“The time to repair the roof is when the sun is shining.” So said John F. Kennedy in his 1962 State of the Union address, trying to drum up support for his anti-recession policies. As I came across this quote, it got me thinking about today’s market and how we should all be taking advantage of the sunshine to prepare for the days ahead.
I know many business owners are running just to keep pace with demand. People are busy, but your books are strong and optimism is high. That makes this a good time to work ‘on’ your business, not just ‘in’ it. Now is the time to reinvest, shore up weaknesses, and experiment with new business models.
One business we’re working with has been doing just that. We’re taking a private jet charter company to market this spring, and even though business has been good, they’re focused on improvement. In 2018, they worked on making their routes more efficient and increasing cash flow.
While the company offers charter jet services across the western hemisphere, they’ve realized they’re more profitable when they focus on the east coast. They do better flying someone from New York to Baltimore than New York to L.A.
They started working with their brokers and made more of an effort to route their planes accordingly. They’ll still fly coast to coast, or further, but they’ve updated their pricing for extended flights while offering more competitive rates for the east coast market.
With about seven months of data to review, the new business model is proving out. In fact, this jet business is now about $1000 per hour more profitable than before. Extended out over multiple jets, each one averaging about 60 hours per month, that’s a significant addition to the bottom line.
At the same time, the business shifted its asset strategy, moving several planes from leased to owned. Careful financial analysis showed they’d be better off paying debt service versus a lease.
We typically don’t advise adding a bunch of debt right before you go to market, but in this case the move made sense. Early reports from their CPA indicate the business will be adding $2 million to $3 million in additional cash flow this year just because of this move. The new approach should prove more attractive to buyers and rising EBITDA will have a positive impact on sale price.
If you would have asked me in 2015 if we’d still be in a strong M&A market today, I wouldn’t have bet on it. The last two good market cycles lasted just two and a half years each, and now we’re in year five and counting.
Good times don’t last forever. Strong markets are an opportunity to experiment and change. That way, when the downturn comes, you’ll be better able to weather the storm.