Editor’s note: This is the first installment of “Ask Mal.” Mal Mixon, former chairman of Invacare Corporation and a well-known entrepreneur, will regularly share his business advice and experience with Smart Business readers. Ask him a question at [email protected], and your inquiry could be the inspiration for his next column.
I have an opportunity to acquire a company and bring it out of bankruptcy. Can you give me some advice on how to turn it around?
A: If you feel strongly that the company still has a heart, the first thing to do is to try to restructure it. Cut the fixed costs to the bone and look at improving cash flow.
But many people live in a dream world, and if the sales don’t supply enough margin, you really have to adjust your fixed costs to the level of business you are in. Banks will generally be supportive with lending if you are in a positive cash flow mode. Even though you may be losing money, if your EBITDA is positive, you can generally find financing to get you through the crisis.
The one principle that I would tell you about turning around a company is achieving positive cash flow. The point is, cash flow is more important than profit. Lengthen your payables and shorten your receivables. When you try to lengthen your payables, you don’t want your vendors to get too nervous that they cut you off. But generally, you can get another 15 to 20 days.
Look at a sale-leaseback on any property or buildings you own.
If you’ve got a plant, sell it and lease it back. That will give you some cash. You would be renting instead of owning a building or facility. With your sales representatives, if they have a high salary and low commission, you need to put them at a high commission and low salary.
Q: What do you think about joint ventures as a means of taking a company global?
A: When I was a young man, the company I worked for was trying to do some joint ventures, and I was never impressed because, first of all, you argue about who is in charge. If it is a 50-50 arrangement, nobody is in charge. That is even worse than having somebody in charge. Let’s say you make $100 million in this country — you only get to keep half of it.
Today the world is becoming one community. There are different languages and different cultures, but people essentially have the same challenges worldwide.
People should embrace it and accept the way it is. It is fun to compete in the world market. I have done business in virtually every country in the world.
You can sell in any country. You don’t need a factory to start. All you need are receivables, inventory, salespeople and service people. Later on, if your business gets large enough, you can build a factory or buy an existing one.
Mal Mixon is the former chairman of Invacare Corporation and a well-known entrepreneur. A complete story of Mal’s rise from rags to riches is told in his book “An American Journey,” published by Smart Business Books. It can be found at www.anamericanjourneybook.com and on Amazon.com. Visit www.invacare.com
