Posts tagged with: profit
Tuesday, January 26, Anaheim CA
Wednesday, January 27, Solana Beach, Del Mar CA
Thursday, January 28, Los Angeles CA
Get your company on the road
to Rapid Growth of
Revenue, Profit and Asset Value
Discover the simple steps you can take now to Accelerate Revenue Growth and operating results in this free breakfast seminar. This seminar is a brisk overview of how to achieve revenue goals and build value by discovering and leveraging the unique Value Drivers of your company.
Value growth & exit strategists Kerri Salls and Scott Warner will demonstrate how discovering the key drivers of your business can significantly accelerate growth of revenue, earnings and enterprise value. Learn how to create reliable forecasts that lead to significantly higher valuations.
This 45 minute seminar provides an in-depth look at the how using the right tools and data can substantially simplify executive decision-making and create the leverage to grow your company.
Who should attend
- CEOs and business owners looking to accelerate growth of revenue, earnings and the intrinsic value of their organization whether to capture that value in a liquidity event or simply to produce greater cash flow.
- CEO advisors looking to learn more about this topic to better serve clients.
This seminar is most appropriate for companies with current annual revenues of $2M to $50M.
Cost: Free (breakfast included)
7:00 Breakfast & Registration
7:30 Seminar starts
We will be available for a few private consultations after the program. Contact us to register for your 30 minute session between 8:30 – 1.
Wednesday, January 27
Courtyard Marriott Solana Beach/Del Mar
717 South Highway 101 Solana Beach, California
Thursday, January 28
Zuber Lawlor and Del Duca (Sponsor)
777 South Figueroa Street 37th Floor Los Angeles, CA 90017
Your Momentum Partners at This Way Out Group LLC
Preregistration is required. Registration closes January 22.
Limited seating at each venue. Register early.
In an analysis of more than 14,000 businesses,
a new study finds that the companies with the most value,
take a contrarian approach to the boss doing the selling.
Who does the selling in your business?
Who does the selling in your business? My guess is that when you’re personally involved in doing the selling, your business is a whole lot more profitable than the times when you leave the selling to others. How you spend your time is critical to maximize the value of your business.
In some ways, that makes sense because you’re likely the most passionate advocate for the products and services your business provides. You have the most industry knowledge and the widest network of industry connections.
If your goal is to maximize your company’s profit at all costs, you may have come to the conclusion that you should spend most of your time out of the office selling, and leave the dirty work of operating your businesses to your underlings.
However, if your goal is to build a valuable company, one you can sell down the road, you can’t be your company’s number one salesperson. In fact, the less you know your customers personally, the more valuable your business becomes.
The Proof: A Study of 14,000 Businesses
Another analysis of a pool of 14,000 businesses at the end of 2014, asked if owners had received an offer to buy their business in the last 12 months, and if so, what multiple of their pre-tax profit the offer represented. They then asked the following question:
Which of the following best describes your personal relationship with your company’s customers?
- I know each of my customers by first name and they expect that I personally get involved when they buy from my company.
- I know most of my customers by first name and they usually want to deal with me rather than one of my employees.
- I know some of my customers by first name and a few of them prefer to deal with me rather than one of my employees.
- I don’t know my customers personally and rarely get involved in serving an individual customer.
2.93 vs. 4.49 Times
The average offer received among all of the businesses we analyzed was 3.7 times pre-tax profit. However, when they isolated just those businesses where the owner does not know his/her customers personally and rarely gets involved in serving an individual customer, the offer multiple went up to 4.49 times pre-tax profit.
Companies where the founder knows each of his/her customers by first name get discounted, earning offers of just 2.93 times pre-tax profit.
Therefore, as counter-intuitive as it is for owners to let someone else be the face of their company to their clients and customers, it is essential to let go if your goal is to add value that will command higher multiples when it’s time to cash out.
When Value Is the Enemy of Profit
Who you get to do the selling in your company is just one of many examples where the actions you take to build a valuable company are different than what you do to maximize your profit today.
If all you want is a fat bottom line, you likely wouldn’t invest in upgrading your website or spend much time thinking about the squishy business of company culture. You would not reinvest profits to grow the business.
To make your business more valuable, you can no longer limit yourself to measuring revenue and net profit.
Obviously, how much money you make each year is important. But how you earn that profit will have a greater impact on the market value of your company in the long run.
Owners, do not spend your valuable time building your personal relationship with your company’s customers. Hire and train others to do that so you can focus on what will make the business more valuable to potential buyers.
You already know that your company’s revenue and profits play a big role in how much your business is worth. Did you also know the role that cash flow plays in your valuation and therefore the size of the check you can receive at closing?
Cash vs. Profits
Cash flow is different from profits in that it measures the cash coming in and out of your business rather than an accounting interpretation of your profit and loss. For example, if you charge $10,000 upfront for a service that takes you three months to deliver, you recognize $3,333 of revenue per month on your profit and loss statement for each of the three months it takes you to deliver the work.
But since you charged upfront, you get all $10,000 of cash on the day your customer decided to buy. This positive cash flow cycle improves your company’s valuation because when it comes time to sell your business, the buyer will have to write two checks: one to you, the owner, and a second to your company to fund its working capital – the cash your company needs to fund all immediate obligations like payroll, rent, etc.
The trick is that both checks are drawn from the buyer’s same bank account. Therefore, the less cash the acquirer has to inject into your business to fund its working capital, the more money it has to pay you for your company.
However, the inverse is also true.
If your company spends all its cash as it comes in (like living paycheck to paycheck), an acquirer will calculate that she needs to inject a lot of working capital into your business on closing day, which will deplete her resources and reduce the check she can write to you. Everything she has to put into working capital to continue the business, reduces the available cash that she could pay you and reduces your leverage to command a higher selling price.
How To Improve Your Cash Flow
There are many ways to improve your cash flow – and therefore, the value of your business. Here are just three simple ways you can try now.
- Find a way to reduce the cash you spend on equipment, however you can every time. Can you buy used gear on sites like eBay? Can you share a very expensive piece of machinery with another non-competitive business? Can you rent it instead of buying?
- Reassess your pricing. If you can’t accumulate cash reserves, check to see if you are underpricing your services or if your cost to price equation needs to be reviewed.
- Streamline processes and productivity to keep payroll and services within budget allocations.
Profits are an important factor in your company’s value but so too is the cash your company generates. We call this phenomenon The Valuation Teeter Totter and it is one of the key drivers of the value of your company. Curious to see how you’re performing on a whole set of value drivers? Get your private Sellability Score here.
“Most traders never plan or even discuss their Forex exit strategy. “
In the world of Forex trading, that’s what Pete Visconti says. In his world, traders pay more attention to their entry, setting up a good trade and timing profits. They forget or don’t look at the cost of not having a Forex exit strategy for each trade too.
As Visconti learned the hard way himself:
“Although, traders will argue which is more important,
you need to understand that they both are.
Just make sure they are planned and part of your trade plan.”
Analogous to his advice for traders to have a Forex Exit Strategy, here are my four points for Entrepreneurs/CEOs to plan your business exit strategy before you plan your market entry:
- Know What Your Business Exit Strategy Will Be BEFORE You Launch Your Business.
If you are in business and didn’t do this up front, you are already behind. It’s already harder for you to make good clear decisions about your business day to day, because you don’t know what your exit options are; what you are aiming for.
Therefore, if you don’t have an exit strategy in place, put exit planning on your critical exit strategy, path now to increase the value of your business at exit – whenever that may be.
- Consider Multiple Exit Strategies
When you lock down your exit strategy too soon, you eliminate the possibility of alternative opportunities providing even better solutions. When you maximize the number and variety of options on the table; you have more choices, more opportunities, and can make better decisions along the way
The sooner you start exploring alternatives open to you, the more control and more choices you can position you and your business to benefit from. The longer you wait and the smaller your exit window, the fewer options you can consider and reducing the value you can realize at closing.
- Always Initiate a ‘Stop Loss’ as Part of Your Exit Strategy
In the context of your business exit strategy, a ‘Stop-Loss’ is a contingency plan if things go awry and you must get out fast.
You have an emergency exit from the building. You have a backup of your hard drive offsite. You also need a plan for other crisis scenarios.
It could be an insurance policy, a backup successor, a backup exit plan that is not ideal, but fulfills many of your criteria and can be invoked quickly. It’s like having a co-signer on a key bank account or having a second key holder for your lockbox.
- Stick to Your Business Exit Strategy just as Conscientiously as Your Business Strategy
One of the biggest obstacles business owners face is getting distracted by the ‘new shiny object’. They get restless or bored working the sound strategy they are implementing and decide to shake things up without any stopgaps to protect them or the business. That lack of discipline can cost you your retirement and the business in the end. Revise it strategically if necessary. It’s in your best interest to trust your exit strategy and follow it with discipline.
Most entrepreneurs will skip these elements of laying out their business. Most CEOs will trivialize the importance of their exit plan in building the success of the business.
The flaw in that thinking is that business is all about making a profit.
Planning your business exit strategy from the outset is an imperative to achieve your goals for the business. Consequently, your daily decisions all lead to how much profit you achieve and what you want to do with the resulting profits.