ISO and M and A Saves Engineering
ISO and M and A Saves Engineering
I believe engineering firms should add to their businesses before the next downturn. If you look at the NOVA Scotia Registry of Joint Stock, because it’s free, or the Province of New Brunswick Corporate Registry for a fee, you’ll Find the original shareholders of any engineering firm CHANGE every 5 or 7 Year’s. It’s also the average time an employee stays in one job.
There’s another way to look at the cycle. The unpredictable economic downturns, crashes and recessions kill companies.
The end of large projects like the Canso Causeway, the 100 series highway, the fixed link, the Four lane highway through New Brunswick. The Frigate program in Saint John which damaged real-estate prices for twelve years after the project ended. And my final example; the switch from paper making to processing lignin.
Engineering firms disband partnerships based on cash flow. I’ve never heard,
“We’re making too much money. Let’s break up.”
Just when you have that perfect assortment of big brains on a payroll that literally could choke a horse, you’re rocking and rolling, making a million dollars a year and you slip a few cycles into a downturn before you realize that your wife and children are not going to give you back the money you gave them to bridge a few quarters.
Who gets chopped first? Your credentialed engineering employees make your mind up for you. They leave, disbanding on their own. Forming up little groups. They have highly marketable skills. They become employees and or entrepreneurs. They rarely have a day unemployed. Just because you can’t pay them doesn’t mean they won’t be paid. The solution is found in mergers and acquisitions.
In particular the concept of synergies when one company buys another and they find they only need one accountant for two businesses. One set of offices for two businesses and other expenses that can be shared or eliminated as a result of the acquisition. These mergers typically are no money down deals. Where you clean up a few lingering payables. Relieving the previous owners of unhealthy financial stress.
M and A
One of the synergies could be engineering services that you contribute to the new enterprise to make it a going concern. This activity is unrelated to anything you’re doing and your core customers best interests. No conflict opportunities of a life time come along once every thirty days.
80% of businesses are not sold. they’re wound up. The founders who couldn’t recruit like you, Train like you, delegate like you, couldn’t develop management through recruiting training and handing off tasks like you, they just close.
I’m proposing that you put yourself in an uncomfortable situation and learn a new trade. The acquisition piece of mergers and acquisitions is a special set of skills similar to engineering as defined by the ISO methodology. You’re smart enough to apply yourself over time so you can become good enough, with a minimum of coaching.
The engineering firms I’ve worked with suffer from delegation gone a mock. They Believe; give people a task and get out of their way, that things are going to go well, but it’s the lack of diversification that clips their cash flow in the downturns. I am not a fan of narcissistically micro managing good people. Mandates are too narrowly defined. I believe there is a second ball to watch, acquisition targets.
If you choose to build yourself out using information and thrive on uncomfortable situations, you know all the cliches, embraced the 40% rule if you learn a little bit push yourself to learn a little more, you will find that there is a business to acquire and build that can soften the blow in the downturn.
Taking on an acquisition project outside of your core skills, that you own and are preparing for sale during your ownership, you will have fluffed the cushion.
Look at the hardest part of acquisitions, look straight and directly at that difficult thing. It’s you. Changing a little, re-adopt the attitude that learning is joyful. Ask yourself the difficult question; what are you avoiding?
The interesting part of this for an engineer who spent their lives studying and working and providing their services to their customers, my position is that you are avoiding the hard work.
In the engineering world financial success does not run on a continuum it is not permanent. Tell everyone on your gigantic payroll that you’re interested in information that may lead to an acquisition or a project that you could potentially use your skills to build out and improve a business. Like implementing ISO, it doesn’t work with one champion. That’s the top reason for ISO failure. The champ is gone.
ISO
ISO must be an enterprise-wide working method. M and A benefits from the dissemination of information.
Don’t be like the fiction writer who refuses to tell anyone what they’re working on because they believe it’s a million-dollar idea. It isn’t. Share the concept. Bounce your ideas off others. With each conversation the information will spiral up.
If you apply an ISO style methodology to this project you will begin with the gap assessment. The gap assessment asks; where are you in terms of merger and acquisition technique and where do you need to be?
You will quickly discover the gap. When you do your ISO SWOT test and lay two income statements side by side, you will see potential synergies or opportunities.
The W in the ISO SWOT test (weaknesses) will be quantified in the ISO risk register. The components of the ISO risk register are; what, how often, how much and what’s the impact will reveal problems to be solved with the answer communicated in gross profit.
In terms of how you could contribute to another business using less than 1 or 2% of your time? Use your roots cause skills on the weaknesses. Which begin with the same Socratic questions as the ISO Root cause analysis. Is it true and what is the evidence?
Talk to your staff, banker, accountant and lawyer plus the rare person with your best interest at heart and you will be richer. All the while remembering even the people who love you don’t love you all the time.
The method to evaluate a business uses the ISO SMART test. With emphasis on the A. Is it achievable? You will see the answer on cashflow projections. Any coach worth their salt can show you how to quickly evaluate a business. My work preparing businesses for sale uses the same techniques.
ISO’s Plan Do Check Act and Deming’s work are the foundation of mine.
ISO will improve your cost of goods sold by 3%. Its always joyful to have more money. Extra cash flow and gross profit the familiar vocabulary. Acquisition terminology could me too. M and A is the most profitable business in the world. Learn it or polish your resume.
If you would care to discuss a case or two kindly reach out. Info@omegafinancialinc.ca
Call or text 506 328 7428
