By Greg Johnson
A specialist manufacturer and distributor I advised was growing quickly. Revenue was rising, a new interstate market was opening and the team wanted to expand. Unfortunately, stock, complexity and the owner’s workload were rising just as quickly.
From the outside, growth looked like the obvious next move. Inside the business, cash flow was tight and several popular products produced very little margin once freight, rework and handling were properly included. More sales would certainly have made the business larger. Whether they would have made it better was another question.
The owner had reached a genuine crossroads: improve the existing operation, invest in growth or begin preparing for a sale. Choosing well required more than looking at the top line.
First, improve the foundations
We began by looking beneath the manufacturer’s revenue figure. Pricing had not kept pace with material and freight costs, stock was absorbing too much cash and the owner was still approving routine production and purchasing decisions. The business had good customers and a strong reputation, but it was not converting those strengths into the return it should have produced.
Instead of expanding immediately, the owner reviewed product and customer profitability, improved purchasing and gave two managers clearer responsibility. The result was not dramatic growth in turnover. It was a healthier, more manageable and more profitable business.
Improvement is often the right first step when the foundations are sound but margins, cash flow, systems or management capability are holding the business back.
Grow when the business can support it
Once the core business was stronger, the growth opportunity could be assessed properly. The questions changed from ‘How much could we sell?’ to ‘What investment is required, who will lead it and what return should it produce?’
Growth can create significant value through new markets, products, capacity or acquisitions. It can also magnify weak systems, poor margins and owner dependence. If the owner is already overloaded or the business lacks cash and capable managers, expansion may create a larger set of problems.
Good growth increases sustainable profit and future value. It should not simply add revenue, complexity and risk.
Consider selling as a strategic choice
The third option is not a sign of failure. An owner may be ready for a different stage of life, unwilling to invest further capital or simply no longer interested in leading the next phase.
A sale can be a positive strategic decision, particularly when the business is performing well and still has credible opportunities for a new owner. Preparation matters. Buyers will examine the sustainability of earnings, customer concentration, management capability, systems and reliance on the owner.
Addressing these issues before going to market can improve both value and the likelihood of completing a successful sale.
The right sequence may include all three
The owner in this example ultimately improved the business, pursued one carefully selected growth opportunity and preserved the option to sell later from a stronger position.
That is often the point owners miss: improve, grow and sell are not always competing choices. They can be stages in a deliberate plan.
Start with your personal objectives. What role do you want in three to five years? How much more time and capital are you prepared to invest? Then assess what the business needs and what each pathway could realistically deliver. The greatest risk is often not choosing the wrong path. It is continuing without choosing one at all.
A free and confidential conversation
If your business has reached a crossroads, I am available for a free and confidential conversation to help you assess whether improving, growing or preparing to sell is the right next step.