know what business owners should be doing now, so three years from now we can talk about them as the ones who made the right moves.
Klein: Some clients took their product line and took it to new markets. So you say, what does a business know how to do, and apply it to new uses.
We had a client that did stainless steel, made a funnel for a high-density vacuum. He looked at, not the funnel, as what he knew how to do, but the ability to work with stainless steel. So he looked at the medical side for new business. That was the core competency. The companies that prospered found out their core competency, and moved quickly.
Newhouse: Attention to cash flow is a big thing, making sure you’re using the best mechanism to accelerate cash into the business.
Upsize: What are those mechanisms?
Newhouse: For example, most small businesses get paid by a check, but that could delay deposit into your account by four, five days, even a week. Let’s say your terms are 30 days, then you get a check, pretty soon it could take you 40 days to get paid. By contrast, if that business has the ability to take a corporate credit card, you have that money in on the 30th day.
Klein: And payday is every Friday.
Newhouse: Plus, you’ve made it easier for your client, because the client is probably getting pressure not to ask for all these checks to be cut. Or you can negotiate a wire transfer into an agreement at the time of signing. Pay attention to the mechanism for getting paid at the contract stage.
Klein: Or we’ll look at a business and say, why not mail a check to a lockbox in Margrette’s office. The concept is to get the cash in the door.
Upsize: Not many remember these days, but there is a challenge that comes with revenue growth. Business owners joke and say, “if business is so great, then why am I out of money?”
Klein: There are a lot of people who grow out of business. People are so hungry for more revenue, they’re going to get in bed with the wrong clients. The wrong clients doesn’t necessarily mean non-creditworthy clients, either. If you’re a vendor to a big corporation, pretty soon you’re a slave to them. If 80 percent of what you do is for one company, they own you.
Upsize: What else should business owners watch now?
Klein: A big change is insurance. The cost of insurance has doubled in many cases. Companies are raising their deductibles from $25,000 up to $100,000, just to keep the premiums the same. If they incur that loss it could wipe out the business.
Upsize: Now you’re scaring me.
Klein: That’s a cost of being in business. It has to be recognized as such. That’s a hidden liability. It’s probably going to have to be there, that hidden liability, but owners might temper the way they do things. Let’s take auto insurance. Maybe you’ll have fewer drivers; maybe you’ll hire more careful drivers.
We’ll never tell people to move away from risk — that’s the business of being in business. But if you know it you can adjust.
Newhouse: If insurance premiums are rising, they should look hard at that activity, and find out, are those people really making money?
Klein: Business owners right now, they make themselves long-term students. They never assume that what worked last year will work this year.
Cannabis-based products have been increasingly available in Minnesota over the last six years. The opportunities in that space became even more prominent last year when the state legislature voted to become the 23rd state to legalize adult recreational use of marijuana for Minnesotans over 21.
When Super Bowl LII was played at U.S. Bank Stadium in February 2018, Alex Tittle didn’t play a down on the field, but he had more than three-years of impact on the experience.
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