Preparation for Ownership Transitioning: ERP a Practical Fit
As the owner of a private company, preparing yourself and the company for a transfer in ownership can be daunting, often one of the most difficult tasks ever undertaken. The end of the road is the sale of the company, however, ensuring your company is worth as much as possible, before you start the sales process, is an important part in your journey along that road. The first question you should be asking is, "What processes are in place to prove what you claim about your company?" In other words, what concrete data can you provide to back up your claims or value position?
During a workshop session titled, "The Processes of Ownership Transition" at the recent NATM 2016 Convention & Tradeshow, Stephen Hauser of Corporate Finance Associates suggests, "in order to truly get the highest value multiplier for their company, owners need to ensure they follow three detailed stages: operational improvements, detailed evaluation, and the actual sale process."
ERP (Enterprise Resource Planning) software can be a practical fit at the operational improvements stage of Stephen Hauser’s detailed steps for preparing for ownership transitioning, where a manufacturing specific software can add value by providing actual real time organizational data that can be used in the later stages of a sale.
Hauser presented data from a Deloitte study that further pointed out that over 90 percent of corporate and 96 percent of private equity buyers failed to achieve their expected purchase ROI; consequently putting downward pressure on EBITDA (Earnings before interest, taxes, depreciation and amortization) multiples paid for small- to mid-size companies. Hauser's presentation concluded that there is a performance premium paid to companies that can increase their margin and their sales through increased operational efficiency; which, in turn, can lead to a higher EBITDA multiplier.
A manufacturing specific ERP software is designed to help an organization coordinate the order-to-cash process through managing purchases, inventory, and work-in-process while also managing production scheduling for maximum efficiency. The data realized at each phase is able to be tracked and reported on, allowing quicker reactions to bottlenecks and Key Performance Indictors (KPI) tracking. A company’s management is then able to integrate and synchronize their processes so the entire organization can focus on making products better, faster, and more profitable.
Consider the statements made by Michael Allen in his session, “Shifting Safety Culture” at the same convention held by NATM, “Within a company, culture is defined as following the unwritten rules to ‘get by’ to succeed.” It is these "taken-for-granted" behaviors – whether they are right or wrong – that allows individuals to solve problems and automate tasks. This can lead to decisions being made based on imperfect data: spreadsheets, silo decision making, and overworked departments all trying to do the “best they can.” By taking Allen’s fourth step, “Changing the Safety Culture," where he suggests to change the context of safety culture so it makes sense, and applying that concept to the culture of data, we can use a manufacturing ERP to interconnect departments thus allowing a company to facilitate information sharing, business planning, and decision making on a company- wide basis.
Now, consider the buyers interested in your business. Does your business operate through a myriad of spreadsheets and department specific workarounds? Is the culture of your business built around unwritten rules and standards of “taken-for- granted”? Is your house in order? Can a prospective buyer see supplier costs, job-costs, labor and expense, inventory, effective financial controls and reporting, purchasing and inventory checks and balances, shop floor scheduling and efficiencies, and a healthy sharing culture between departments? If not, are you leaving valuation on the table?
It is important to look at some of the myths surrounding ERPs. The three biggest myths are:
ERPs are designed for multi-national corporations with complex processes and deep pockets.
ERPs create data for senior management and more work for the “do-ers”.
All tasks can be automated by an ERP.
Due to the prevalence of misconceptions regarding ERPs, it is important to note the diversity and the difference between the many types of ERP software options. Finding the right one for your business is critical in the success of the implementation and the outcome versus expectation during the process of selling your company. While some high-end ERP solutions can be
very expensive, there are smaller, more vertical-specific ERPs available in today’s marketplace.
More important to the audience of NATM, manufacturing- specific ERPs designed for the Make-to-Order (MTO) and Make to-Stock (MTS) business models are available to streamline the order-to-cash and manufacturing processes. Some of these ERP softwares include financial packages, making them a complete solution which much more flexibility and reporting strength. These vertical specific solutions are not designed for multinational complexity and are priced appropriately for the small- to medium-sized companies.
In addition to market specificity and the cost of these smaller, more flexible ERP softwares, one of their most unique features is the automation of redundant processes across an organization. This reduces daily workloads for employees across all organizational levels. An entire organization can benefit from the data sharing and ease of tasks that the ERP can provide.
Finally, it is true that an ERP software can automate many business functions, however, there are numerous business activities that will always require manual input and intelligence from a company’s team. Jean Magny, president of Genius Solutions Manufacturing ERP, states that, “While many critical functions can be automated, it is important for business owners to prioritize the functions that bring the company the highest and fastest returns”. Implementing an ERP need not be a multi- year and financially heavy burden. Magny further suggests that, “The most important part of an ERP is the implementation and its proper use. We suggest that companies automate tasks over time, as it is less disruptive. We often see employees become empowered to tackle other priorities which are more critical to overall job success. In many ways, companies achieve operational and cultural change.”
Implementing an ERP, especially a manufacturing specific ERP, provides data for analysis, clarity of operations, and a multilayered view of an organization’s strength regardless of the need. Whether preparing for an organizational transition, third party funding, freeing team member time for business building opportunities, or identifying bottlenecks or constraints to growth, an ERP software can be a very practical fit for companies in the light-and medium-duty trailer industry.
About the Company
For over 20 years, Genius Solutions has been working with midsize custom manufacturers to help them unlock hidden value and effectively manage their growth. Today, Genius Solutions
is a fully integrated company devoted to delivering complete manufacturing solutions, including software development, implementation services, field expertise and support to meet the unique needs of make-to-order (MtO) and engineer-to-order (EtO) manufacturing companies. For more information, visit www.geniuserp.com.