When emerging mid-market companies need to raise growth capital, attract an M&A or private equity deal; their current cash flow will be closely scrutinized as an indicator of their potential to generate future returns. At this critical point in their evolution, many companies scramble to make improvements to their gross margin percentage. They see even small improvements in gross margin as a step toward impressing investors or acquirers as to their potential to build leverage and generate future profits.
The partners of the Newport Board Group have found that emerging growth companies who are deciding whether or not to outsource manufacturing operations to China, have many pros and cons to weigh. As expert business advisors, Newport Board Group offers companies important information to consider before making the final decision.
We may be close to a turning point where interest rates will rise and capital availability tightens, due to the recovering economy and the impact of the upcoming mid-term elections.
One of the first management processes that many emerging growth companies try to institutionalize is budgeting. Budgeting is an essential building block of good management. It serves to control spending in line with a company’s operating and capital plans. It provides a framework to compare actual revenue, expense, and profit with the plan. Budgeting forces accommodation and agreement between top-down management goals and bottom-up feedback from managers and staff about what is actually feasible for the company to achieve. And lastly, it imparts a sense of discipline and order to the company’s operations.
Previous articles in this series have touched on a number of issues important to family businesses, including goal setting, culture and governance. Let’s now turn to another issue that can be critical to sustaining the legacy of a family business: whether and how to bring in outsiders to the board and to the executive ranks, especially in the role of CEO.
All organizations experience conflict, whether between board members, executives or management. As part of their formal governance processes or as a matter of their operating style and culture, well run companies establish formal processes to address conflicts.
In our last article in this series, highlighting our firm’s Four Ms framework to get growing companies out of No Man’s Land, we focused on the “Model” issues confronting a growing electronics company in Austin. Today we move to the Market issues confronting a footwear company in northern New York State that I worked with closely. The company is 100 years old, making it anything but a start up. It is at the boundaries of middle market size, having become misaligned with its market. As a result, it is generating considerable losses. How did this once successful company become misaligned with the market place that it exists to serve?
Private companies represent almost all of the businesses in the United States. Hundreds of thousands are born each year and about as many die. They generate more than half of all paychecks and most net new jobs. They employ almost half of high tech workers and account for a high portion of all U.S. exports.
The first several articles in this series have addressed the issue of customer acquisition. Emerging growth companies consistently under rate the cost and time they will have to invest in order to acquire new customers. You should therefore focus on finding new customers that will provide you with more long term revenue than the cost to acquire them.
In my last article, I discussed the cost of acquiring new customers, emphasizing that you must understand the cost in cash and time of pursuing new customers and convincing them to take a chance on you.
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