Passing the Torch

Insights from Gordon Bell on Exiting Your Manufacturing Business with Purpose

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:

1. 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. 

2. 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. 

3. 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: 

1. 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. 

2. Employee Stock Ownership Plans (ESOPs)

An ESOP allows employees to acquire ownership interest, often boosting morale and fostering a sense of shared purpose. 

3. Selling to Private Equity or Strategic Buyers

This route can infuse the company with new resources and expertise, potentially accelerating growth and innovation. 

4. 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

1. Conduct a Business Valuation: Understand your company’s worth in today’s market. This includes assessing tangible assets, intellectual property, and goodwill. 

2. Perform a SWOT Analysis: Identify Strengths, Weaknesses, Opportunities, and Threats. This strategic planning technique helps you focus on areas that need improvement. 

3. Engage Professional Advisors: Work with M&A advisors, like NuVescor, who specialize in the manufacturing industry to guide you through the process. 

4. Develop a Succession Plan: Whether selling internally or externally, have a clear plan for who will take over leadership roles. 

5. 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.

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Navigating Family Business Succession: Expert Tips for Family-Run Manufacturing Businesses

An interview with Amy Wirtz, Senior Consultant with The Family Business Consulting Group 

Family businesses are the backbone of many industries, particularly in the manufacturing sector. However, succession planning in these businesses often presents unique challenges. Recently, Seth Getz from NuVescor sat down with Amy Wirtz, a succession planning expert, to discuss strategies for navigating these complex transitions.

Understanding the “Why” of Ownership

One of the critical aspects Amy emphasizes is understanding the “why” behind ownership for each generation. Entrepreneurs often have clear motivations like creating their own identity, seeking freedom, or building something significant within their community. However, second-generation owners often find themselves inheriting ownership, leading to different motivations and challenges. 

“It’s crucial to plan for these transitions,” Amy explains. “The ‘why’ of ownership for each generation can change significantly. Entrepreneurs usually have a very defined purpose, but second-generation owners often struggle with understanding their role and motivation because they inherit the business rather than choose it.” 

Amy points out that this difference in motivation necessitates thorough planning of leadership development and ownership transitions to ensure the business’s continuity and success. 

Preparing for Non-Family Leadership

A significant shift in family business dynamics can be the need for non-family leadership. Amy discusses the reality that while family members can work in the company, they may not always be suited for top leadership roles due to a lack of experience or different interests. 

“We discuss the business’s growth needs versus the family’s human capital,” Amy notes. “Family members might not be ready to take on CEO or CFO roles, and sometimes bringing in a non-family CEO can be the best option. This approach can involve non-family leaders buying a small equity stake, ensuring their commitment while keeping majority control within the family.” 

This strategy allows for continued business growth and profitability while the family retains control and benefits from ongoing dividends, rather than opting for a one-time exit. 

Maintaining Company Culture

Company culture is a crucial element in the success and valuation of a business. Maintaining this culture through leadership transitions can be challenging but is essential. Amy highlights the importance of identifying and preserving core cultural elements that define the company’s identity. 

“Culture will naturally evolve with new leadership,” she explains. “However, maintaining the foundational values that make the company unique is vital. Each generation can add their spin, but the essence should remain constant. This approach ensures continuity and stability for both employees and customers.” 

Amy suggests focusing on core values such as customer service excellence, community involvement, and quality standards. By doing so, businesses can ensure these values are upheld even as leadership and ownership evolve. 

Successful Case Studies of Family Succession Planning: Hussey Seats and Lodge Cookware

Amy shares inspiring examples of companies that have successfully navigated these transitions. Hussey Seats, based in Boston, has maintained its core values through generations by holding family council meetings twice a year. These meetings reinforce their commitment to quality, service, and community involvement. 

Similarly, Lodge Cookware, known for its cast iron products, has over 200 shareholders and keeps its family history and values alive through annual retreats at their ancestral farmhouse. These gatherings reinforce their commitment to maintaining a strong family bond and a cohesive business strategy. 

Key Considerations for Entrepreneurs: Keep or Sell?

 For entrepreneurs contemplating whether to sell their business or pass it on to the next generation, Amy advises asking critical questions about their legacy and the opportunities they want to foster for the next generation. 

“The question to ask is whether you want to retain your dream or create opportunities for your children’s dreams,” Amy explains. “If the business is only continuing because it’s the entrepreneur’s dream, it may not be sustainable. However, if the next generation has a clear vision and passion for the business, they are more likely to succeed.” 

Amy underscores the importance of involving the next generation in these decisions and understanding their interests and capabilities. This involvement ensures a smoother transition and increases the likelihood of continued success. 

Strategic Planning for Established Family Management Groups

For established family management groups, Amy stresses the importance of having a well-defined strategic plan and placing qualified individuals in management roles, irrespective of family ties. 

“Distinguishing between ownership and management is crucial for long-term success,” she advises. “Family members can be owners, but management roles should be based on qualifications and skills. This approach ensures that the business is run effectively and continues to grow.” 

Succession planning in family businesses is a complex yet essential process. By understanding the evolving motivations behind ownership, preparing for potential non-family leadership, maintaining company culture, and asking the right questions, family businesses can navigate these transitions successfully. 

For more insights and personalized advice, Amy Wirtz can be reached via email at wirtz@fbcg.com.  NuVescor remains dedicated to supporting businesses through these critical transitions, ensuring their continued growth and success. 

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