Evaluating the Business

Aug. 8, 1999

Evaluating the Business

Independent assessments of FBOs, other businesses are on the rise as owners look to sell or expand

BY Michael L. Dye, Senior Analyst/Consultant, Airport Business Solutions

August 1999

With an increasing number of ownership changes going on in the industry, independent management or operational assessments of airport-based businesses are on the rise. Such assessments look at identifying and solving problem areas within a company which could affect its value or inhibit internal growth or acquisition of additional locations. They are also a method by which an owner may measure the performance of specific lines of business.

Independent assessment can take on greater urgency when a company is being examined through the eyes of a prospective buyer or investor, a lending institution, or even by family stockholders, and when specific issues which can negatively affect the company's value are present.

Inhibitors to Value
In many cases, the job of owning and managing a full-service fixed base operation can be likened to that of a spinning top: delicately balanced, requiring almost constant attention. On a daily basis, the person in charge (whether owner, general manager, or president) may encounter a full spectrum of issues relating to the company's personnel and customers, its marketing, sales, accounting, and other financial issues, and various types of personnel training for line service, mechanics, and pilots. Other issues, such as banking and loan procurement, facility management, airport and lease negotiations, asset and equipment procurement, environmental, FAA regulations, etc. can be lurking near the forefront.

Value is determined through an analysis of an FBO's ongoing concern. The effectiveness of the management style of the owner/manager plays a role here. For many non-chain FBO's, issues which may affect the upside business potential (personnel, accounting, training, facilities, equipment, airport matters, customer concerns) are sometimes overlooked or ignored completely, due to a focus on day-to-day matters.

As time goes on, certain issues become more difficult to confront or correct. In situations where a small-to-medium sized company is positioning for sale, or in which ownership is contemplating a significant expansion to new locations, it may be too late to counteract the effects when significant issues involving management practices, personnel, and financial issues, or inadequacies in training rear an ugly head.

Conversely, a company analysis can provide a renewed sense of gratification and validation for past accomplishments. In many cases, the results help to facilitate a renewed sense of focus and purpose throughout the organization for tackling and addressing aspects and issues which are long-overdue for attention. Many times, owners, partners, managers, and other participants breathe a sigh of relief when it becomes apparent that they are not alone and that others within the organization have unknowingly shared some of the same frustrations.

Generally, the more common problems which affect value involve management style or accounting and training procedures — usually centered around people and their habits.

Typical Management Issues
There's an old saying: Business is business and personal is personal. In the FBO business, one is well served to understand the differences between the two. Frequently, in independent family-operated FBOs or those that are managed by an owner and/or partners, the fine line between business and personal issues can become virtually indistinguishable regarding job responsibilities, management style, or chain of authority.

This can be especially debilitating for subordinate managers or supervisors who may be vital to the success of the organization. Some operators error by underestimating or ignoring the strength of a well-defined organizational structure that fosters ongoing performance expectations with respect to management, supervisory, and other key personnel, especially where family or close friends are involved in the operations.

Typically, during an assessment of management's practices for these types of operations, many of the following items are absent from the organizational checklist:

• A written document which specifically depicts and defines the structure of the company; identifies ownership, management, and supervisory personnel; and, accurately depicts the chain of command within the organization.
• Written (and updated) descriptions for each job within the organization which specifically state the duties and responsibilities of the position, reporting structure, dress code, pay scale, and other pertinent information. (It is typical that when such documents are available, updated versions are non-existent or have not been reviewed with employees.)
• Formal management meetings that are conducted on a regular basis, either weekly, biweekly, or monthly, during which all management personnel are required to participate.
• Infrequent presentations or informational "employee" meetings by the owner or general manager to address the state of the of the company, share ideas, explain changes, policy, procedures, or to discuss personnel-related issues.
• Formal periodic written and verbal evaluations for all employees which are conducted by the attending supervisors or departmental managers, and which are reviewed by the company president or owner.
• Company policy and procedures manual.

From an outsider's point of view, when these inadequacies are present, the perception is that there is an absence of structure within the company, that lines of communication are unclear and management's actual control is questionable. The effects may be witnessed in any number of ways including high turnover, low morale, service issues, and customer complaints. In other cases, the problems may be more subtle and visible through the interaction between departments. However, when a company just can't seem to "get it together", the aforementioned checklist might be the first place to start.

The Importance of Financials
From a buyer's point of view, the basis for measurement of a company's worth begins with an analysis of accurate and regular monthly financial statements, which must include complete profit and loss results for all operating departments.

From the operator's point of view, the ability to review and analyze the company's ongoing financial performance and to make informed predictions about the lines of business, expansion, or acquisition is critical to success and to the company's value to customers, buyers, or lenders.

Essentially, if you can't produce the numbers, you have no power over your company or your future. Therefore, with respect to a company's financial operations, there are three interrelated issues that typically surface in one form or another during an assessment:

1) Although the general aviation industry has been the benefactor of continuous improvements and enhancements in computer hardware and software-related products for accounting, inventory control, and asset management, it is still common to find operators who have concentrated little or no resources on producing internal financial statements for all departments on a regular monthly basis. Where some sort of financial tracking is attempted, it's not uncommon to find that accounting personnel are sometimes months behind in production of the P&Ls.
2) In closely held FBO businesses and other general aviation service organizations, supervisors or departmental managers charged with operation of key areas within the organization have never been trusted with the responsibility to review and assess their department's P&L statement. And, despite years of experience in running their segment of the operation, some have no real specific knowledge of the department's financial performance, or the bigger company picture and how they actually affect it.
3) The absence of an annual budgetary process is common; or, when present, it is confined to the owner and the CPA down the street.

Consider the effects of such inadequacies on the perception of value. Since knowledge is power, it is much easier to manage a company when commonplace financial resources are brought to bear, whether they be through the effective use of accounting personnel, computer software and hardware, or key management and supervisory personnel. Some owners have yet to accept this concept.

When analyzing any operation, a quick review of the financial assessment checklist should confirm the following:
• The presence of accurate internal financial statements which are regularly produced on a monthly basis. Statements must include revenue, cost of sales, and expenses for all departments.
• An organized process for monthly, mid-year, and annual review of the company's financials, on a department-by-department basis.
• The presence of an internal budgetary process which encompasses all departments and lines of business.

The Training Dividend
For fixed base operations and other aviation service companies, the most common inadequacies often exist in the training of line service technicians and customer service personnel and their supervisors.

The good news is that there are a number of good training programs available that provide an adequate basis for training of both line and customer service personnel, and a basis for showing supervisory skills. The bad news is that many times the training program is sitting on the shelf, collecting dust. Too often, FBOs make little attempt to correctly administer the program or fail to appreciate that a line service training program can become an important tool for elevating performance from the very beginning of employment, and a method of measuring performance over the long term. The loss of airline and freight fueling accounts, damage to aircraft, and personal injury as a result of inattention to training are all quantifiable, and relate directly to the company's ongoing value.

When administered properly, training programs can be used as an integral part of a larger effort to immerse every new entry level employee into a company's culture.

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Although the general aviation business is fundamentally a people-oriented one, some owners or managers minimize the importance of such, and choose to concentrate on more comfortable areas of expertise. Many things, including relationships, management style, areas of expertise, and the background and interaction of people within an organization, can all affect the continuity and ultimately the value an FBO's business.