3 Lessons Learned from Restructuring a $30 Million Manufacturing Company
As restructuring and turnaround consultants, we’ve seen a few things when it comes to family-held companys who have found themselves in trouble and need help in turning their businesses around. For example, from 2014 to 2017, a local manufacturer from $30 million in revenue to $9 million. Within the span of 3 years, the company had laid off over 70 employees and lost $21 million in revenue. This type of revenue loss is not uncommon with small to mid-sized family owned manufacturing companies who didn’t have a grwith plan, processes in place, or lacked innovation. As businesses are passed down from generation to generation, a lot of issues arise from lack of revenue to product diversification as the business environment changes rapidly. But there is a deeper question related to how a 30-year business can lose over $21 million of revenue within a span of 3 years. With our involvement as restructuring consultants, we’ve helped the identify three main issues related to their decline. Here are are some lessons that every business needs to learn from this expereince.
As Steve Jobs mentioned, “great things in business are never done by one person. They’re done by a team of people.” For a team of people to work together and achieve results, processes must be in place.
Unfortunately, most small to mid-sized businesses believe that documenting or implementing processes is ineffective. This mentality is the case of this manufacturing firm who has been in business for over 30 years. The company didn’t have sales processes, accounting processes, or cross departmental processes which resulted in an inability to finish projects on time and within budget.
With a reputation of late delivery, the brand of the company deteriorated. Eventually, this led to a decrease of business from loyal customers. The founder and CEO, who is an engineer by training, had neglected to implement processes within his organization which has come back to haunt him 30 years later.
Pay Attention to the Numbers
We all hear the saying “Numbers don’t lie”, but very few small to mid-sized business owners pay attention to the numbers. With a 30-year business, one would think that the CEO would consult the financial statements to manage his business; from decision making to cost management. In this case, the CEO had limited his ability to manage projects and pay attention to the financial data.
Unfortunately, this story is not uncommon with small to mid-sized manufacturing companies. For any business leader who lacks of time or ability to study their financial data, it is critical for them to hire a CFO or a controller to do the job.
Financial statements are the best gears which provides vital information to the company’s overall financial health and neglecting them can lead a company to lost $21 million in Revenue within a very short period of time.
Focus on Growth Rather than Maintenance
There are two components related to running a business:
- The growth section which focuses on strategy, organizational change and innovation
- And the maintenance section which focuses on the support of the business such as IT, HR, Tax and Accounting etc.
About 80% of founders spend most of their time on the maintenance side of their business. This, in fact, lead to lack of discussion and focus on strategy and innovation within the organization. The lack of spending time on the growth section of running a business is one of the reason why most small to mid-sized manufacturing firms have stagnant or declining revenue.
Throughout the years, the founder of this manufacturing firm was lost in the maintenance side of his business. Unfortunately, this was a blow to his company because not enough time was spent on strategizing and innovating.
Laying off 70 people of your workforce and losing $21 millions within 3 years is every business owner’s nightmare. To stop the bleeding it’s never too late to reevaluate your business to implement processes, pay attention to your financial statements, and spend more time on the growth section of your business.
The bottom line: It is worth the investment to bring in a expereinced team to help you evaluate the situation and put the critical pieces in place to turnaround the stituation and begin the climb back up the ladder to healthy reveneues and growth.