Two Quick Key Indicators for Assessing the Health of a Company Before Acquisition
September 7, 2023 | by Bob Morin
When you’re thinking about buying a company, it’s important to look at more than just the financials. You also need to assess the company’s operational health. What’s amazing is that two of the best metrics for gaining a valuable amount of information on the operations side of things–namely, inventory levels and workforce engagement–can be gathered and evaluated during a simple walkthrough of the plant floor.
1. Inventory Levels and Work in Progress (WIP)
During a facility walkthrough, look at inventory levels and the amount of work in progress (WIP). Excessive inventory and a high WIP can indicate potential operational problems. If you observe an excessive amount of inventory not actively being worked on, it signals inefficiency and missed opportunities for cost savings. It implies that the company may not be effectively addressing underlying problems but instead compensating by increasing inventory to meet customer demand. Such a strategy can drive up costs since resources remain tied up without a quick return on investment.
By going into the walkthrough with an understanding of the company’s demand and expected production levels, potential buyers can calculate the ideal amount of work in progress. If the observed WIP significantly exceeds the expected level, there could be significant operational inefficiencies and potential bottlenecks that need to be addressed.
2. Workforce Engagement and Understanding
The people who work for a company play a vital role in that company’s success. During the assessment, observing the employees and their level of engagement can provide valuable insights into the overall health of the company. Engaged and motivated employees are more likely to contribute to a company’s success and drive continuous improvement.
By interacting with employees and asking relevant questions, you can gauge their understanding of the company’s goals and their role in achieving them. Engaged employees tend to understand the company’s objectives and actively contribute to its success. They display a sense of ownership and commitment to their work, rather than merely waiting for the end of the day.
Employee engagement is a powerful indicator of effective management and leadership. Organizations that prioritize engaging their workforce create a competitive advantage by tapping into their employees’ knowledge and empowering them to contribute ideas for problem-solving and process improvement. Toyota, for instance, revolutionized the automotive industry by recognizing the value of engaging employees and leveraging their insights to drive innovation and efficiency.
Valuable Insights at a Glance
When considering the acquisition of a company, assessing its health goes beyond financial figures. Conducting a thorough evaluation of inventory and engaging with the workforce provides essential insights into the company’s operational effectiveness and potential for growth. These two key indicators provide valuable insights into the company’s operational robustness and offer a solid foundation for informed decision-making.
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