Who do you Depend on?

Strange is it may seem you do not always have to just consider your own companies health but the companies you depend on both up the chain and down the chain. I have seen several excellent companies run into extreme levels of distress due to key suppliers and major customers becoming insolvent forcing the once healthy business to be in a bind they didn't see coming.

If your business is dependent on any business relationship for the continued its well being you owe it to yourself and other stakeholders to take a good look at them. To find out about the companies you are dealing with can be as simple as purchasing a Dunn & Bradstreet credit report. If your business wields significant sway and your company constitutes a large portion of their business you may be in a position to request accounting information and confirm that they are in fact healthy and will be around to continue trading with them.

Keep your business going by continuously monitoring and managing the level of risk your company is exposed to. Where possible always have a contingency plan in place to source supplies elsewhere at short notice. Try diversify your client base and attain letters of credit from them if they are purchasing significant levels of inventory. You can minimise your risk by watching how others are affected.

Take care of your business and it will take care of you.

Traps of Acquisitions

Acquisitions are an important topic that needs a great deal of attention, at the moment I would like to share just a few general thoughts about making an acquisition.
When acquiring key things to think about before going ahead with the acquisition are:

• Why do we want to acquire this business?
  
• How does the acquisition benefit the existing business?
• What does the acquisition do to the risk profile of the existing business?
• How are we going to manage the additional initial cash drain?
• How are we going to integrate the new business into the existing business?
• How will I fund the acquisition?
• What will the acquisition do to our existing debt obligations and covenants?
  

These are some of the most important questions acquires need to ask them self and have answers committed to paper. If you don't have an answer to one of these find the answer. If the answer is suggesting that the acquisition will hurt you current business do not proceed with it. Wait till your business will cope with an acquisition.

Successful businesses fail after making acquisitions for what I believe are two main reasons:

1. Failure to understand the impact of acquiring the target business
   
2. Biting off more than they can chew
   

These two reasons both lead to the same result, distracted, unfocused leaders and cashflow/cash burn problems.
When this happens the leadership of the organisation is unable to focus on operational issues in the existing business that require their attention. This then results in the existing business beginning to fall apart and customers leaving, their cash too.
Cash burn happens for a variety of reasons partly from the added interest to pay for the acquisition, burning through cash to fix issues in the newly acquired business and delays in integrating the acquisition.

Acquisitions can enhance your business and take it in a new direction but if you do not plan properly it may well kill your business. Take the time to understand what you are doing, read some books about how to integrate an acquisition or hire external consultants to help you integrate the acquisition.
These two books may help you optimise the integration of your next acquisition,Reaping the Benefits of Mergers and Acquisitions, In Search of the Golden Fleece and Harvard Business Review on Strategies for Growth.

Take care of your business and your business will take care of you.