The Experience Factor:
Do Young, Family-Owned Companies Have It?

by Mike Starling


I experienced a unique problem recently. I was trying to have a meaningful discussion with a second-generation independent family-owned food-service distributor about identifying potential opportunities and ways to improve their operational cash flow.

Just days earlier I’d had a nice conversation with the company founder, who is now retired. He related to me what appeared to be a sound succession plan. The kids had bought him out, and they were running the company now, but he got to hang around the office as part of his retirement “benefits.”

I had provided the founder with some literature on a very unique process that not only allows a client to identify where changes in their supply chain would result in improved cash flow, but could also be used to predict the potential cash-flow improvement. He liked what he saw and had passed the information on to his kids for their review and consideration. He even told me which of the children I should have a conversation with to see if there was interest on their part.

Well, alas, kids will be kids. Outsiders don’t know anything. To their credit, however, the “kids” had taken the initiative to engage a big-name accounting firm to conduct what the founder perceived as a similar financial assessment just six weeks earlier.

Now, apparently, the kids had all the answers. How, I asked myself, Would an Accounting Firm Provide the Operational Expertise and Experience Necessary to Turn “Financial and Operational Assessment Results” into “Cash Flow Improvement Reality?” Financial Cash Flow (borrowing money)? Yes. Investment Cash Flow (stocks & bonds)? Yes. But Operating Cash Flow (tying strategy to the correct tactics)? Review and Streamlining of End-to-End Supply Chain Process and Procedure? Identification and Pursuit of Operating Expense Reduction? I doubt it!
While it is possible that the second generation of a family-owned independent food service distributor might have both the operational expertise and experience to know what needs to be analyzed and implemented to bring about cash-flow improvement, it might be a stretch to think that they also would be blessed with the operational experience and expertise to know how make this happen, and within a specified (or else your business dies) payback period.

When I spoke with one of the “kids” in charge of finance, inquiring if they could use operational help to help improve their operating cash flow, I received a very cold “not interested.” When I spoke with the “kid in charge” about how to identify where operating cash-flow improvement would be possible and how much, I got the “go away, don’t bother me” brush-off. “We have already done this using a big accounting firm,” he said. “Have a nice day.” Clearly the challenge that remains is for the kids to turn this “accounting information” into operational reality. I wonder... how will they do it?

So, this story is “to be continued.” I will monitor this company to see whether it succeeds or falls prey to the all-too-predictable “industry consolidation” acquisition and assimilation that so many of these young companies succumb to.

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