THE HEART OF BISON MANAGEMENT SOLUTIONS, LLC

I haven’t written much about the philosophy that we have here at Bison.  It’s born of our decades of experience.  I guess in a way it’s a tag line.

There are new ways to do things and old ways to do things but there is only one constant, that is the experience to know what works.

Because our team of principals has had the opportunity to see so much in business we are immune to fads.  Believe me, that doesn’t mean we haven’t tried them.  We have all done that at one time or another in our business.  We also have made a point to grasp what works and to recycle that liberally in our business experience.  Perhaps the most important thing you get from us is the benefit of knowing what is going to work, and equally as important what is not likely to work.  I say “not likely” rather than won’t because there are always exceptions and percentages to consider.

Back in college I remember hearing that management was a 60/40 game.  That is if you could just be right 60% of the time you would do ok.  That may have been true in the 70’s but I’m not so sure that is true today.  Just ask the financial companies who bet on the highly leveraged and poorly documented loans.  They made that bet and it cost the owner/shareholders the entire investment.

With business the most challenging it has been in a generation, if not in a century, what you want is the experience to know what works.  If your need is help with: turnarounds, acquisition due diligence; sale preparation, restructuring, or refinancing then come us and we will help you get to a better place.

All of our principals have grey hair, I like to think we earned that.  Maybe you can avoid some.

What Can I Expect From My Consulting Engagement?

By C. Birge Sigety

You might ask how, as the principal of Bison Management Solutions, I could write such a piece? As a former CEO of a number of businesses I have purchased millions of dollars of consulting services from management consultants, bankers, accountants, computer software vendors, engineers, and more. A key motivator to formalize the consulting over the last 13 years was the value that I was able to bring to bear on my companies by knowing when and what to buy in the way of consulting services.

The purchase decision would fall into two areas, both related to the skill sets employed. Those two areas and whether I solved the problem within my company, or outside came with the answer to two questions: Did I have meaningful experience, personally, that would allow me to move forward on the problem or issue before me? Did the subordinates on my management team and down through the organization have a meaningful experience, individually or as a group, to find the solutions we needed to do the right thing?

A whole host of things come to mind when you ask yourself and the people around you those questions. You will ask yourself why you wouldn’t take the time to learn the thing you are missing and to architect the solution internally? That one is very easy to answer; you don’t have the time and you don’t have the money to recreate the experience you can buy. If you get the right help you will learn enough to do the job the second time. That is why consulting costs up front but delivers something that is usually many times the return for the engagement.

Take the sale preparation engagement which is near the top of the offerings on what BMS can help you do. If you haven’t sold a business before, even if you are planning on a sale in several years, you don’t have the time to figure out what you should do. The reason is that the answer is unique to your own situation. The structure of your firm, the real estate, if any that you own related to the business, your feelings about your staff, the market you are in, the macro financial world that affects your industry, your state of incorporation, the Federal and State tax codes... the list is endless. You would have to read hundreds of books, many that would put you to sleep fast, to get all the answers. The EXPERIENCE is what you hire the consultant to help you through, while you continue to run your business, the most essential part of making a profitable sale possible for your equity owners.

You should expect to ask a lot of questions at the front end of the engagement to ascertain that you have the right team; they have to have the experience to give you the advice on how to structure yourself to accomplish your goal, in this case, the sale of the company in the future. After you have the blueprint and the reason for its components you can marshal your staff and your professionals to make the changes needed to get you to the point when you have a very attractive company. Imagine the confidence you will have as you move toward that goal. Having a blueprint to drive forward will give you that confidence. It won’t make the path any easier from a business standpoint, as you will still have to make all the decisions to get you there, but you will know where you are going and why. And that is something that the majority of you with small companies do not think about as you deal with the day to day affairs of running your business.

The reason we at BMS take the approach of working with you for a few days before you engage us for the longer term of the project, is to give you the time to interact with us and for us to understand exactly what it is that you want us to do for you. There is no “off the shelf, one size fits all” engagement from what we have seen.

You should think long and hard about what it is that you need and then make the call. You should have a prepared list of questions to ask the people you are thinking of using to make sure they have the experience, first hand, to help you. If you choose to call BMS you can be sure that we have a list of questions that we will ask you. We want to target your specific issue(s) and ensure we can provide the help to solve it. Our job at BMS is very interesting because we get to put to use a lot of years and a lot of past experience to make you a success. You can expect a lot in return, primarily the education and the experience you may not have or that may not be resident within your staff.

Make that list of questions and make your consultants get you the blueprint. Contact us today at info@bisonmgmt.com

C-Corporations

How can I get out of my C-Corporation?

The better question is should you get out of your C-Corporation. True, C-Corps get double taxed but only if they make money. If your business is a start up and will not make money for a few years and its owners do not have income to offset with losses, it may be better to continue in a C-corp. Similarly, if you contemplate taking on investors in the future, cocooning your losses in the C to afford your future investors the benefit of the losses may make sense. On the other hand, a profitable company with a small ownership group should undertake to convert to a “pass through” tax entity such as a limited liability company, S-Corp, or limited partnership. This can be accomplished a number of ways depending upon the advice of your accountants and lawyers.

For more information on C-Corporations or restructuring, contact info@bisonmgmt.com

INVENTORY CONTROL

How do I control my inventory without hurting my customers and becoming non-competitive?

This question is as old as the first human’s efforts to improve their lives. Take pot making for example: Imagine trying to decide how many clay pots to make when you are in the dirt fashioning a pot for your own use. You start to think about the fact that you are dirty already, you are there near the source of the raw materials, and you know that the product won’t last too long. Plus you have the dilemma of limited room back at the cave but also maybe your daughter could use one. You decide to just make one more, but it is getting dark, you’re a long ways from the cave, those wild animals are out there, and its pretty scary to push the envelope on daylight with real consequences.

This scenario sounds far removed from what we face in the manufacturing environment but it really holds the secrets to how to proceed to correctly manage your inventory in the 21st century. The time, material, space, cost, need or demand issues as well as the implication are all there in front of you.

We look at inventory control as a “science” today. Its science only because we are several steps away from the actual raw material in most cases. Modern brick making being an interesting exception, but I digress.

What we do is study our historical demand and our probable needs; or rather our customers needs, and make some decisions. Those decisions are still guesses, even if they are backed by lots of data. In the most sophisticated settings we use mathematical algorithms to “forecast” demand. The larger the company the easier the forecast, notwithstanding outside influences likes the general economy and obsolescence.

You can make the “guesses” using a pencil and paper just about as easily as you can make the decision using a multi-million dollar computerized manufacturing control system. But just like the pot maker you need to know your market and get that feedback loop into your process. You define your customer’s expectations by talking to them, either directly if it’s a small company or through some sales feedback loop in a larger setting.

The “science” part is really the guessing that goes into the front end of the system. Assuming that you already have a good idea of how you make the product (a bill of materials), how good you are at making it (can you hit your standard costs?), what your customers expect (your order fill ratio for a given product or lines of product in an acceptable time), where the bottle necks in your plant are (places where the product can get hung up or where flow slows due to mismatching between input processes and processes after the bottleneck), space and physical distribution issues (does the customer walk in and take the merchandise off the shelf or do you ship the product around the globe to the customer?), well you get the idea.

If you didn’t feel like our forefather in the clay pile you do now. It sounds difficult, but by breaking up the issue it really becomes very easy to decide what to make and when to make it. If you have too much inventory you have the opportunity to reclaim important working capital for other uses in your firm, something that is always important and today is essential.

You have to get your hands dirty to do the legwork to do this but you can do it well. Large and small firms do it every day. If you want to find out more about how to make your systems work for you give us a call. We can show you how to get into the clay pile and have some great results.

The Art of the Debrief

Among the greatest things the U.S. military has going for it in today's tight budgets and multiple war fronts is the ability to squeeze massive amounts of efficiency from a single event or series of events. Each occurrence, from target practice at the firing range to a multi-plane offensive into enemy territory follows the same sequential flow of: planning/briefing – execution – debriefing/lessons learned. While you might think most of the time is spent in the planning and execution, the reality is that the vast majority of time allocation is put toward the debriefing/lessons learned. Resources are scarce, and while planning and execution are important, the lessons learned from the debrief are what carry over to the next event's improved planning.

Business organizations and teams need to ensure they are debriefing each project they undertake. They should dedicate time and space where they routinely look at decisions, even small ones. Where they ask what the process was like? What were the failures? What should we have done differently? What kind of information didn't we have that we should have had? Only then can the next project have a chance at being better by incorporating the answers into the next planning meetings.

Beyond that, organizations also need to ask broader questions, like, what are we doing? Does it make sense? What if we were taken over? Or what should we be doing that we are not doing? These are the kinds of "debriefing" questions we should ask on a regular basis, but don't.

For help with organizational efficiency contact:
info@bisonmgmt.com

WORKING CAPITAL

What Should Manufacturers Be Doing Right Now about Working Capital?

That depends, doesn’t everything? If your firm is a company making products for export, for example simple medical devices used during routine examination in developing countries, you will be doing something different than a firm that supplies, for example, the US automakers with bumpers for SUVs.

The difference has to do with the near term future demand for your product and its shelf life. In the case of the medical device firm you are probably focusing on honing your manufacturing costs, expanding your inventory, improving your efficiency, and stoking your sales force or distributors to sell as much as possible. If you are making bumpers for US made SUVS you are looking at ways to reduce your inventory, cut your manufacturing costs to the bone, and potentially looking at how you can maximize your cash flow in the short term to, well, just survive to the end of the year.

The way you manage in each situation is very different, but certain skills cut across both scenarios. The words “control your use of working capital” summarize the sameness of each position. In order to make your company successful you need to know how to control the use of working capital, when to use more and when to conserve it. Net Working Capital is the difference between Current Assets and Current Liabilities, but operatively it also includes the funds that the owner has, or can put in the business, as well as the amount of credit that the business might be able to get from other outside sources including the vendors or suppliers to the company. While the classic definition is a very sound way to look at Working Capital the more inexact estimate that takes into account the access to capital that the owner and the supplier represents is key, particularly if you are the SUV bumper manufacturer.

The less working capital needed to complete a sales cycle, including creating the sale opportunity by having the right merchandise the customer wants is what you are aiming for.

Writing this seems simple but I have to say that figuring out how to pull this off is an inexact science. There is also a cycle to the use of the capital that roughly equals the selling cycle. Its length and intensity dictate how you manage the company. Usually longer cycle times are rewarded with higher prices and fatter margins but that is also not always true.

Many business owners make the mistake of confusing the making of a profit and the resulting retained earnings for working capital. The confusion is understandable but dangerous. It’s almost a law that as a business expands its demand for working capital increases. Those funds have to come from somewhere. There are very few businesses where the growth of the firm is additive to the excess working capital, which ultimately represents the cash flow that is the driver of success.

There are two that come to mind. The first is Wal-Mart, because they are very efficient and can sell their merchandise before they have to pay for it. Second is Dell Computer who, at least in the early years, made a computer very fast after the customer purchased and paid for it. Both of these companies occasionally had negative working capital needs during growth. For the rest of us we need to seek out the additional capital to grow while at the same time squeeze as much out of each dollar we have. This is done by controlling our inventory, collecting our money for the customers promptly, and selling for as high a price as we can get for our merchandise.

For help with Working Capital contact:

info@bisonmgmt.com

WELCOME TO BISON MANAGEMENT SOLUTIONS, LLC

Why is Bison Investments, Inc., a 12 year old buyout firm, diversifying into consulting?

I have spent a lot of time thinking about this question and the answer. Since 1996 there has been a continuous train of both entrepreneurial executives as well as seasoned, mature industry corporate executives who have sought our counsel. Those meetings have usually varied from hours long to several days. On a number of occasions Bison Investments, Inc. has received some kind of opportunity, whether that be a chance to invest in a new venture, a chance to finance a venture, or a chance to purchase a firm outright. While time consuming, the exercise has always been viewed in our office in terms of the old adage, “what comes around goes around.”

While not all the advise meted out has resulted in success for the person seeking it, the majority of the feedback has been that things have worked out and the “fix” offered had the desired effect. There have also been a number of cases where the advice was to change direction entirely. Or, given the position and age of the advice seeker, take some risk. There the results have been breathtaking. In most cases the advisee has realized a dream, or equally as important, has gotten a dream out of his system.

In 2003 there was a profound change in the buyout business. It matured, and due to something one of my acquaintances, John Silvia, an economist at Wachovia Bank calls “efficiency,” returns went down. This was caused by two things: 1) a huge increase in the number of capital rich buyout firms, and 2) a simultaneous environment of very low cost debt at remarkable terms. The latter has certainly contributed to the tough market conditions we find in our financial arena today. “Efficiency”, defined another way, is the wringing out of returns as more and more smart people better factor in the upside in a transaction and pay up to get the opportunity. Here at Bison we were proving remarkably unsuccessful in the newest aspect of the buyout market, the “controlled auction” of companies. Our models of value, honed over almost 30 years of doing buyouts, didn’t change but the market did. Firms that used to sell for 3-5 times the time tested factor called EBITDA suddenly seemed worth 6-9+ times EBITDA. It seemed like a time to sell our portfolio. And sell we did. Whether the valuations will drift down to our models remains to be seen. What is for keeps is that the easy credit days have ended, probably for a generation, and I suspect the concept of “efficiency” will be less so going forward.

This brings me back to the why in the original question. Bison Management Solutions has terrific head of knowledge and decades of experience. The train of executives seeking our counsel continues. The time commitment is such that we feel we can give the advice, but we can do that better by being involved more intensively in the business. In order to make that work we have to get paid for the advice, it’s that simple. We still believe that immense good can come of our advice and that incentives beyond time related charges are a great way to incent our Managing Directors for the time that they spend helping that train move forward. We also believe that on occasion a great investment will pop up in a client.

Now something about this blog and why it is here for you and is, I hope, the first entry of many to come. To entertain and educate is the true meaning of human interaction. Shakespeare knew that and so do we. The education is what we aim to do. Over the next months you will see pieces on all aspects of business. You will learn, we hope, about the business experience in our firm in a way that makes it work for you, and that advice is still free, at least the written part.

Please give us feedback: write to info@bisonmgmt.com