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Preparation for Ownership Transitioning: ERP a Practical Fit Tracks


Preparation for Ownership Transitioning: ERP a Practical Fit


By Chris Shadboldt, Business Development, Genius Solutions


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.


www.NATM.com


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:


1. ERPs are designed for multi-national corporations with complex processes and deep pockets.


2. ERPs create data for senior management and more work for the “do-ers”.


3. 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-


March/April 2016 49


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