You Can’t Increase Business Value by Making Cuts
Our guest this week had to face up to tragedy and the realization that she owned a worthless company before turning things around to make the perfect exit.
When her husband unexpectedly died, Kathleen Ferry had no option but to take over his business – a business that was struggling to adapt to a changing marketplace and one that was significantly over-staffed. Kathleen shared some excellent tips on how to streamline a business, and how planning a certain way can put you in the driving seat when it comes to transferring your business to the successor of your choice!
Where was the company when she took it over?
When Kathleen took over, after her husband and the General Manager of the plant were gone, she got the news that the company had been valued at next to nothing. She had no choice but to keep the business going and try and turn things around to keep food on the table for the livelyhood of her and her kids. Her company was $1-2m in debt and needed some serious streamlining.
What were the first key decisions she made?
She brought in good-caliber senior staff: a head of sales and an operations manager.
What was the streamlining process?
After a year in charge it became clear that not only was the firm over-staffed; there were the wrong staff in certain senior positions. The rewarding of loyalty had been too influential in the process of recruitment. Kathleen cut 20% of the staff but only after she’d brought in an external consultant to prove that this needed to be done. Internally she had discussed trimming the workforce, but nobody would agree with her.
How did she drive the business forwards after the streamlining?
She had to tackle the “it’s always been done that way” culture. This involved her spending a lot of time standing on the factory floor and asking staff to explain what they were doing. As a result of this she implemented policy that significantly improved their cashflow, and a $2m credit line eventually became just $10,000 in working capital!
“reduce your working capital of your business and make your business worth a ton!
‘buck the way things have always been done and find ways to reduce your need for capital!’
Then she established a board of directors. This is what she regarded as the most important decision she made – the sounding board proved invaluable.
How did the company cope during the financial crisis?
They lost $100,000 per month for a time, but when the marketplace picked up they were in a stronger position than before. The training and realignment of processes they undertook during the down times helped significantly, and because they had reduced their debt to almost nothing, they were better prepared than most to ride out the storm.
“reduce your need for capital and prepare yourself for any downturn ”
“debt sucks… making money and loaning it is better!”
What was put in place to help prepare the company for sale?
Before there was a plan to sell, the company had already brought some angel investors to the table. This prompted the company to properly document their entire operation for the first time. Kathleen said this as a very useful exercise when it came to the eventual sale because it helped her understand the true inner workings and value of her company.
How did the sale come about?
The eventual buyers were a private equity group who had already acquired companies in the same industry. They were impressed with the potential of doing business with one of Kathleen’s big clients. Despite this interest, it was very much business as usual. Kathleen and the firm still made a 10-year growth plan (because they knew they needed one regarless of what happend) which not only impressed the eventual buyers, but it gave them enough leverage for negotionation because they knew they were not desperate to sell. Kathleen knew she was in the driver’s seat!
What happened next?
Kathleen took a year off and splurged a bit by remodeling a part of her house but eventually got bored. She highly recommends that when someone sells their company they don’t necessarily have to have a plan for life after business immediately, but that they must at least be aware that they’ll have to make one at some point. Now she does CFO consulting on a part-time basis.
The Goal: A Process Of Ongoing Improvement – Eliyahu M. Goldratt
Wise words for the road:
“Everything starts with sales”
“When you’re small you reward loyalty, when you grow you need to reward competency”
“step back and actually watch how your business runs!”
“So often when you’re in business you’re pulled in to solving the problem of the day. You don’t step back and actually watch how your business runs”
Kathleen brings more than 27 years as a CFO and business owner to her clients at FocusCFO. She appreciates and understands the unique opportunities and challenges facing entrepreneurs and family owned businesses. Her experience has taught her how owners can have a pulse on the day to day operations, evaluate their business’s financial strength, and plan the strategies needed to grow their businesses.
Kathleen’s financial foundation began in banking as a commercial credit analyst with Union Commerce Bank and then as a corporate financial analyst with Standard Oil Company of Ohio. In 1986, Kathleen co-founded a start-up fastener manufacturing company with minimal capital and machinery. Over 27 years she grew sales, decreased debt, drove efficiencies and cost-effectiveness, adopted lean manufacturing techniques, effectively managed capacity expansion, developed a hard-working and loyal workforce, and secured equity investors to bolster the company’s balance sheet. Through diversified operations and client base, she mitigated risks and navigated the successful sale of the company to a private equity firm in 2013.
Kathleen received her MBA in Finance with a minor in Marketing from Northwestern University’s Kellogg School of Management in Evanston, IL. She earned her undergraduate BBA degree in Finance from the University of Notre Dame in South Bend, IN. She also completed COSE’s Strategic Planning Course and has recently become a Certified Exit Planning Advisor.
- Spending time: with my five children and growing family
- Hobbies: Working on my golf game
- Enjoys: International and domestic travel, so many places on my bucket list
- Passionate about: Volunteering at non-profit organizations with limited resources provides an opportunity to take the skills I learned at my day job and give back to the community
Brought to you by Ryan Tansom of Intentional Growth