If you own a manufacturing business, your overarching goal should be to create opportunities and conditions that enable stability and business growth over the long-term. This is true whether you wish to continue operating the business, or prepare it for transition. Financial professionals like us call this “value acceleration,” and the goal is all about charting a path toward maximum business value.
To reach that goal, there are three areas in particular that you should take action around: human capital, customer relationships and vendor relationships. Gearing operations around protecting, building, harvesting and managing value in these three areas will help you build a stronger and higher performing organization. This, in turn, makes it a more attractive target in the marketplace while also helping to facilitate a more seamless transition to the next generation of leadership.
Let’s take a brief look at each area.
Key management is always at its best when it comes to relationship building, and trust. Businesses tend to operate at their best when the owner focuses on strategy, and finds new ways to grow the company. The lesson here: Be close to your warehouse or shop floor, but hire key leads or managers whom you can trust to be independent and make appropriate decisions. This frees you up to focus on details around strategy, R&D, product development, manufacturing processes and project management. You can still monitor shop floor progress and trends through meetings and updates with supervisions, but workers will respect your leadership if you are not unceasingly hands on as it relates to their daily work.
Through updates and insights from team leads and managers, you should hopefully learn to trust that the business is operating effectively. That said, it’s wise to periodically verify that they are performing at the level of your expectations and in line with the organization’s vision and mission. Lastly, the little things go far when it comes to building trust and relationships. Find a mild Friday afternoon and grill burgers and hot dogs for the shop floor employees. Recognize employees individually for personal and professional accomplishments. Be human and focus on truly engaging your employees. Today’s war on talent is real, so it’s hugely beneficial to retain top talent, because attempting to backfill them if they leave is quite challenging.
Optimizing customer relationships is another key strategy that can accelerate the value of your company. Diversifying never hurts, generally speaking, of course. For customer concentration, focus on the 80/20 rule—diversify through new product lines with the “land and expand” strategy with 20 percent of your customers. In other words, examine their business needs and allow your sales force to target ways to support those needs. Target five to ten years ahead of time, strategizing pain points of customers before they even occur. Quality control is a major area an owner should be thinking about, especially with production lines and manufacturing. Often, customers ask to visit the facilities or see how their product will be manufactured. Production lines within the facility should have equipment that is safe, clean and operating efficiently. First impressions are important within a facility. Plus, you never know who will walk through your facilities one day; don’t let a potential or unsolicited buyer think the value of your company is lower because you didn’t sweep the floors to save on some overhead.
Vendor and Supplier Relationships
Building and nurturing strong relationships with vendors and suppliers is another key role for ownership to play in accelerating value. Again, diversification is relevant, as it relates to vendor and supplier concentrations. Take stock of all vendor and supplier relationships, and ask yourself what would happen if they shut down or became nonexistent. How would your company handle the adversity? In this regard, it’s wise to have contingency plans in place, and be ready with backups. Moreover, you should treat your vendors and suppliers with as much respect as possible—you never know when you might be in a position where you need a favor to delay a payment or work on more favorable terms.
In summary, relationships inside and outside your business are key to accelerating its value. A positive and team-oriented environment with strong core values creates an organization of choice for current and potential employees. That translates into positive figures on your P/L, and therefore higher value. Own from a higher level, and trust your team. Focus on strategy and building relationships.
Do you have questions about accelerating value in your manufacturing business? Give us a call!
(c) CPAContentPlus 2019