Month: October 2019

Preface: “Don Feldman’s success as an Exit Planner rests on three essential elements. (1) Don “gets” the needs of business owners. (2) He has created and constantly adds to a tool box chock full of proven planning strategies and ideas. (3) His ability to deconstruct, demystify and explain complicated tax and valuation issues in a way that owners–and even attorneys like me!–can understand.”— John Brown, Founder, Business Enterprise Institute, Denver, CO

What You May Get Wrong About Business Valuations

Credit: www.keystonebt.com

Business valuations are important to successful planning. They tell you what your business is worth to a potential buyer. Though business valuations seem simple on the surface, even the smartest and most successful business owners can misinterpret their importance.

Business valuations generally tell you two things. First, they tell you whether you can sell or transfer your ownership, right now, and achieve financial independence. Second, and more importantly, they tell you how much more work you must do to build your business’ value to achieve that financial independence.

Financial independence is the most important goal of planning for your business’ future. Other goals are important. But by definition, an Exit Plan must give you financial independence to be successful. It’s likely that your business is the most valuable asset you hold and thus will play a huge role in achieving financial independence. Knowing what it’s worth and what you must do to build its value is commonly the bedrock of a successful plan for the future, whether you intend to exit or keep your business forever.

Consider the story of Luca Montez, a business owner who made some common mistakes about business valuations, and how his mistakes affected his planning.

Luca Montez had owned his widget company, MontezCo, for 35 years. He was an integral part of the company’s success. When his acquaintance and friendly competitor, Julia Deming, told him that she was selling her business, Luca started thinking about his own retirement. He was very excited to learn that Julia received $6 million for her business. He saw their businesses as similar and figured he could get that much, too.

Julia offered to put him in touch with some of the advisors that had helped her, but Luca politely declined.

“No, that’s too expensive I bet. I know what my business is worth now. I think I can handle it.”

Luca decided to put his business on the market. The highest offer he received was for $2 million, much lower than what Julia had been offered. He became frustrated and asked Julia to put him in touch with some of her advisors.

When Luca met with the Advisor Team, he vented his frustrations.

“My company is bigger than Julia’s. I work with some really well-known customers. I put a lot of work into making this business successful. Why am I not getting the same $6 million as Julia, if not more?”

After a few meetings and a lot of questions, Luca grudgingly agreed to get a proper business valuation. He had resisted for quite some time because he was convinced that his company was as valuable as Julia’s, and he didn’t want to pay for a formal “opinion of value” at top dollar. His advisors instead suggested that he get a less expensive “calculation of value” from a business valuation specialist.

Using a calculation of value process, Luca’s business valuation specialist said that Luca’s business was currently worth $2 million, just as he had been offered. She explained that the company had three glaring weaknesses.

1.      It was too reliant on Luca for its cash flow.

2.      It worked with three well-known customers, but those companies represented 80% of MontezCo’s annual sales.

3.      It didn’t have a management team that could run the company without Luca, so a buyer would be stuck with Luca for several years or provide their own management team.

Once Luca learned these facts, he and his Advisor Team knew they needed to get to work. They began to install next-level management. This made the company less reliant on Luca. The management team also knew how to diversify MontezCo’s customer base. As the company grew, Luca created incentive plans to keep his best managers tethered to the company, with help from his advisors. It took several years, but Luca managed to build his company’s value and get the $6 million he wanted and needed.

Business valuations can guide you toward several answers about the future of your business. Perhaps most importantly, they can tell you where you are financially, which can guide you toward what you must do to get to where you want to be.

If you’d like to talk about strategies to position yourself to achieve financial independence through your business, please contact us today.

Donald Feldman: www.keystonebt.com

The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial advisor.

The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial advisor.

This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need. This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by Keystone Business Transitions.  Examples include fictitious names and do not represent any particular person or entity.

 

 

Preface: “A year spent in artificial intelligence is enough to make one believe in God.” —Alan Perlis

Questions are the Strategic Runway Towards A Great Business

Credit: Donald J. Sauder, CPA | CVA

The value of data is only beginning it strides to connect the world networks of business, as it leaps into the next generation fields of innovation. The insightful analytics per predictive business intelligence systems are more rapid than gradually to change the landscape of enterprise and decision making, e.g. business.

Power BI is a business analytics service by Microsoft. It aims to provide interactive visualizations and business intelligence capabilities with an interface simple enough for end users to create their own reports and dashboards.

Quote: https://powerbi.microsoft.com/en-us/blog/announcing-new-ai-and-enterprise-features-for-power-bi/

In a world in which data is coming from everywhere, Power BI is about helping our customers embrace a data culture, where every employee can make better decisions based on data. The growth of Power BI has been staggering – customers ingest more than 20PB of data to Power BI every month, lighting up over 30M reports and dashboards, and the Power BI service processes over 12M queries per hour.

Part of that seasonal change in business is that computers and data systems will continue to increase in their influence of business decision makers.

But you don’t have to take our word for it. Gartner named Microsoft a Leader in the Magic Quadrant for Analytics and BI Platforms for 12 consecutive years.

Today we’re making significant new announcements that will help our customers driver a data culture.

….. A key enabler of data culture in organizations is the pervasive availability of standard, authoritative datasets that represent a single source of truth, allowing users to make decisions on trusted data, remix to create insights, all with unified governance.

While Power BI is no laughing matter for next generation entrepreneurs, applying data in a comprehensible manner to entrepreneurship is certainly advised for any ambitious business owner.

What is of greater importance for us is that when seeing these developing visualizations of data predictions, and the corresponding accuracy, we both see and understand that enterprise management is in a vibrant season of change. It will be fleeting moment, and the foliage will be past. Part of that seasonal change in business is that computers and data systems will continue to increase in their influence of business decision makers.

While Power BI is no laughing matter for next generation entrepreneurs, applying data in a comprehensible manner to entrepreneurship is certainly advised for any ambitious business owner. For the journeyman in business, we can begin with easier to develop key performance indicators, cash flow management and financial analysis.

So, if your looking for more from your business, ask yourself the following business self-assessment questions, for Accounting | Tax | Data. If you answer any question “NO”, then follow-up and ask yourself – “WHY NOT”? Document your answers concisely. Answering “no” is not necessarily wrong, you just need to understand the “why not.”

Accounting | Taxation | Data 

1. Does your executive team continuously collect, track and analyze key financial and operational data?
2. Does your business have a budget?
3. Does your business have three to five-year financial projections?
4. Does your business manage debt effectively?
5. Does your business meet annually with your banker?
6. Does your business have seasonal cash flow challenges?
7. Does your business have a line of credit for access when necessary?
8. Does your business monitor your equity to assets ratios?
9. Does your business regularly monitor and track working capital levels?
10. Does your business track and manage overhead cost variances and expectations?
11. Does your business calibrate costs of production or customer service at least annually?
12. Does your business have a travel policy?
13. Does your executive team track key performance indicators weekly?
14. Does your business plan strategic capital expenditures?
15. Does your business have target ranges for cash and working capital?
16. Does your business have meaningful conversations with your accountant each year?
17. Does your business consider tax filings to be relatively stress-free?
18. Does your business have a sales tax compliance plan?
19. Does your business maintain compliance with multi-state income taxes?
20. Does your business have a high level of confidence in your tax filings and income tax compliance?
21. Does your business invest in annual tax planning?
22. Does your business obtain quarterly or annual financial statements?
23. Does your business analyze all available data your customers needs and desires?
24. Does your business analyze data on the satisfaction levels of is products and services, to both current and historical customers?
25. Does your business monitor and track gross profit percentages?

Preface: “Strategy is the highest level of a plan” ― Fritz Shoemaker

Questions are the Strategic Runway Towards A Great Business

Credit: Donald J. Sauder, CPA | CVA

NOTHING succeeds in business books like the study of success. The current business-book boom was launched in 1982 by Tom Peters and Robert Waterman with “In Search of Excellence”. It has been kept going ever since by a succession of gurus and would-be gurus who promise to distil the essence of excellence into three (or five or seven) simple rules…….

It was only when they shifted their attention from how companies behave to how they think that they began to make sense of their voluminous material.

“The Three Rules ” is a self-conscious contribution to the genre; it even includes a bibliography of “success studies”. Michael Raynor and Mumtaz Ahmed work for a consultancy, Deloitte, that is determined to turn itself into more of a thought-leader and less a corporate plumber. They employ all the tricks of the success genre. They insist that their conclusions are “measurable and actionable”—guides to behaviour rather than analysis for its own sake.

They divide companies into three cutely named categories: “miracle worker”, “long runner” and “average Joe”. They even employ the cutest trick of all: the third rule is, “There are no other rules.”

The authors spent five years studying the behaviour of their 344 “exceptional companies”, only to come up at first with nothing. Every hunch led to a blind alley and every hypothesis to a dead end. It was only when they shifted their attention from how companies behave to how they think that they began to make sense of their voluminous material.

https://www.economist.com/business-books-quarterly/2013/07/13/where-thinking-is-king

Sometimes the best entrepreneurial lessons are not from business stories; to give an example of the power of thinking strategically, consider John 6: 3-9.

Then Jesus went up on a mountainside and sat down with his disciples.  The Jewish Passover Festival was near. When Jesus looked up and saw a great crowd coming toward him, he said to Philip, “Where shall we buy bread for these people to eat?”  He asked this only to test him, for he already had in mind what he was going to do. Philip answered him, “It would take more than half a year’s wages to buy enough bread for each one to have a bite!” Another of his disciples, Andrew, Simon Peter’s brother, spoke up,  “Here is a boy with five small barley loaves and two small fish, but how far will they go among so many?”

Do you know the rest of the story? Two questions, 1) Was the lad trained in strategic thinking 2) What was strategic foresight payoff that day? In addition, please carefully note the initial question.

Ask yourself the following business self-assessment questions, for the strategy and planning. If you answer any question “NO”, then follow-up and ask yourself – “WHY NOT”? Document your answers concisely.

Strategy | Planning

1. Does your business have three or more written values?
2. Does your business have a written purpose?
3. Does your business have a written vision or mission statement?
4. Does your business have a plan for key employee risks?
5. Does your business have written unique marketplace advantages?
6. Does your executive team review financials monthly?
7. Does your executive team have monthly or more frequent meetings?
8. Does your business have the real estate location to reach its long-term vision?
9. Does your business have a recognition in the community that aligns with its purpose and values?
10. Does your business seek advice from trusted advisors?
11. Are your businesses advisors and consultants trusted and effective?
12. Does your business have a plan to develop and groom its next-generation leaders?
13. Do your employees have confidence in your businesses executive team?
14. Does your executive and management team set and meet expectations quarterly or annually?
15. Does your businesses executive team invest at least one day per year analyzing historical performance and clarifying the future goal and mission?
16. Does your business contribute time or cash to the community that sustains its success?
17. Does your business have a succession plan?
18. Does your business have a buy | sell agreement?
19. When something isn’t working as expected in your business, does your management team invest the time to know why it isn’t working?
20. Does your business have an IT plan?

Preface: “I still keep asking these ‘how’ and ‘why’ questions. Occasionally, I find  an answer.” Stephen Hawkins. Genius cannot be that easy, right?

Questions are the Strategic Runway Towards A Great Business

Credit: Donald J. Sauder, CPA | CVA

Are you a businessman or a journeyman in business? Maybe neither? But, if you’ve asked that question, you are on the right path towards more effective management as either one. There is a difference. The entrepreneurial strategy that brought you to where you are in business today, if you are a journeyman in business, may not take you to where you want to be as a businessman. And yet that may not be a problem, because a journeyman in business can be as noble as being a businessman. The journeyman in business sometimes simply discovers benefits when managing their responsibility more effectively like a businessman.

Every business starts with a journeyman in business.

A journeyman in business takes deep risks, a businessman takes calculated risks, first, because he can afford it, and second, because he understands the winning is sometimes as easy as not losing. A businessman hires people who can help his enterprise grow, and he helps his team to grow along with it. A journeyman in business is focused on keeping up with the opportunities in the marketplace, and meeting project deadlines effectively.

A journeyman in business often doesn’t take the time to ask the questions that show they care about their organization, and at the root, the people who help them.

The journeyman in business finds fulfillment through excellent service and workmanship, while a businessman finds fulfillment through calculated expansion. A journeyman in business competes against the fierce competition, while a businessman observes the competition and works to keep the marketplace cooperative. Every business starts with a journeyman in business.

A journeyman in business often doesn’t take the time to ask the questions that show they care about their organization, and at the root, the people who help them. They enjoy and thrive on work. And that is a main reason their vision of an enterprise is sometimes held in check.

The following questions will help the journeyman pinpoint the depth of a lackluster business strategy, and provide a challenge to the businessman working towards an enterprise pinnacle.

If you answer any question “NO” then follow-up and ask yourself – “WHY NOT”?

The blink of the lights to that runway can begin with asking yourself the following business self-assessment questions. If you answer any question “NO”, then follow-up and ask yourself – “WHY NOT”? Document your answers concisely. There a several enterprise segments and we’ll begin with management.

 Executive Management

1. Does your executive team lead from example?
2. Does your executive team have the appropriate free-time to work on the business at least quarterly?
3. Does your business have adequate operational, financial, and employee risk safeguards?
4. Does your business have a clearly defined executive visionary and integrator?
5. Does your executive team have realistic expectations for growth and profitability?
6. Does your business have a strong relationship with a legal firm?
7. Does your management team regularly complete all tasks scheduled for completion each week?
8. Does your management team solve Company problems effectively?
9. Does your management team regularly discuss Company issues?
10. Do your management team strive to make management decisions that provide long-term solutions vs. short-term patches?
11. Do your management team value your teams character more important than team profits?
12. Does your management team deliver the field performance you expect?
13. Does your business have a cohesive and vetted management team?
14. Does your business have regular Company-wide meetings?
15. Does management reward and recognize Company employees for loyalty, 2^nd mile service, or continuous accountability?