The Role of the CFO in Driving Growth

Recently I was at NACE in Detroit. NACE brings together leaders in collision repair, automotive service, and the multitude of stakeholders in insurance, parts, paint, and technology industries. It was a fantastic event full of great networking and educational seminars.

I had the opportunity to sit down with a lot of business owners in the industry who were incredibly optimistic about their future. They clearly recognize the challenges facing their business but are actively engaging in strategies to mitigate their risk while growing and thriving.

Consistent throughout many of my discussions, however, was the concern of managing the financial risks that often accompany growth. The lessons of M2 and other failed bids at rapid growth are still fresh in the minds of many in the industry. While these business owners are excited about the growth opportunities available to them they recognize that growth will bring additional financial pressures and challenges. In light of these concerns, our conversations naturally shifted to the role of the Chief Financial Officer (CFO) and how a company manages the financial risks growth entails.

Grow Like a Consolidator

For the past few weeks we have been speaking about the options that are available to a collision repair operator: stand pat, grow, or sell.

I spoke at some length about the risks involved in each strategy. Standing pat is a risky strategy due to the concentration of risk into a single business in a single city / region.

Growing is risky because it involves developing a new set of core competencies built around high level financial management as well as acquisition and integration competencies. Most collision repair businesses have not developed these competencies; and those that have developed those competencies now compete for deals against other large MSO’s with extensive experience sourcing, closing and integrating acquisitions. (Editor’s Note: Keep an eye out for an upcoming article about how the franchise model plays a role in growth.)

Selling is similarly risky as there is almost a certainty that a buyer will have vastly more experience in a business transaction, leaving you and your business vulnerable. Buyers will pay a premium for a well-documented, well-run business but most collision repair businesses have little experience presenting financial information in a usable format to a multi-million dollar institution.

Those are the risks. But I promised an article about opportunities!  

Don’t Let Inexperience Get in the Way of Success

The collision industry is a $30 billion market in the U.S.  But not a single company accounts for even $1 billion in sales. There is a race to get to the $1 billion in sales mark. (Editor’s note: keep an eye out for our upcoming article on what is driving this race to $1 billion).

The quickest way to get to the $1 billion mark is to acquire other businesses that already generate a few million dollars in sales. So the consolidators need you – but they are also afraid of you.

They are afraid of you because you lack experience.

The large consolidators by their very nature are incredibly cautious. They are backed by some of the largest financial institutions in the world and are stewards for hundreds of millions of investment dollars. They unfortunately cannot just “take your word for it”.

Sure you have been in business for years. You have long term employees. You have long term referral accounts via DRP’s or dealer referrals and repeat business.

But you are inexperienced in their world.

Hire a Manager and Fire Yourself

Many owners I interact with still run their business the same as the day they started. They are the first one there in the morning and the last one to leave. They know what is going on with every file. They are the only ones allowed to make decisions.

This level of dedication is admirable. Unfortunately while it can feel profitable and even feed our own ego, it often gets in the way of maximizing the value of your business. You want your business to run better today and be better positioned for tomorrow – even if you are not planning on selling any time soon.

In order to maximize the value of your business you have to view your business from the outside in. Or, as a good friend of mine once told me, work on your business not in your business.

What is this EBITDA thing?

EBIT…Huh? What the heck is that?

Say it out loud with me: Eeee – bit – dah.

One more time out loud.

EEEE – bit – daaaah.

 

Did your co-workers just look at you funny? Good.

EBITDA is short for Earnings Before Interest Taxes Depreciation and Amortization. It is a shortcut to estimate cash flow to the firm. It’s also one of the more common financial measurements used to value firms.

EBITDA approximates the cash the business is generating for all stakeholders (owners, investors, debt provides, etc.).

That is important for an investor to know. When someone invests in your business, they want to know what they are getting in return. EBITDA is a good way to measure that.

Who is Brad Mewes?

About Brad Mewes

Who I am

I am a lover of business, finance, and corporate strategy.  I have nearly two decades of experience in the collision industry. I have an Masters in Business Administration (MBA) in Finance.  I was an equity research associate. I am management consultant and strategist. (That’s me in the picture on assignment in China a few years back).

Recently I received a Masters in Business Administration with a particular emphasis on finance, investment banking and M&A. I graduated in the top 10% of my class from a top 25 school. I was with an investment bank in Newport Beach working as an equity research associate. But I left. I went back to collision.

I knew, deep inside I knew, there is SO MUCH MORE than sitting in a cubicle as an excel jockey staring a computer screens building complex financial models. I truly enjoy the mental exercise of diving into a company’s financials, teasing out the cash flows, and building a financial and operating model that projects growth into the future. It is the greatest mind teaser there is. But I have no desire to do that all day every day for 12 hours a day.

Why I do this

I have always enjoyed reading about and studying business. In the collision industry there are a small percentage of players that have a high level of financial sophistication and the vast majority that do not. The objective of this forum is to share the information I have garnered over the years and begin a discuss on how to better operate and manage a business.

So I decided to apply the lessons learned from business school, equity research, and consulting to the industry I grew up in. Because of my background, I see things in a very different way than many others in the industry.

What you can expect from me

Supplement! is designed to be a forum to discuss the role of finance in the industry, to discuss strategy on a large scale, to discuss consolidation, and to discuss running a better business in the face of these sea changes. The industry is changing rapidly which means that it will become more difficult for the uninformed to compete and generate profits. As larger more sophisticated players enter the market it will become even more important to develop a competitive edge.

Get in contact with me!

I love to discuss anything business related. Get in contact with me here! The utmost confidentiality is guaranteed.

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