Posts tagged with: profitability
Listen to Mark D. Lee on Exit This Way™
Mark D. Lee, President of Business Legacy Consulting in North Attleboro, MA joined host Kerri Salls on Exit This Way™ to discuss: It’s Not Just About the Numbers – It’s How Well You Keep Score
Mark Lee has a passion for helping business owners succeed. He provides a full range of consulting and financial services to his clients, with an emphasis on operational strategies that maximize profits and cash flow, while minimizing taxes. He has extensive experience in corporate and individual taxation, business planning, business evaluation of business systems, and general management services. His experience includes a broad range of industries including manufacturers, high technology, restaurants, real estate, consulting, and auto dealerships.
After starting his career working in public accounting, Mark went to work for a Fortune 100 high technology company. While with this company, he held senior management roles in taxation, accounting operations and financial business management, and he ran a service business. Mark is not just an advisor to businesses; he actually has hands-on experience running and growing businesses like yours.
It’s Not Just About the Numbers – It’s How Well You Keep Score
Mark started the conversation by explaining why your financial statements need to be in great shape. When you want to sell your business, your private financials become public. Mark explained that it is in your best interest to have high quality credible numbers to share. With systems, you as the owner/seller know what is going on in your business, you have systems in place and you can demonstrate that you are getting good information to make decisions. His example was inventory. As the owner you need a system that delivers accurate numbers, units, costs, and aging.
He said that you should be working with good financial statements anyway but that it becomes much more important when a third party take a look to determine how much your business is worth.
There are four levels of financial statements. Mark explained these four levels:
a. Prepared Financial Statements – The lowest level, generated by your accounting software
b. Compiled Financial Statements – Formally generated financial statements, but with no professional review
c. Reviewed Financial Statements – Reviewed by a CPA, provide some assurance of credibility and accuracy
d. Audited Financial Statements – The gold standard, these statements properly reflect the position of the company
The higher you go, financial statements give the buyer more credibility. Costs and credibility increase in parallel. Mark emphasized that audited financials pay for themselves when the buyer doe due diligence, because the audit increases their belief in those financial statements, so buyers have less skepticism about your numbers.
People and Systems
Mark talked about examples of owners relying on people who don’t know enough. In complex situations, it’s hard to have everything recorded the way it should be. It’s easy for a company to have more variables than their accounting system was designed for.
Owners like to look at systems, like accounting, and staff as overhead. Rather, Mark suggested they should view systems and staff as differentiators for their business to make their life easier. When an owner does not value these functions, it ends up costing them time, and money.
When it takes 2 or 4 weeks for an owner to get reports, it creates a dangerous situation where the owner does not have the information to make the best decisions. It’s hard to know where you are earning your money, what part of your business makes you money. Mark gave an example of a company with 3 business units but only one was profitable. Only when they focused on that one profitable unit were they able to sell well.
Profitability vs. Tax Minimization
Mark also advised that every owner should know their profitability by business unit.
For most of their business life, owners have focused on tax minimization. Mark says that strategy could hurt the value of your business when you go to sell, because when you go to sell, you need to maximize profitability. You need a track record of a number of years (preferably 3-5 years) of good profitability to demonstrate future viability for the buyer.
Not All CPAs are the Same
Mark talked about what you need and how to determine if you have the right CPA working on your behalf and why the right CPA is a critical part of your exit planning team.
Listen to Mark’s full interview here.
Why Don’t We Use Tools To Track And Measure The Profitability Of Our Efforts?
Why Don’t We Track And Measure Every Effort With Prospects And Clients?
The answers are many, wide-ranging and constant. We:
- Are Too Comfortable
- Are Resistant to Change
- Assume it will be too complicated/complex even before considering options
- Presume all this is prohibitively expensive
- Supported in our old ways that keep us out of control, overwhelmed, paralyzed, in a rut
Which ones apply to you?
If you have not cashed out at your target number, at least one of these blinders may still be in your way.
By definition, productivity is a measure of output from a production process, per unit of input or more simply yielding results, benefits or profits. Productivity is distinct from profitability. Profitability is the net difference between revenues and expenses. However, every little improvement to productivity has a direct impact on your profitability.
Until you monetize lost productivity, nothing will change. Take a week to track how you/your team use time. Review and discuss what you find. In discussions with clients, we talk about productivity in terms of the results they need and how to get more done in less time and reduce the cost to do so. You can too, just by being more aware of it.
Here are just three examples of lost productivity:
15% of all paper handled in businesses is lost, according the Delphi Group, a Boston consultancy
30 percent of all employees’ time is spent trying to find lost documents.
Jane M. Von Bergen (Knight Ridder Newspapers), The Boston Globe, 3/21/2006
Executives waste six weeks per year searching for lost documents.
From a survey of 2,600 executives by Esselte, maker of Pendaflex and Dymo, FastCompany Magazine, 8/2004
These statistics and others like them are clear evidence that organizations of all sizes desperately need productivity training to take control and get organized.
Consider what the results would be for your business.
If you were asked about the time you spend on just four activities:
- Email and Internet Use
- Stress and Work/Life Balance
- Time and Multi-tasking
- Paper and Filing
and the dollar cost to your business’ productivity for each of these, what would the answer be? How could you increase your productivity in that area? How could you improve productivity in that area for every employee in every department?
When you look at your productivity and the team you have built around your business, can you see inefficiencies in how things get done? What is it costing you to continue to do things the same way? If you monetize that lost productivity, how would you choose to spend those resources? Getting more done? Saving time? Saving money? Increased profitability? Spending more time with friends and family? Taking that vacation?
For more ideas on how to drastically improve productivity, ask about this free whitepaper.