Numbers Don’t Lie
By Andrew J. Masigan
The pandemic is not exclusively a story of business failures. Many companies are doing exceedingly well during this period of crisis. Those whose businesses relate to sanitary products, healthcare products, drugstores, supermarkets, and e-commerce continue to enjoy unprecedented profits despite the economic downturn. Some enterprises are hardly affected. Those engaged in manufacturing, importation and trading as well producers of basic food products remain stable. For them, it is business as usual.
This piece is meant for all those whose businesses are thriving and whose cash positions are healthy. Now more than ever, this is the time to expand your businesses, grab market share and grow through diversification or acquisition. It is the time to make a move towards growth.
Cameron Herold is a top business consultant and best-selling author. He is a regular speaker of the Entrepreneur’s Organization, a global group of which I am a member. Cameron has guided hundreds of companies in their paths towards exponential growth. He is among the foremost business gurus of our time.
Over a private conference, Cameron shared several tips on how to turn this crisis into opportunity.
First and foremost, says Cameron, we must recognize that now is the time to invest in activities that either drive your sales or increase your profit margins. Spending on advertising and promotions is highly recommended at this time as it could yield quantum results. This is because your competitors are most probably struggling or holding back on spending. If you are able to increase market share while the competition loses theirs, your growth will be even more significant than in normal circumstances.
Engaging in activities that improve your margins is also recommended. As you enter a growth spurt (resulting from increased ad and promo spending), you also need to maximize your profits. Not to do so is a waste of effort. Thus, engaging in programs such as mechanization, computerization, or process streamlining is recommended at this point.
In a crisis, cash is king as it provides both financial stability and the ammunition to seize opportunities. Hence, it is wise to liquidate whatever assets you have that are not vital to operations. This could come in the form of ageing inventories, unused equipment or even whole divisions (or non-core businesses).
Owners of companies affected by the crisis are under enormous stress. Sometimes the stress is so intense that they are willing to sell their companies for a fraction of what it is truly worth just so they can walk away from the “pressure cooker.” These are the types of companies that are ripe for acquisition.
Cameron also suggests to target companies that are owned by baby boomers, or those 55 to 75 years old. Their owners are tired and just want to take it easy. Their companies can be acquired at cheap valuations.
When acquiring companies, ideally, do so with 70% debt and 20% installment payment to the owners. This means, you can acquire a company for just 10% of its price. Amortization for debt can be paid for, in whole or in part, by savings derived from eliminating redundancies and other cost cutting measures including not having to pay the expensive salaries of the former owners.
This may sound mercenary, but when you sense your competition drowning — make your move.
As your competitors struggle to keep their operations afloat amid a cash crunch, the time could not be better to acquire them for a song, grab their customers, poach their key executives, acquire their proprietary processes and/or persuade their suppliers to sell to you exclusively.
While the competition is slow and distracted, it is the ideal time to adopt their best practices (or ideas) and implement them in your own organization.
Although Cameron advises to spend aggressively for business expansion, bear in mind that cash is the oxygen of the business. No matter what, you must have at least three months of overhead expenses in your reserves. Manage your cash prudently. Good cash oversight is key.
Most businesses operate under the 80/20 rule wherein 80% of profits are derived from 20% of clients. The rest of the clients contribute little to the bottom line, yet require just as much time and attention as the bigger clients. Cameron suggests to use this time as an opportunity to let go of low yielding clients without eroding market share (since your competitors are losing clients too). Getting rid of low yielding but high maintenance clients liberates the organization from administrative burden and frees-up resources to pursue more profitable endeavors.
As we grapple with the crisis, do not get caught up in paperwork and internal administration. Business owners and their top executives must be out in the field, transacting and interacting with customers, suppliers, associates and potential clients. While your competitors are caught up in managing their internal affairs, use the time to forge stronger relationships with the people who matter.
Finally, never forget that the business owner or the CEO acts as the main energizer of the organization. He/she must also be the spotter of opportunity and the one that clearly defines the aspirations, targets and goals of the company. Above all, he/she infuses the organization with positive energy and the wherewithal to achieve the goals set forth. His/her role is to remove the stumbling blocks and negative energy that stand in the way.
This crisis offers a once-in-a-lifetime window when most competitors are fragile. Doing business is a dog-eat-dog affair and there is no shame in seizing opportunities.
At the end of all this, we can expect thousands of businesses to turn insolvent and close permanently. However, there will be a few which will grow even bigger and stronger. Hopefully, you will be among them. Such is the nature of a laissez faire economy.
Andrew J. Masigan is an economist