Passing the Torch
Insights from Gordon Bell on Exiting Your Manufacturing Business with Purpose
September 17, 2024
As a manufacturing business owner, you’ve poured years—perhaps decades—of hard work into building your company. The thought of stepping away can be both daunting and emotionally charged. How do you ensure that your legacy continues and that your employees and customers are taken care of?
In a recent conversation, NuVescor’s Seth Getz sat down with industry veteran Gordon Bell, founder of the Midland Group, to discuss the nuances of exiting a manufacturing business with intention and care. With a career spanning steel mills, food services, and multiple successful ventures, Gordon offers a wealth of experience in mergers and acquisitions (M&A), business stewardship, and leadership.
Embracing Stewardship Over Ownership
Gordon Bell’s philosophy centers around the concept of stewardship rather than mere ownership. He believes that as a business owner, you’re entrusted with an asset for a period of time, and it’s your responsibility to nurture and grow it.
“You’re a steward of an asset for a moment in time,” he explains. “It’s about improving value over time and preparing your company to be attractive for transfer.”
This mindset shifts the focus from short-term gains to long-term value creation. In the manufacturing sector, where businesses often serve as community cornerstones and represent family legacies, adopting a stewardship approach can lead to more sustainable and meaningful outcomes. It encourages owners to think beyond immediate profits and consider how their decisions impact employees, customers, and the broader community.
The Importance of Self-Reflection
Before exploring exit strategies, Gordon emphasizes the need for deep personal reflection. He suggests that business owners ask themselves three pivotal questions:
- What is your vision for your life and business?
Understanding your ultimate goals helps align your exit strategy with your personal aspirations. Are you looking to retire comfortably, pursue new ventures, or focus on philanthropy? Clarifying your vision ensures that your next steps contribute to your overall life plan. This self-awareness is crucial because it influences every aspect of the exit process, from timing to the choice of successor.
- Where are you on the journey to accomplish your goals?
Assessing your current position allows you to identify gaps between where you are and where you want to be. This could involve financial readiness, business valuation, or personal readiness to let go. Recognizing these gaps early gives you time to address them before initiating the exit process. It also helps in setting realistic expectations and creating a roadmap to achieve your objectives.
- Do you still have the passion—the “fire in the belly”—to drive the business forward?
Your enthusiasm for the business is a critical factor. If the passion that once fueled your efforts is waning, it might be a sign that it’s time to consider passing the torch. On the other hand, if you’re still energized by daily challenges, you might opt to delay your exit or explore ways to rekindle your drive. Understanding your motivation levels can prevent burnout and ensure that you make decisions that are best for both you and the company.
By engaging in this introspection, you set the foundation for an exit strategy that aligns with both your personal and professional objectives. It ensures that the transition is not just a business maneuver but a step that complements your life goals.
Exploring Exit Strategies: More Than One Path
Gordon and Seth discuss several exit strategies that manufacturing business owners can consider:
- Management Buyouts (MBOs)
An MBO involves your existing management team purchasing the company. This option ensures continuity and rewards the team that’s helped build your business.
- Employee Stock Ownership Plans (ESOPs)
An ESOP allows employees to acquire ownership interest, often boosting morale and fostering a sense of shared purpose.
- Selling to Private Equity or Strategic Buyers
This route can infuse the company with new resources and expertise, potentially accelerating growth and innovation.
- Initial Public Offerings (IPOs)
While less common for smaller manufacturers, going public is an option that can significantly increase capital but comes with increased regulatory scrutiny.
“Each method has its benefits and challenges,” Gordon notes. “The key is to choose the one that aligns with your personal and business goals.”
Building Value and Reducing Risk
To make your manufacturing business attractive to potential buyers, there are two essential components to consider:
Building Value
- Develop a Strong Leadership Team: Empower your managers and employees to take ownership of their roles.
- Implement a Solid Business Plan: Outline clear, achievable goals and strategies.
- Ensure Repeatable and Sustainable Financials: Demonstrate consistent profitability and growth potential.
Reducing Risk
- Diversify Your Customer Base: Avoid over-reliance on a single client or market.
- Update Technology and Processes: Invest in modern equipment and methodologies to stay competitive.
- Strengthen Supply Chains: Establish relationships with multiple suppliers to mitigate disruptions.
Timing Is Everything: Start Planning Early
Gordon and Seth discuss the importance of beginning the exit planning process years before you intend to leave.
“You don’t wait until you’re ready to sell to start preparing,” he cautions. “Begin with the end in mind.”
Early planning allows you to:
- Maximize Business Valuation: Implement changes that increase profitability and reduce liabilities.
- Prepare Successors: Train and mentor the next generation of leaders within your company.
- Align with Market Conditions: Take advantage of favorable economic climates or industry trends.
Caring for Your People: The Heart of the Matter
A recurring theme in Gordon’s approach is the importance of taking care of the people who have contributed to your company’s success.
He shares a compelling story about a manufacturing company where, upon sale, the owners provided significant financial rewards to employees based on their tenure and contribution. This gesture not only recognized the employees’ hard work but also fostered goodwill and preserved the company’s culture.
“It’s about honoring the various constituencies in the company,” he says. “From the factory floor to the executive suite, everyone has played a part.”
In the manufacturing industry, where skilled labor is essential and employee retention can be challenging, such considerations are vital. Ensuring that your exit strategy includes provisions for your employees can enhance morale, productivity, and the overall health of the business during the transition.
This might involve:
- Implementing Retention Bonuses: Offering financial incentives to key employees to stay with the company during and after the transition.
- Providing Clear Communication: Keeping employees informed about the company’s future can alleviate anxiety and rumors, maintaining productivity and trust.
- Offering Continued Benefits: Negotiating terms that allow employees to retain their benefits, such as healthcare and retirement plans, can demonstrate your commitment to their well-being.
Legacy Beyond the Balance Sheet
Exiting your business doesn’t signify an end but rather a transition to a new chapter—for both you and the company.
This should be viewed as an opportunity:
- For Personal Growth: Pursue new ventures, hobbies, or philanthropic endeavors.
- For Company Expansion: New ownership can bring fresh perspectives and resources.
- For Community Impact: Continue contributing positively to your community in new ways.
Practical Steps to Begin Your Exit Journey
- Conduct a Business Valuation: Understand your company’s worth in today’s market. This includes assessing tangible assets, intellectual property, and goodwill.
- Perform a SWOT Analysis: Identify Strengths, Weaknesses, Opportunities, and Threats. This strategic planning technique helps you focus on areas that need improvement.
- Engage Professional Advisors: Work with M&A advisors, like NuVescor, who specialize in the manufacturing industry to guide you through the process.
- Develop a Succession Plan: Whether selling internally or externally, have a clear plan for who will take over leadership roles.
- Communicate with Stakeholders: Keep lines of communication open with employees, customers, and suppliers to ensure a smooth transition.
For more insights and personalized advice, Seth Getz can be reached through NuVescor, where they continue to support business owners in navigating the complexities of mergers, acquisitions, and succession planning. Gordon Bell can be reached through the Midland Group.
