Ten Value Drivers

Posted on January 29, 2013 by in Blog, Planning, Strategy

When thinking about selling your business, it is helpful to evaluate your company from the eyes of the buyer.  Rose Stabler’s “Master Ten Value Drivers to Sell Your Business at the Highest Price” can help you evaluate your company objectively.

Driver 1: Stable and predictable revenues and cash flow

Revenue and cash flow is the number one attraction.  A business with an established pattern of growth will bring a premium price when it is sold.  Examples of recurring revenues are maintenance contracts, monthly support agreements, annual license agreements, warranties, subscriptions, or other revenue streams that are our contractual and repeating in nature. 

Driver 2: Reliable financial information. 

Reliable financial records are not only a critical element of business management, but also support the claim that a company is consistently profitable.  This driver will be revealed during the buyer’s due diligence process.  If the buyer is not comfortable in reviewing the company’s past financial performance, there is no deal, or at best a reduced value for the company.  If the seller then produces past financial statements that are incorrect, insupportable, or incomplete, the buyer would most likely be gone. 

Driver 3: Customer diversity. 

A broad customer base in which no single client accounts for more than five to ten percent in total sales helps to insulate a company from the loss of any single customer.  This would be considered a concentration of credit risk.

Driver 4: Human capital or quality of work force. 

Keep your talent.  They are your business and they typically want to stay for a long time. 

Driver 5: Growth potential. 

When an owner can describe realistic opportunities for growth that specifically illustrate the reasons why cash flow and the business itself will grow after it is acquired, a higher value can be achieved.  Some areas to consider in developing a growth plan:

  • Is your business in a growth industry?
  • Are there additional markets that a new owner should pursue?
  • What additional products could be delivered to existing customers?
  • Where are the best profit margins realized and can they be expanded?
  • Can your technology be licensed?
  • Will demand for your product or service increase as population grows?
  • How will enhanced marketing campaigns and sales efforts affect growth?
  • Are there opportunities to grow through acquisition?
  • Can growth be achieved by expanding territory or manufacturing capaci

Driver 6: Operating systems and procedures.

The establishment and documentation of standard business procedures and systems demonstrate that the business can be maintained profitably after the sale. Business systems include the computerized and manual procedures used in the business to generate its revenue and control expenses, as well as the methods used to track how customers are identified and how products or services are delivered.  The following are examples of business systems that enhance business value.

  • Personnel recruitment, training and retention
  • Human resource management (an employee manual)
  • New customer identification, solicitation, and acquisition
  • Product or service development and improvement
  • Inventory and fixed asset control
  • Product or service quality control
  • Customer, vendor and employee communication
  • Selection and maintenance of vendor relationships
  • Business performance reports for management

Driver 7: Facility and equipment condition.

The business facilities and equipment should be well maintained to realize maximum value. Seeing disorganized or poorly maintained facilities and equipment may cause the buyer to perceive that other aspects of the business may be similarly disorganized.

Driver 8: Good will.

Name recognition, customer awareness, history, ongoing operations, and reputation are all part of business goodwill and influence the value. Brand recognition, service or product reliability, and high customer satisfaction are distinguishing factors that add value.

Driver 9: Barriers of competitive entry.

Features that give a business an advantage over its competitors, strengthen its strategic position, or that can be leveraged for future gain boost value and lessen perceived risk.  Buyers will pay a premium for a niche that has barriers to competitive entry.

Driver 10: Product diversity. 

A narrow product increases risk and drives down value. Diversity of revenue sources lowers the inherent risk of an investment.

Each of these value drivers will assist in selling your business at the highest price and will be considered by the members of the Forward Results, LLC team. We are a collaborated group of professionals that focus on succession planning. A succession plan can take as many as five to ten years to fully implement to ensure the highest possible sell price. We will track value and working conditions to ensure that an effective and efficient system is implemented to enhance each of these value drivers. Contact us today.

Is It Time?

Posted on January 25, 2013 by in Blog, Planning, Retirement

Tick Tock – Is it Time to Take the Exit Ramp?

Remember how slowly time passed when you were young and waiting on something like the chance to drive your first car. As we age however, time becomes a precious commodity that seems to accelerate with each passing year.  For many boomer entrepreneurs, the time has come to sell their business and begin exploring new horizons.

If you had to sell your business tomorrow, could you? Would you get what it’s worth? Would you get what you need? How do you know?

The future is uncertain, but the qualified team members of Forward Results can help you plan for all the possibilities.  Whatever the future may bring, we know you want to get the most value from your life’s work.  Contact us to discuss your options and start planning ahead.

Before It’s Too Late

Posted on January 22, 2013 by in Blog, Planning, Retirement, Strategy

In his article “The American Dream Redux”, James F. Reeves, CPA offers an interesting look at a classic fable:

 One summer day, out in the field, a grasshopper was hopping about, chirping and singing and enjoying himself.  An ant passed by, huffing and puffing as it dragged a kernel of grain down to its nest.  “Why don’t you come hang out with me for a while?” said the grasshopper to the ant.  “Dude, I’m busy storing up food for the winter,” said the ant, as he toiled away.  “You should do the same.”  “Why bother with winter?  We have plenty of food for today,” replied the grasshopper as he continued to sing. 

When winter came, the grasshopper had no food and found himself dying of hunger.  As he saw the ant enjoying the grain it had stored away, he realized, too late, that it is always best to prepare for the days of necessity. 

In this article, Reeves illustrates how this well-known fable by Aesop is relevant to the current aging public in our country. Reeves tells us that “10,000 Americans are turning 65 every day and will continue to do so for the next 16 years.”  The majority of these retirees have not properly saved and planned for retirement. 

Most people, like the grasshopper, do not like to think and plan ahead.  Planning for retirement can certainly be overwhelming.  Forward Results can help you prepare for the future and assist you in the process.  The team’s goals and objectives are to teach business owners succession planning strategies, how to build value in their companies, and plan for a strong future exit strategy.  Our team can help you plan for the future before it is too late.

Human Capital Risk

Posted on January 16, 2013 by in Blog, Human Resources, Planning

When you go to sell your business, you have to be prepared.  Buyers will look at all aspects of your business–including your workforce.  This short article by Rose Stabler summarizes the importance of having a strong team in place when looking to sell your business. 

Human Capital Risk and the Impact on Business Value

Takeaway: A stable, skilled, quality workforce is one of the top value drivers that contributes to the purchase price of a business.

When a business for sale is being evaluated by a prospective buyer as a possible candidate for purchase, the quality of the human element will be considered. The staff is a major component and the backbone of any successful business operation.

Any aspect that reduces risk in the continuity of the business under new ownership adds value. A stable, skilled, quality workforce is one of the top value drivers that contributes to the purchase price of a business for sale.

It is important, therefore, that you, as the business owner, keep your key employees, they are your business. Buyers look for situations where management and / or key employees want to stay for the long term. The quality of the workforce, including experience, expertise and depth of knowledge will be considered. An in-place team that can provide continuity and assist in the growth of the business under new ownership is a valuable asset. If a company’s success is reliant on capable, well-trained employees – not the owner – it means the business will not be negatively impacted under new ownership.

The Forward Results team is equipped with professionals to help you minimize risk in this area.  To read the rest of Stabler’s article and to view her questions to assess the human capital risk in your business, click here.

Leadership Development

Posted on January 4, 2013 by in Blog, Human Resources

Which Approach is Right for Us  and How Do We Begin?

by Angie Martin

I’m a leader, she’s a leader, and wouldn’t you like to be a leader too?

John Maxwell says, “Everything rises and falls on leadership”; I agree. Although leadership development has been going on for years, more recently there has been a heightened awareness that the key to organizational success is built on the bases of strategic alignment—who knew? Although that sounds like a duh moment, I’ve found that not all leaders are as aware of this fact as one may think, mainly because most people in roles of leadership are not leaders at all. Most of them are individuals with the potential to be leaders who have not yet been equipped with tools to be great and effective leaders. Having leaders with potential is great, but how does an organization capitalize on that potential and prepare its leaders for great opportunities as the organization grows? Additionally, where does the design and creation start for an effective leadership development program and how do you justify it to obtain financial support from the organization’s chief contributors or those that bless the budget?

We all know that financial resources can play a significant factor in the design and execution of a full leadership development program, but not everyone has the budget to construct lavish enrichment programs where well-known motivational speakers come to speak or train attendees with curriculum based on specific leadership competencies. Besides all of this, who is to say those things will work for your organization in terms of alignment with your mission and, most importantly, your culture. That’s when the beauty of leadership development comes in.  It’s yours to create and own. A company can set up a program that is low cost and low maintenance or one that is highly staffed, robust and costly. When building a program that is right for your organization, there are just a few key things to focus on, and having financial resources is the least of them.

First, consider your organization’s mission and vision. What capabilities are available as a result of where the organization wants to go? Discovering this will start a framework for what competencies need to be strengthened. Second, what platform will the information be delivered through and how? Is the organization a more tech savvy group or are they more of an I-use-technology-’cause-I-have-to group? Knowing this will allow you to determine if you can use social media technology to send out and engage participants through the use of podcasts, webinars, interactive simulations and/or assessments. By knowing your audience, you will ensure they are engaged at a level they understand and thus increase the probability of follow through and effective learning.

The most important thing to remember when considering a leadership development program is to keep it simple and effective. Follow the 70-20-10 base rule. Seventy percent of your program should be self-directed through hands on interactive project involvement.  Twenty percent should be through networking, relationship building, asking questions, and obtaining feedback.  The final ten percent is where formal training comes in. Yes, folks, only ten percent should really involve hard costs; the rest of the program can be built using internal resources and searching the internet. The internet has a great deal of cost-effective leadership development program ideas.  One doesn’t have to have a lot of money to run an effective program, just good ideas and innovation.

Remember that starting a leadership development program doesn’t have to be complex. Consider your organization and the gaps that need to be filled to create and inspire better leaders. Examine the audience and find out what is comfortable for them, what will keep them engaged. Lastly use internal resources and consider simple things like starting a book club. There are books associated with almost every competency you can think of including Trust, Conflict, Collaboration, Communication, and Change.  Someone from the participant group should be the leader and if there is an additional resource, they can be the project planner. Put together assessment worksheets to examine discussions after a podcast. Simple mentor programs can be formed.  Pair together participants with an executive to create an on -the-job dialogue with someone in a leadership position the participant aspires to. Like I’ve always been told, keep it simple…you know the rest.

*Angie Martin is an HR Consultant with ProvisHR with a background in Talent Management and Workforce Solutions.