What Is Smart Money Doing Right Now?

2nd Quarter 2009

At Premier Sales, Inc., we are consistently engaged in on-going discussions with business investors and Arizona business owners spanning a wide range of industries.  These conversations provide an interesting backdrop for understanding what is happening in today's market.  With the current volatile economic conditions, this knowledge translates into both opportunities and threats.

Market Opportunities

Stock market and real estate volatility has sent many investors running. Money is sitting on the sidelines waiting for a stable opportunity. We are seeing increased interest in privately held businesses as a result of funds being funneled to Private Equity Groups with a successful track record of acquiring and managing privately held companies. Healthy businesses are benefitting from prudent capital management and are positioned to grow through acquisition of market share or by simply being able to out-gun their competition. The following are what we are seeing these two groups doing today:

Private Equity Groups (PEGs) are actively seeking business acquisition opportunities.
Their search criteria for targeted opportunities is expanding from companies that have $50M+ in gross sales with EBITDA of $5M or greater to now include more "main street" businesses previously deemed too small to pursue. Additionally, ROI expectations of PEGs have lessened and have become more in-line with the current market realities. Gone are the days of high multiples based on significant leverage with expected revenue and profitability returning compounded growth rates of 30% per year. Typically, PEGs will have acquisition requirements which include industry type, protected products or services, competitive position, management talent and growth potential.

Operating Businesses are holding on to cash.
However, companies with healthy balance sheets and cash reserves are actively pursuing the following strategies:

What is the opportunity for you and your privately held business?

Privately held businesses that meet the PEGs acquisition requirements are positioned to capitalize on a liquidity event – in other words, sell your business on favorable price and terms. For privately held businesses that do not meet the PEGs requirements, the business may meet the requirements of a strategic buyers looking for growth and market share. As a business owner, this may be the time for you to consider taking your "chips off the table" and extracting the most cash from your business. If you want to make a game changing play, consider eliminating competition and growing your market share through an acquisition.

Market Threats

Many business owners are facing for the first time in many years cash flow stress. Purchase decisions and start dates on projects or jobs are being delayed, which stretches out projected revenue, while monthly expenses continue on. Business owners who have not managed in severe down economic times are finding themselves ill-equipped and undercapitalized to take the necessary actions to right their businesses and weather the storm. Some businesses are experiencing pains resulting from capital decisions made when the future was nothing but up. Weaker companies are now vulnerable to loosing valuable market share and employees resulting in a vicious cycle of declining revenues and lack of capital to reinvest in the business – just when it needs it the most. The strain on cash flow has resulted in lower business values. Today's business owners are tracking cash diligently by:

Reviewing the Balance Sheet and Statement of Cash Flow This has become standard practice. Frequency of reviewing these critical reports has increased. Don't be surprised if your banker is asking for these reports on a more frequent basis too. This is a good practice as you can't get to where you want to go without paying attention to your key business metrics.

Customer's Credit Standing and Receivables Reports are being watched closely. Sales people are keeping closely connected with key customers so that "blips" on payment can be minimized. No customer is being extended credit without consideration to: the impact the customer has on the company's overall diversification of revenue, the customer's credit standing, the working capital needed to complete the job, and how much risk can the company bear should this receivable turn into bad debt?

What are the threats for you and your privately held business?

If you have not implemented some of these management strategies, start now. If after reviewing your metrics and things are good, celebrate and implement these practices into your regular management routine and consider how you can leverage your company's healthy financial posture to eliminate competition, improve and grow your business. If after reviewing your business metrics and things are less than favorable, take immediate action and do not delay. Seek advice from your CPA, advisory board, banker, other business owners etc. Learn what stronger companies are doing and how they did it. Learning and implementing best practice strategies will strengthen your business and increase its value.

In addition to managing your cash flow with diligence, business owners should avoid the tendency to turn off the marketing spigot when times are tough. With many small businesses, advertising and marketing are considered somewhat discretionary expenses. When difficult times arrive, marketing is often one of the first budgets to get axed. Business owners tend to shift business operations into "survival mode" until things improve. While this may be a prudent strategy for some, it can be short sighted and have a serious impact upon business values and take years to recover.

Premier Sales offers complimentary baseline business market valuations that many business owners value and have utilized to enhance the value of their business. Call our office or click here to learn more about our complimentary business market valuations. Call our office at (480) 905-9030 or click Free Business Analysis and Valuation to obtain your thoughtful analysis. We are committed to your success.