5 Ways to Level Up Your Company in 2024

The start of a new year is the perfect opportunity for business owners to take a step back from the day-to-day and evaluate where the business stands, identifying areas to level up to make the coming year a transformative one. As a private equity firm, we have the opportunity to talk to hundreds of companies per year and hear from them what trends are at the forefront and the areas that are commanding focus. Below, we share five areas business owners should focus on to level up their company in 2024.

People

While there are some signs of the labor market softening, it’s still a tight market for most business owners. Don’t assume your employees will stay with you forever; instead, work on making your company an attractive place to work for both existing and new employees. Revisit compensation frameworks and promote transparency in terms of career path. Double down on training and promoting up, incentivizing employee development and longevity.

If evaluating and shaping your company’s culture isn’t already top of mind, now is the time to make it a priority. Find out what actually matters to your employees in terms of culture and focus on that. It won’t be a one-size-fits-all approach. At our firm, for example, we created a culture committee that team members rotate through. The committee’s job is to continuously evaluate our culture as we grow, find out what is important for team members in terms of a great culture, and implement those programs. Some programs that have come out of this are monthly coffee breaks with a randomized subset of the team, promoting personal relationships between people who don’t work together day-to-day, and a quarterly all-hands brainstorming session in which a rotating member of the team seeks input from everyone on thought-provoking topics specific to our business or industry.

One of the hottest topics related to culture continues to be remote work vs. onsite work. As with other culture initiatives, don’t let the headlines dictate the way you handle this. Customize this based on your people and the needs of the company.

Software & Automation

Speaking of the cooling labor market, while a mild 2024 recession could ease wage pressures in the short-term, the reality is that the aging population in the U.S. (and other developed countries) will continue to impact the labor market and cause upward wage pressure over the long term. If you’re building your company only for 2024, you may find this year easier relative to the past three years in terms of easing wage pressure and recruitment. For owners with a longer-term vision, building your company for 2030 or beyond, prioritizing investments in software and automation now will position you to be less reliant on growing headcount to support core business processes over time.

So far, media coverage of AI has outpaced middle market companies’ adoption of AI for key business processes. This presents a huge opportunity for early movers and adopters to reap the benefits that AI brings: efficiencies, automation, better decision-making, and cost savings, to name a few. To avoid falling behind, establish a set of priorities for increasing software and automation investments to replace legacy business processes. While there are still risks around security, privacy, and legal compliance that need to be mitigated, smart investments now will offset future margin erosion and create a more sustainable cost position for the company to scale from.

New Customers

While many businesses saw a nice or even outsized recovery in customer demand in 2021 and 2022 coming out of COVID, we’ve seen a number of companies in certain industries get “shocked” in 2023 with a pullback in customer demand from peak 2022 levels. Some of this was driven by normalization in the supply chain and excess inventory buildup, some was perhaps driven by recession concerns, while some was due to a pullback in consumer spending.

To combat these fluctuations, it’s important to keep your foot on the gas in terms of new sales. Complacency with your existing customers risks a drop in demand and ultimately revenue. Invest for growth in areas like sales and marketing, challenging your team to find new customer wins. The pullback some saw in 2023 may continue for some time (or just be getting started for others in 2024), so be proactive to counter this threat.

Liquidity

It’s widely believed that we have reached the top of the interest rate cycle. While that may be the case, we expect the relatively high interest rate, relatively high inflation environment (relative to pre-COVID levels) to persist for several years. This means liquidity should continue to be a top priority for business owners.

Bank lending is finally thawing from the early 2023 freeze; however, senior debt is now priced at approximately 8% and many banks are rationing credit to existing borrowers. Owners of lower middle market companies would be wise to take stock of existing lender relationships and ensure that enough liquidity is in place to support at least the next 36 months of strategic priorities. If you haven’t already mapped out a 3-year strategy, now is the time, as this strategic plan identifies your capital needs.

The higher rates can also play in your favor if you have excess cash in the business. High-yield savings accounts, short-term certificates of deposit, and money market accounts are paying 5.0%-5.5%. CFOs and Controllers of lower middle market companies should have excess deposits earning market interest income, adding to the company’s liquidity buffer.

Growth Capital

While macroeconomic resilience exceeded many observers’ expectations in 2023, with recent signs of the labor market cooling, consumer balance sheets weakening, and the brake higher interest rates normally put on the economy finally taking effect, the likelihood of a mild recession in 2024 remains. While this understandably puts many owners in a conservation state of mind, a slowdown in your industry could present an opportunity to play offense while your competitors are focusing on defense.

Despite overall economic conditions and a weak 2023 M&A market, companies perceived as A assets are still being valued at premium valuations. Often when a business owner executes a majority recapitalization with the right private equity firm, the founder takes out enough liquidity today to sleep well at night while also positioning themselves to take out even greater proceeds in 3-5 years.

During that investment period, owners and founders can reap the benefits of new relationships, energy from a more aggressive growth plan (including growth-via-acquisition strategies), and the enhanced credibility private equity backing adds to recruitment efforts, all of which may not be possible for a founder-owned company alone. The right private equity firm will also help improve processes and build infrastructure to accelerate scale, helping to position the company for a second exit to a new universe of future buyers that wouldn’t be interested in the company at its current size or with its current level of infrastructure.

Aligning with the right private equity firm can create a win-win-win situation, giving you the best of both worlds: taking out significant liquidity today and scaling the company in a way that wouldn’t otherwise be possible. 2024 could be ideal timing because you won’t be sacrificing on value today, and you will be positioning your company for the larger, second transaction in 3-5 years when the M&A market may very well be stronger than it currently is.