Dear Management: A Few Items for Your Consideration

The time is right for integrators to be bold, re-evaluate their markets and consider critical next steps.

David McNutt

We can never forget that volatility is hardwired into the nature of doing business. Keep these three tips in mind for handling the ups and downs that come your way as a business owner.

Sometimes Drastic Is Strategic

The hard decisions are just that: hard. Ford Motor Company had been lagging for years and the stock was faltering. Then, in late 2006 — just before the financial crisis would have made it impossible — Ford borrowed a whopping $24 billion to finance a turn-around plan. It mortgaged all of its assets, a move that was all in. If the plan faltered, there would be no second chance.

Because of the loan package, Ford was the only U.S. auto manufacturer not to face bankruptcy over the next few years. Nonetheless, in Q2 of 2009 sales plunged 43 percent year to year, leaving the company with a net negative $11 billion in cash (meaning it was all debt and no operating cash).

In contrast, today the company has $9 billion in cash left over after paying off its huge debt and making a $6.2 billion catch-up pension payment. The point is that management cannot be timid when it comes to making hard, well thought-out, yet sometimes-risky decisions. Think about it: Does your strategy need to be a little drastic to succeed?

Revisit Your Market Intelligence

I have heard from many integrators that margins have been rising. While this may be a good trend, the question is this: Is competition getting smaller and weaker?

Margins tend to get higher as competition weakens, but the lack of good competition doesn’t last forever. In 2011, the most recent year for this data, 35 percent of companies operating in the U.S. were five years old or less. Back in 2007, the share of companies less than 5 years old was 40 percent. This national data is now almost three years old and we should be thinking.

Related: Planning for Cash in the Midst of Chaos

It’s time to revisit your market intelligence. Who are your traditional competitors? What has changed with them?

Know When It’s Time To Sell

Three years ago a small business owner in Wisconsin wanted to sell his technology services firm. The downturn in the economy put that on hold. Since then he steadily increased sales and profits and recently sold his company to one of six bidders for $2.3 million, 15 percent more than he was asking.

This past year between July and September, 1,685 businesses were sold, up from 1,189 sales in the same period in 2012. The largest sector of business sales was the service industry. Depending on your long-term strategy, it might be the right time to prepare your company for being acquired. On the other hand, again depending on your long-term strategy, it might be time for you to prepare to acquire another company as a strategy for growth.

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