Don’t fear financial expertise

A metal fabricator that is financially literate has a much better chance of connecting with a corporate buyer that speaks the language of finance.

What motivates you to get up every morning? Is it the excitement of facing the challenges of the day? Is it the knowledge that you have to pay the bills? Is it the doughnut and coffee that you’ll pick up on the way to work?

That question becomes a little more interesting when the person being asked owns or runs a metal fabricating company. Some of the answers that I’ve heard over the years give you some insight into the responsibility that comes with running even a small shop:

• “The people that work here are like a family.” Everyone understands the importance of working to support your family. As a result, your decision-making reflects concern for others, not just yourself.
• “We have to continue to grow.” This is a good thing for an organization because it means more opportunity for those who work there. An expanding operation translates into more possible career paths for employees, especially compared to those that are stuck at small companies with no real chance of earning another position with more responsibility and more rewards.
• “It’s a good thing to be in debt.” Not too many of us can lie in a hammock with a good book and a piña colada, living the Jimmy Buffett lifestyle for an indefinite period of time. The same goes for business owners and managers. To fuel equipment investment or building expansion, companies rely on commercial loans. If they want the bank to stay out of their business, they need to stay on top of those loan payments.
• “I love what I do.” And that’s probably the answer that separates the true go-getter from the ordinary person sitting on their butt talking about big plans. These individuals aren’t in metal fabricating because they want to maximize the business opportunity; they do it because they honestly get excited about taking someone’s vision and using skill and metal to create something unique.

A little bit of all those motivations were evident during my visit with Bill Downey, president and CEO, Hi-Grade Welding & Manufacturing, Schaumburg, Ill., in January. He’s been with the company 29 years and its president since 2007. He’s worked with many of the same talented folks for several years, and the company has been growing, which has necessitated a recent capital equipment investment.

But Downey’s story has a unique twist. Starting in 2005, Hi-Grade went from being a family-owned company to one owned by private equity investors. They were now going to provide him with the motivation to take the fab shop to another level.

Of course, when I hear the phrase “private equity,” I don’t automatically have positive thoughts. I envision outsiders purchasing a company, focusing on profitability at all costs with no intention of further investing, and flipping the business within a five- to seven-year window. It might be an unfair characterization, but the stories of outside investors purchasing small-town manufacturing companies only looking to make a buck are haunting. People often lose jobs, and in some instances communities lose major employers.

But that’s not the entire story, according to Downey. In the case of Hi-Grade, the private equity investors brought resources, wisdom, and positive energy.

“You’ve got to remember that they’re buying a stock, and Hi-Grade is the stock. They want to make that stock roll. That’s how they look at it,” he said.

The investors weren’t new to manufacturing. Many of the companies in their portfolio were small to medium-sized manufacturing businesses. If they were buying a stock in Hi-Grade, they were confident investors.

Right off the bat, Downey said the investors had them focusing on financial metrics. It’s really a financial lesson that every business should learn: Cash is king.

“They help you to look at your business from a financial perspective. It’s all about cash flow for them. That’s what they were teaching,” Downey said.

“How fast could we get that shipped out? It just can’t sit on the floor waiting to be moved. That’s money,” he added. “It’s all about getting cash back into the organization.”

Those lessons have proved fruitful over the years. Certainly Hi-Grade has expanded, growing very aggressively in 2018, and more opportunities are expected in the near future. Downey added that the guidance provided by the private equity investors also has helped Hi-Grade have more intelligent conversations with customers. Salespeople don’t go into a company asking to quote a part. They want to discuss the bigger picture with these corporate buyers.

“When you start having those conversations, we can then talk the same language. We can understand the financial side of things,” he said. “What issues are you having with delivery? Any problems with quality? What parts do you have issue with? Can I help you with it? Can I create a solution for you that might be better for you?”

When you’re part of a growing organization, that’s pretty exciting. Sometimes the impetus for that growth comes from unlikely places. New business owners, even the private equity kind, can provide that energy to get a company up and moving.