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Business Analysis Basics

Profitable Business Yet NOT Valuable?

Are you having phenomenal sales? OK… Is your company valuable? Did you know you could have profitable sales and little or no business value? There are other critical factors besides sales volume during a valuation of a business. What are they?

Let us give you a true life experience to show this point: While Mr. Whipple was prospecting for small businesses to sell he ran upon a small manufacturing business making commercial energy materials. It that had been around for about 3 years and was doing around $95,000 annually in gross sales with a margin of 60%. The Owner had run into some personal problems and wanted to sell the business. From the surface, things look great for the business. With a review of the he determined to have it listed for $195,000 in business value (3 x EBITADA + a little more). What happens next?

So, he brought the paperwork to his Manager for a potential business listing (See Author’s Bio). Ralp put on his business value glasses and asked a few questions. He then asked him, “Did you know a business could have profitable sales but not valuable? He was unsure at the time so, he answered, “No.” And then listened to his Managers advice. He further explained, that a customer base with 20-30% with one type of customer or a business with one or two customers lowers the value of a business since it is dependent on that one type of audience or a few customers. And there is a greater chance to for something to change in the market place or offend one or two customers resulting in the customer leaving to a competitor. So the value of the businessness is not as high as a typical 3 X EBITADA.

Mr. Whipple was a little surprised but more because he knew this underlying factor was overlooked in most business transactions or in an internal growth initiative. And this particular manufacturing company only had 2 customers. What a mistake in a valuation this could be he thought. There were several other areas the Manager went into, but, specifically pointed to how the sales, product (s), customer base and value were all tied together. David realized this advice was not written down anywhere so he started taking notes and eventually had enough for a book(20yrs later). He then substantially lowered the value of the manufacturing company for the listing. Read how this might this be applied with businesses in other situations?

There is more to the story, but, how do you find what factors influence business value with your business. Get more information at this link.

 

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Business Analysis Basics Business Value Analysis

5 Business Value Myths

5 Business Value Myths

  1. The value of your business is what you think it is.
  2. Employees are going to stay in the business you sell or buy.
  3. A Franchise is a better buy than an established business or E-Distributorship.
  4. Someone will tell you the “true” value of your business.
  5. You will know why they are really selling the business.

The principles or laws in the book “14 Immutable Laws of Business Value” are either working for or against your company’s business value, right now. Find the untapped value within your business with an online complimentary review and report with an Executive. Contact us today!

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Business Analysis Basics Business Value Analysis

An Ideal Business Organization

Maximizing Business Value

What is the Ideal Business Organization?

From the picture above you could visualize how a business must have an ideal business organization at the time of the sale for maximum value. As you know, you cannot sell a car with the owner driving it. Similar, you cannot sell your business with you in it. You might not be thinking about selling now but every Business Owner either shuts the doors or exits. How close are you to an absentee run business?

The owner of a business usually controls most of what is going on at first to her or his advantage. But as time goes on and sales come in things change. She or he cannot do it alone and the team starts to grow. If she or he is not leaving it for chance, since a business sells, on average, every 3 to 5 years (a good one) then employees are empowered, teams are formed, trade secrets are transparent and the big picture of building business value is on the radar. That is why moving toward the ideal business organization starts now.

As the team grows revenue begins to be dispersed, while roles and responsibilities change. Whether you are in a partnership, family business, or proprietorship, finding the “right” person could be one of the most difficult tasks to encounter as an “Owner”. Especially, if you want an absentee-run business, then moving towards an “ideal business organization” is on the top of the priority list.

When the Owner starts moving towards working on the business and not in it, then the business value goes up. During this culture change reorg, a Business Owner could lose value or make it depending on compensation, roles, and responsibilities. This is one of the most difficult organizational structure changes a Business Owner(s) or HR manager participates in, yet is rarely looked at through the eyes of business value. Read the example in the book “14 Immutable Laws of Business Value”    pg. 12., of how the business value was increased by $100,000s with one move. To get more insight into how making the “right” organizational move could bring move business value while preparing for the future exit ask one of our Business Value Experts for an online complimentary review.

CEO Analyzer along with a proprietary change process has been designed to assist a Business Owner or HR Manager get the highest business value while moving towards the ideal business organization. Without the software suite, it would be virtually impossible to fine-tune the culture, employees, roles, responsibilities, and processes for the absentee run business. Let us take a look with you.

When are you exiting? Again the number one rule of a Business Broker is a business sells every 3-5 years, a good one.  Sometimes we do not know when we will have to sell our business. Start getting prepared today and set a time for an online complimentary review of your specific situation with an experienced Advisor. Start evolving your company’s culture and organization closer to an “ideal organizational structure” utilizing an Advisor’s guidance. Connect with a Senior Advisor on the contact page for an online complimentary review of your situation.

A company’s value is less with the Owner working inside the business. From, “14 Immutable Laws of Business Value“, Rule 12, Pg. 21.. Read more about how this laws is interdependent with cash flow in the book.

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Business Analysis Basics Business Value Analysis Business Value Institute

Business Value Leadership

Below is an article about leadership that could relate to building trust of employees while making the transition to an ideal business organization while increasing business value. Trusting someone for new responsibilities is different than having great performance. An Employee could have met her/his goals and exceeded them but perhaps the trust is not there. How would you find trust and then evolve your responsibilities and their responsibilities for more business value? Set a time for an online complimentary review.

Maximizng Business Value

12 Tips for Supercharging Your Leadership Credibility

Some of the best leaders that I ever had were not my direct managers. One such individual was an Executive VP and Chief Legal counsel at the first company I worked for. Because I was single at the time and didn’t really know anyone, I frequently stayed late in the evenings to catch up on my work. Noticing I was often there after hours, this executive would frequently visit my office, pull up a chair, ask me questions, and offer advice for dealing with challenging situations. Late one evening before I left the company, he visited my office to wish me well and offer encouragement in my next assignment.

These types of individuals seem to take an interest in those around them. They have a knack for connecting with people no matter who they are. People end up gravitating to them and seek them out whenever they have concerns and challenges. They have the ability to make everyone feel important and valued. I have been lucky over the years to have known many of these types of individuals.

Here are 12 tips for supercharging your leadership and improving your relationships with your people.

1. Be a super human, not super-human. Being kind, considerate, and polite to people will help build respect and improve your relationships. People who are cold, terse, sarcastic, cynical, aloof, and demeaning to others do not inspire engagement or trust in people. Likewise, always having the last word on every idea, solution, or plan does not inspire the participation of others. You may think you are too busy to notice other people, but being oblivious to others will undermine your credibility as a person and a leader.

2. Get to know people. I worked for a major aerospace company as a consultant for a number of years. I once had the opportunity to run into the CEO of the company. He introduced himself and asked who I was and what I did for the company. From then on, whenever he saw me he always called me by name and asked how I was doing. Over time, I noticed he did this with everyone. He spoke to each individual by name and he always asked them how they were doing. Everyone felt that he had their best interest at heart.

3. Identify individuals’ strengths. Take the time to identify and recognize individuals’ strengths including those that may go beyond their job. Look for opportunities to help people use their strengths and talents in a way that brings out the best in them and their contributions. This will reduce turnover and create a sense of satisfaction in the work that people are doing.

4. Ask for and give feedback. People like to know how they are doing. Giving them feedback allows people to make immediate adjustments and meet your expectations. Asking for feedback from your people signals that you are serious about your leadership and making changes that will help you improve. This requires humility and a desire to learn from those you lead. This also allows you to give people more of what they want and eliminate any unwanted behaviors that may be impacting your effectiveness.

5. Ask people for their ideas. The CEO I mentioned earlier often asked, “What one thing have you learned about the company that you think I should know?” If you ask a person for their ideas or if you ask them to help you solve a problem, you are not only sending the message that you value their ideas and experience, but you are also creating a learning opportunity to hear something that you may need to know.

6. Listen to what people say. If you ask questions, it’s important to truly listen to the responses or you will undermine your credibility as a leader. Ask questions that are deliberately framed to help you gain insight on a particular topic. Notice what people say in response, and equally as important, what they are not saying.  After identifying what’s going unsaid, formulate and ask additional questions to help you understand what matters most to them. For example you might ask, “How respectful are people in our department?” Suppose the person says, “It could be better.” Notice that the person didn’t address what disrespectful behaviors were occurring. You might follow with the question, “How are people being disrespectful to one another?”

7. Communicate, communicate, communicate. Connections are established by communicating with people. Receiving and providing feedback, establishing expectations, celebrating successes, identifying concerns or fears, making process improvements, and fostering a culture of candor and openness is all done through communication. You can greatly enhance the engagement of your team by being thoughtful and deliberate in your messaging, rather than letting people try and figure it out on their own.

8. Recognize people for their accomplishments. This requires that you catch people doing the right things, otherwise you will have nothing to say. Observing others’ performance or behavior and then saying something about it will help people recognize that you are appreciative of their efforts while establishing the value you place on their contributions. I once had an employee tell me that after working for a certain telecommunications company for 19 years, not once did anyone ever say, “Thank you.” Hopefully this is not the norm at your company. Recognizing and acknowledging people’s contributions makes them feel valued and will motivate them to continue to provide their best efforts.

9. Speak victory into people. After providing constructive feedback, we sometimes forget to speak victory or to encourage others to continue in their efforts. Saying something like, “I know that you can do this. Don’t give up. Just keep trying and learning and making adjustments. You can achieve the results you want.” Encouraging words from a leader when a person doubts themselves or their abilities will make a huge difference to people. It gives them hope and confidence to continue along the course they have chosen.

10. Allow autonomy. Once you have given clear directions, allow people to do their work. If they can’t complete the task assigned in the required way, perhaps they need more training before they can measure up to the appropriate standards. Setting clear expectations and providing feedback will allow the person to learn and take responsibility for their results. Micromanaging people sends the message that you don’t trust them and their abilities. After a while, people will get discouraged and give up. Give people what they need to be successful then let them do their job.

11. Be visible and available. Set appropriate times when people can ask for your assistance or instruction. Being an absentee leader may hinder your results if people cannot get the direction or information they need to proceed when challenges arise.

12. Be supportive. Frequently ask people what they need in order to complete their projects on time. Consider asking them about any additional resources, manpower, time, money, equipment, or training they may need. Check in with your people regularly and offer your support as you ask for regular updates about their progress. On the occasion that things don’t turn out as planned, stand behind your people. One of the worst things you can do is to throw people under the bus to save your reputation. There is nothing that will erode trust and devalue your leadership faster.

Cultivating these essential leadership behaviors will not only improve your results, but connect you with your people and inspire them now and for the rest of their lives. They will remember you and what they were able to accomplish under your guidance. Don’t we all want that kind of legacy?

Need more tips on leadership engagement? Contact us.