How Strong is Your Company? 

Jack Lyons, Founder and PresidentBy Jack Lyons
President, Lyons Solutions LLC

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How Strong is Your Company?Your company is performing at a higher level than it ever has before, or at least where it hasn’t been for a long time. Next year might look even more promising because your company has great momentum, with revenue and profits looking stronger than ever. You may feel like you’re at the top of your game and your future couldn’t look better. On the other hand, your company may not be performing so well. Maybe it’s lacking in momentum, and your revenue and profitability aren’t that strong. Either way, it might be a good time to take a critical look at your company. There’s no downside and you might discover some things that you’d never think about. Below are some initial questions to get you thinking about your current situation.

How well is your company positioned in the market?

If positive company results are due to deliberate actions and positioning to foster growth and profitability, the results you’re seeing now will more likely be sustainable. However, if the results you’re experiencing are coincidental to other happenings in the economy and your industry, the less likely the results you’re experiencing will be sustainable beyond the next directional change in the economy or your industry.

How strong is your management team?

There are two measures of a strong management team. The first measure is whether the management team is experienced and nimble enough to assure that the company remains profitable during a negative time in the economy, your industry or your company. The second measure is whether the management team is strong enough to bring about a quick recovery of revenue and profitability when a negative period of the economy or your industry starts to turn around. Both measurements are important. Weakness in either measurement could foreshadow future risk.

How strong is your profitability?

Profitability levels of companies vary significantly within each industry. Some companies are highly profitable by industry standards. Other companies have marginal profitability by industry standards. Be sure to subscribe to publications that provide current financial metrics for companies in your industry. The economy, even though it is not a fast growth environment, has been growing slowly and consistently for a number of years now. Your profits should be strong at this time based on some measurable industry criteria. If your profits are not strong at this time – and unless you have a defensible reason as to why they’re not – your company’s future survival is at risk.

How strong is your customer base?

Is your customer base diverse or narrow? Is it growing or shrinking? Are you doing business with risky customers? So often a company can get complacent about its customer base. Losing an important customer is always a possibility, however remote. What would happen to your company if it lost a major customer? We’ve all heard of companies losing a big customer and either going out of business or being a shadow of its former self. We’ve also all heard of a company failing and taking other companies down with it. Sometimes companies get lucky for a very long time before the customer rug gets pulled out from under them. But in the end, business continuance is risky if you have all or a large portion of your business volume tied up with one or a few customers or with risky customers. And it really doesn’t matter what industry you’re in. Having one or few customers always translates to limited growth and high risk. It will also negatively impact your company’s valuation when you sell.

How strong is your company balance sheet?

Financially strong companies have strong balance sheets. Some items to look at are your:

  • Cash position
  • Collection period of your accounts receivable
  • Aging of your accounts payable
  • Amount of debt

Ask yourself if your balance sheet is as strong as you’d like it to be. Are your balance sheet metrics in the upper quartile of your industry? If you don’t like what you see, put a plan together to strengthen it.

A weak balance sheet translates into a weak company. Fixing a weak balance sheet takes time and dedication. Not fixing a weak balance sheet can lead to other unfortunate circumstances, including symptoms of a death spiral like scraping by to make payroll, or being behind on paying payroll taxes, or are having trouble paying bills in a reasonable timeframe, or being unable to make important investments for compelling growth opportunities. If companies experience these symptoms, it’s usually just a matter of time before they go under. Even if your company isn’t experiencing the problems just described, your balance sheet could still be weak and your company could still be vulnerable. Have you ever worried about the amount of debt your company is carrying? Are you pushing the limits of your credit line or are you close to debt covenant limitations specified in your loan agreement? Could you be put in a vulnerable position if your accounts receivable collections became compromised by either a dispute over a large invoice or by a customer filing for bankruptcy? Would your death hurt your company’s survival possibilities? If you answer “yes” to any of these questions, your company balance sheet may not be as strong as it needs to be to assure long-term company survival.

In conclusions, business owners are among the smartest people in the world. I hope you’ll use this article to make a genuine appraisal of the strength of your business. There’s no down-side. It’s better to know the truth and do something about a situation than to suffer the down-side because you weren’t willing to make a careful evaluation and put together a plan to fix whatever needs fixing.

If you would like to discuss the strength of your company confidentially, contact Jack Lyons at (941) 497-4700.

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