How many of your key employees are “Baby boomers”?
Will they retire in less than 1 year, 3 years or 5 years?
Are you ready for it? Do you have a plan to minimize the impact?
How will your work force change in key areas? How integral are key employees to the process itself?
Do certain department heads solely possess critical information?
What is the level of risk that your Plastics business survives the next generation of owners?
For decades, the retirement of the “baby boomer” generation has been a looming economic threat. Now, it’s no longer looming — it’s here. Every month, more than a quarter-million North Americans turn 65.
The labor force participation rate for older Americans — the share of those 55 and older who are working or actively looking for work — has fallen over the past year after rising through the recession and early years of the recovery. Roughly 17 percent of baby boomers now report that they are retired, up from 10 percent in 2010.
Preparing a successful exit for current owners can easily take anywhere from 5 to 10 years. It is a roadmap consisting mostly of creating the proper structure, making sure all the key human resource skills will be hired or nurtured and that the proper systems are in place to monitor results during this critical transition period.
Retiring business owners must consider and set into motion some key actions to ensure the survival of your plastic processing business.
Dashboard Results First – A Top Down Approach
The owners and general managers of a plastic processing business need to map out what are the key result indicators that make your business grow and what risk factors you need to follow to avoid them and improve your profitability. Mapping those key indicators should fit on 1 page (2 pages at best) and they need to be tracked daily, weekly or monthly as need be. You should first start with a simple spreadsheet but once they are documented, you should have a system in place to produce them mechanically from your existing system. The important aspect here is to define the fewest but most important indicators that correspond to your business success and critical risk areas. Too many owners or general managers do not make the difference between controls and result driven indicators.Often, too many controls are in place because of a past “rare” exception that may have occurred, this creates an unnecessary administrative process burden on the business.
These indicators should come from different key areas such as Financial, Costing, Price lists, Manufacturing, Sales and Purchasing Orders, Shipping and Invoicing. Some common indicators can be related to other indicators such as sales invoicing results, gross profits, outstanding collectible invoices over 90 days, available cash flow, new customer business signed and number of qualified prospects, reject and downtime rates, production capacity used and on-time delivery percentage. Key plastics specific indicators should include:
- Open order average sales price per pound.
- Open orders standard versus actual (i.e. current average cost) resin/additive cost per pound.
- Dollars of contribution past material costs per day of finished goods produced versus a daily target derived from budgeted financial statement of earnings.
- % of Regrind used and produced
- Actual production cycle time (pounds per hours in extrusion) and part weight percent efficiency against standards set for your price estimate.
- PLC count versus Production count of good Produced parts to identify a true reject count
These indicators should be compared against the figures obtained in the previous year as well as the agreed targets you are trying to reach. Conservative attainable targets are key to promoting responsibility and motivation to achieve and surpass expectations.
Who Is Responsible For What
After having defined the results dashboard, the focus must be on which resources will continuously month after month reproduce it and who will own what metrics and be responsible to make any necessary improvements to drive better results.
Often it is realised that there is no clear line of responsibility properly defined or that certain responsibilities are managed by a multiple resources. Some of those critical human resources may also be at an advanced age. Doing a simple organization map is the first step in this process. The second step is to start delegating gradually and create clear responsibility areas. Given that some key result indicators may actually rely on the contribution of many individuals, someone needs to be responsible to answer for each one of those. A simple monthly meeting, with key members each responsible for specific indicators, to discuss the results and what they plan to do in the following month will start the process of transition. This will enable you to make decisions to train, hire or re-organizing your business to minimize the risks associated with an aging population in your business.
Develop a Strategic Plan
No matter what exit strategy the owners have established and set in motion, adopting and adhering to the plan to face this aging population is crucial. Key elements in your exit strategy to consider could include the following:
- Internal systems: Improving internal systems will reduce dependencies on key human resources who are approaching retirement. Establishing an integrated internal system to automate the key performance indicators report will ensure that the least amount of internal overhead is required. A good system will decentralize the corporate data sources away from a few individuals, eliminate any the delay of timely information allowing key resources the ability to leverage different areas and improve overall internal productivity.
- Internal Structure: Depending on the situation, key areas of responsibilities must be established to minimize the aging risks. Owners or general managers that are near retirement or past the age of 60 should have a contingency plan to ensure that the business can survive without them. Identifying who can take over and a fostering a training, recruiting and or re-organization plan is paramount.
- Retirement saving: Saving decades before retirement is critical for all employees and while it is a personal responsibility, promoting an active savings program will avoid unpleasant surprises in the future. Special payroll plans can be put in place to facilitate saving on a regular basis and can be supplemented by company-wide seminars from qualified external advisors.
- Owner Succession: Owners must identify an exit strategy at least 5 years prior to retirement. Financial and fiscal tax consequences for both the owner and successors must be taken into account. Considering all the options to sell the ownership requires that the business is in a proper state that can be transferred to a new owner which could be a family member, insider or outsider. Evaluating potential take-overs can be disruptive and should be properly prepared before audits from outsiders take place along with a contingency take-over plan should an unexpected event occur.
Many boomers plan to work well into their 70’s. By the time the new generation will be ready to take over, they will already start planning for retirement. Diversifying your employment population and having the proper system and internal structure in place is key to properly managing the business today and in the future. Bottom line, stop relying so heavily on the few and create internal company metrics and systems that can be managed by others.