A manufacturing & distribution business needed guidance as owners approached retirement
The client is a $15-20 million growing manufacturer and distributor. The business is owned by three individuals, with two family members owning a substantial portion of the stock. Two of the three shareholders are approaching retirement age and are contemplating their future and the future of the business.
Business Challenges
- Shareholders are 100% compensated on a commission plan based on Company sales revenue.
- Shareholders have historically taken most of the company's profits out annually, making it challenging to fund new investments in people and capital equipment.
- There is a younger generation of relatives involved in the business.
- The owners would like the business to continue after they retire and maintain significant family ownership.
- The owners have controlled the day-to-day management of the business for many years.
- The business was segregated into three silos, one related to the book of business for each of the shareholders. Each shareholder has a team that performs sales, sourcing, manufacturing, and distribution, each in separate physical areas of the building.
- The business hired a very capable new President who would like to own equity in the business.
- The business has no bank debt
Identified Issues:
- How do they make the organization sustainable, beyond the older generation running the business?
- How do they maintain significant family ownership in the business?
- How do they get the new President equity in the business?
- How do they structure the business as it grows to be more efficient and effective operationally?
- How do they build the value of the business, which was not well understood previously?
Solutions:
- Educate ownership on market compensation for positions using industry specific compensation data.
- Restructure the operations of the business into a more traditional organization (single sales group, single manufacturing group, single customer service group, single purchasing group – not 3 of each)
- Educate ownership on the value of the Company and their equity and the potential future values based on growth forecasts and a restructured business.
- Restructure owner compensation plans based on market pay with bonuses based on Company profit (vs. sales commission).
- Agree on an annual profit / bonus pay-out ratio to shareholders and key employees that maintains enough cash in the business to fund new positions and capital investments to create a sustainable business.
- Initiate a company stock buy-back program from two primary shareholders over a period of years, providing them liquidity while allowing them to maintain a significant ownership position that could be passed on to other family members involved in the business.
- The two primary shareholders granted the President 5% equity interest in the company and sold a portion of their remaining stock to the President.
- Restructured manager compensation to be based on quantitative results at market rates.
- Began to hire and develop a a sales force that could succeed the owners and put in place other required management to run the company as it grows and the current shareholders exit day-to-day management of the business.
Lauber Business Partners
When your business is faced with significant challenges, be it growth or even some negative forces, Lauber Business Partners can help you overcome these challenges. Lauber has built a suite of services, including Accounting and Finance and Human Capital solutions that help build smart and healthy companies.
If you are facing challenges and want an experienced partner to help you overcome them, please reach out to us via phone 414-273-8060 or by email info@lauber-partners.com for a confidential consultation.
If you are facing challenges and want an experienced partner to help you overcome them, please reach out to us via phone 414-273-8060 or by email info@lauber-partners.com for a confidential consultation.