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THIS MONTH'S BLOG

THE  PROCESS

The Business Consultant's Confessional Box

11/28/2017

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​BLOG 21: The Business Consultant's Confessional Box
​

My Mother always wanted me to be a Priest, sending me to 12 years of Catholic boot camp, otherwise known as Parochial Schools, before I went off to a secular university (Missouri) and sure enough, while I do not wear the garments of a Priest but of a professional Business Consultant; I am still in somewhat of the preverbal confessional box, alias my office, where my perspective clients (prospects) come to visit me for a free one-hour interview discussing their businesses present and future strategy.

Most of the interaction between the prospect and myself centers around whether they should sell, be acquired, arrange some kind of a family turn-over to their kids (sometimes already working for them) or grow, usually meaning re-financing, which is typically harder to do than what meets the eye, since their company may be struggling from too much debt, not enough collateral, sporadic profit performance, credit problems and lack of strength of personal guarantees; just to mention a few of the problems associated with the “stay and grow” strategy (excluding M & A options).

In addition, there are so many personal issues that impact the business owner’s decision, which are not directly involved in the business, per se, but often become the most difficult hurdles over which to jump. These struggles involve more psychological issues (intangible) than business issues (tangible); such as, the length of time the founder has been in business (usually 20 + years), his on or off the court battles ranging from financing, revenue, grow or die, reality to dealing with marital problems from being an absentee husband/father, to decisions regarding using the house as collateral and in some cases even losing the house because it was collateral and just the plain fact that owning your own business is usually a day-to-day struggle with sleepless nights and constant survival pressure on the family budget and viola one day the owner wakes up and realizes he/she has a thriving business that has a value, thus the call to our office for that interview referenced above.

Back to the confession box> the problem with offering suggestions to my hopeful-soon-to-be client is the penance they must consider to be absolved from their current condition (much like saying three Hail Mary’s) to be able to succeed in whatever course of action they decide (point of fact we offer suggestions, recommendations and implementation but the client makes the decision not us), which leads us to some unique cases scenarios worth reviewing; such as;

CASE 1: The issue: The owner/founder has accumulated several minority partners over his thirty years in business, which is doing very well and now some of the partners want to cash out leaving the original founder with a decision whether to cash out with his partners and just sell the whole business or stay and buy-out the minority partners or replace them with a singular minority partner.

The resolution: after considerable due-diligence on our part, our recommendation was to find a replacement minority partner with performance options to purchase the entire company over X period of time, while the owner/founder enjoys a diminishing role in managing the company and enjoying a few, long over-due, extra vacations with his deserving family.

CASE 2:  The issue: The owner formed her company 25 years ago and it has become her total identity. The company is her life and she has guided her baby through calm and stormy seas to this very day and is considering selling the company and, as is usually the case, wants to enjoy the “Fruits of her labor” by either selling the company or finding an on-site manager to run the company.

The resolution: The owner has asked one of her key employees if she would be interested in becoming the company’s COO while she, the owner, remains as CEO with absentee management privileges. The employee has now been introduced to our consulting firm and is very excited to take advantage of the offer but has little funds with which to execute on the plan; so we are now looking for lenders or individual investors to get involved along with the company’s ability to self-finance.

CASE 3: The issue: The owner has asked us to study his company and do the due-diligence to decide whether he should sell his very profitable company to entities at-large or his son, who works in the company.

The resolution: We recommended he take his son out from the factory and start training him for management so as to expedite the smooth transfer of power when the son is ready. The good news is the son knows the implementation part of the business as well as anybody, including his Father, but needs experience with the P & L end of the business, which can be hired and now the son is ready for the big move, which was done and the business is running fine as we speak.

CASE 4: The issue: Owner just wants to sell but does not know how to price the company to sell, which translates into a VALUATION ANALYSIS to arrive at a market value selling price with preferred terms of purchase.

The resolution: We hired an appraiser for the M & E valuation and did our own due-diligence of the balance of the assets of the company and recommended a selling price after we went through all the staging cycles required to arrive at a fair market value for the company. We provided the owner with a complete report including market comps and a few recommended R/E brokers and stayed close to him as an advisor on any offer he received and are still looking for a bankable offer as we speak.

Conclusion: We are not always successful with our advice and many times we are shown the Proverbial Door” for showering our interviewee (the prospect) with information he/she does not want to hear; such as, when we advise the prospect to sell when he/she really wants to grow but does not have the track record to do so without a major money player or the reverse when the prospect actually wants to sell but has not built a salable company with which to do so and our advice is egregious to him/her because it usually means that the prospect will need to stay in the business to complete a turn-around they are not willing to do-this is the Burn-out entrepreneur group of which there are many qualifiers.

There are so many stories to tell from a 40 year life as a finance and business consultant that I should write my second book; the problem is once I start writing I find myself repeating the usual issues like the above stories, just the names of the principals change. “It is tough out-there!”

RONALD MITCHELLETTE
MITCHELLETTE AND ASSOCIATES, LLC
2730 WEST LAKE ST. STE. 300
MINNEAPOLIS, MN 55416
OFFICE: 612 715 9217
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