Value (not beauty) is in the eye of the beholder

Charlie (not his real name) was excited.

He had worked hard, taken risks, and been rewarded. Charlie had built a $40MM manufacturing business over the years through organic growth and acquisition.

That was how I met Charlie. He became a candidate to acquire a client of mine, a niche manufacturing business that Charlie successfully integrated with his two other channels about a decade ago.

Secrets Of Family Business Transition

Less than a third of family businesses transition successfully to the third generation.  70% fail or are sold.

Not quite 10% continue as active privately held companies for the third generation to manage.

It is our nature to think that a family business transition can be navigated by the founder and family without outside help (interference?).

Families are complicated, people are complicated, and business is complicated.  Combining personal, family and business decision making is exponentially complicated.

The do’s and absolutely-do-not’s of family business transitions

Family Business Transitions & Exit Strategies

Do’s & Absolutely-Do-Not’s (how to plan for low risk transition)

Seven Dollars donated to the Hill Library gets you free parking for 2 hours.

 

James J Hill Library
80 W 4th St
St Paul, MN 55102

Mike Tikkanen, Packard Group
Tuesday, October 27
11:30am – 12:30pm

Register Here

 

 

When Banks Are Forced To Act (when not deciding becomes deciding)

Last week, Packard Group watched from the sidelines when a bank shifted a business credit to a workout group. By the time we were referred in, the Bank had made it’s decision and it was out of the hands of the owner.

Here’s the story:

Two years ago, the train wreck took place. In the months, quarters, and years that followed, the company was losing money, marketshare, and human resource assets. Suddenly, denial was no longer an option. All too late, the owner reached out to their attorney, desperate for a conversation that could save the company from being picked apart for dimes on the dollar.

Packard gets the referral (from the company’s lawyer) and a conversation takes place. Options and game plan. When the owner called the Bank, they were told that it was no longer in their hands, and they were going into workout. Everybody loses but the bottom feeders.

Lost projects of this sort happen all too often and here’s why: Federal and State regulators demand that bankers make question loans disappear, so it’s not fair to throw rocks at bankers. In this marketplace for money, most banks are forced to work with a short list for eliminating the stress of an underperforming business credit. The business owners do not see the razor sharp teeth of the workout group until they are firmly in its grip. It’s a fire-sale with the only purpose of getting the bank out from under the loan. It has nothing to do with the potential value of business divisions or assets to the right buyer. Workout doesn’t seem to bother with the right buyer, just A buyer.

It is the saddest when this happens near the end of a great run by an owner close to retirement with no time to recover lost ground. I’ve seen them cry as their workforce is dismissed after years of loyal service, millions of dollars of equipment becomes worth a dime on the dollar, and a perfectly functioning factory building is auctioned off in the fire sale. When you’re 45 yrs old, recovery is an option – at 64 yrs old, it is a long shot.

There are many savvy bankers working the credits of our area, and if you have one, you are a lucky business person. If you run into events that steer your company into troubled waters, your savvy banker will see it and bring to your attention remedies to avoid the big trouble that culminates with the introduction to the workout group.

Not paying attention to your banker pointing out troubles (or not believing the troubles to be real) is not uncommon among business owners and the exacerbates the trouble and angers the bank. Not a good idea. It amazes me how often I witness head-in-the-sand behavior by otherwise smart people.

Reacting wisely and well is the better choice.

By the way, last week’s deal will see many people out of work, a big pile of equipment on the auction block, and a sorrowful ending to a long established business.

Could’a. Would’a. Should’a.

Retirement = Current Business Value)/time * Options – what is retirement worth?

This is a tale of two business owners – both owned companies roughly the same size, in roughly the same industry, and both at the stage where they really thought hard about getting out.

Now some of you may have been aware of a market correction from 2008-2011 and this comparison is about the effect of time on your plans to harvest your business.

Both owners saw their revenue contract but they took difference approaches. 

The Inventor’s Dilemna (it’s the people)

Sam’s journey has been an interesting one. He shared this with me over a conference call recently.

From an early age, Sam saw possibilities – and growing up in an entrepreneurial environment, he was encouraged to act on them. Soon he was ‘inventing’ little mechanisms and gadgets. Following his primary school years, he pursued and achieved a degree in engineering and worked, successfully, for a couple of companies. That’s where we pick up his story…

Worst Christmas Ever

I was having a cup of tea with a business associate and they told me this sad tale.

Back in the late 60’s, three brothers took out a loan, bought used equipment, and started a small company in the north metro.

They did well, expanded, and upgraded their equipment. Around the turn of the century, the health of one of the brothers began to deteriorate so the other two bought him out. The ailing brother’s family could now provide the kind of care he would need more and more of and the business could afford it. He passed away six expensive years later.

Early in 2014, another of the brothers was diagnosed with the same illness. But the world is a different place now (post 9/11, the Great Recession, etc.) and the buyout offer was not so generous. Really not as generous.

The newly ailing brother wanted to accept the offer so as to not make waves. His family objected and questioned the terms, business valuation … basically the whole deal.

They wanted to be able to provide the same care at the first brother received without wiping out their family.

But that’s not what made for the worst Christmas ever.

There are several second generation players in the business and could soon be seeing the third generation in the business. Well, the son of the last of the three original owners has been peacocking around the front office and manufacturing floor. “The heir apparent” to the last man standing. And he’s been making the kind of statements that will make you cringe.

“Going to be a new sheriff in town.”

“Now we going to see how great this company can be.”

“I’ve been talking to my dad and we’re going to make some big changes.”

All while the family of the newly diagnosed brother are coming to terms with the hard road ahead.

Health issues. Money troubles. Either one is bad enough but taken together, they will bring you to your knees.

Christmas tradition is that the families of the three brothers gather over the holidays. In the past, it had been a time for family dispersements, bonuses, gifts, and much merry-making. This year it almost came to blows.

On Being Stingy, Dishonest, and Egotistical (they are choices you know)

My coach friend Jim Early has reminded me of a Warren Buffetism that is the heart of success in business and life.

Energy and Integrity are Warren’s core requirements with a wink to having a good brain.  While good brains are important and some argue that birth is the determining factor in brain power, more and more evidence points to the cell being a machine that turns experience into biology.

I’ve many years as a volunteer working with troubled youth and it’s apparent to me that mental abilities can be built just like muscle mass and coordination (practice and a little more practice).

Integrity and energy are choices and with discipline, practice, and guidance a “C” student can become a superstar in just about any human endeavor.

And Then He Was Gone (an international man of misery)

Mike & Joe met a prospect at a tradeshow.  He was in some serious international construction development.

He had the pedigree.  He had the connections.  They did their due diligence and things looked good.  This was going to take Mike & Joe’s company to a whole new level.

An RFQ came in.  The kind that you dream about – volume and margin.  The initial engineering issues were resolved to meet the specs and the project was a go.  The first payment was received in time to make for a nice holiday bonus for everyone.

Halfway through the order, more good news.  A container ship was headed out loaded  with materials for the development.  If Mike & Joe could piggy-back on this, he would split the shipping savings.  Which would be substantial.

Things couldn’t get any better…

They didn’t.