Archives for December 2021

Three Keys to Selling Your Business

By Glen Herman, Creative Business Solutions

Is now the time to sell my business?  Am I ready to sell?  What does “ready” mean?  Am I in a position to sell, do I have a choice?  What is my business worth?

Succession planning, transition planning, and exit strategy are terms we use in discussion of a transfer or sale of a business.   Timing effects each transfer of a business, but with proper planning, time can be on your side.

I’m often asked: “how can I get the most money out of my business?”  While the answer to this question is unique to the specific business, there are some universal truths to maximizing the amount of money at the sale of a business. 

The most important considerations in maximizing the proceeds from the sale of any business are development and documentation of systems and processes.  Buyers are typically looking for organized, profitable businesses that are structured (in terms of team and established organizational flow), and have systems in place for sales, work flow, inventory management, billing and operations. 

Financials- It is critical that owners have accurate financials that are current.  This allows for the management of the business by the numbers.  Buyers will be looking at net profit, seller’s discretionary earnings and earnings before interest, taxes, depreciation, and amortization (EBTIDA). 

Team structure- Having a professional team that is selected carefully and trained systematically will make your business more profitable, and therefore more attractive to a potential buyer.  Structure of a business is a key component to a business’s success, but also a contributor to the “good will” value in a sale.  Think of it this way… If a buyer can purchase a business that is structured and running well, it allows the buyer to “work on” the business, not “work in” the business. 

At the end of the day, we have to look at the financials and “good will” of any business when we place a value on it.  Other considerations include market factors, inventories, real estate, and buyer appetite for businesses in the geographic area of the business.  Employee experience, skillsets, and certifications are also considerations of potential buyers.

A valuation of your company should be updated every 3-5 years.  This will allow you to make timing decisions, and also ensure the highest value will be received in the transfer of the business. 

Glen Herman is a Business Intermediary for Creative Business Services in Green Bay, WI. Contact Glen at 920-719-2270 or at gherman@cbs-global.com.

PART 2 of 2 | Determine How your Profit Will Be Spent Ahead of Time

By Tom Grandy, Founder

Last month we discussed how most companies allocate every dollar they spend…except Profit.   We then discussed the differences in “accounting” net profit and “real” net profit from a cash flow perspective.  As a reminder, cash flow deals with the real dollars that flow in and out of the company.  From an accounting perspective, last month the company made a $21,000 net profit.  However, cash flowed out of the company in four other areas that were NOT accounted for from the accounting perspective.  When those areas were considered, the company’s “real” adjusted net profit was reduced to $13,021.  Those four unaccounted for areas were:

  • Equipment Replacement
  • Debt
  • Loan
  • Hill & Valley Account

 

If you would like to review last month’s article before proceeding, click on Part 1.

So, now we know the “real” profit for the previous month was $13,021.  If you have finished high school, chances are you have heard the term “All of nature abhors a vacuum.”  Simply stated, if there is empty space or a period of time that is unscheduled, it will tend to be filled with something.  It’s kind of that way with net profit.  Any profit left in the company’s operating account tends to disappear!  To keep that from happening, we need to determine ahead of time how any net profit generated, from a cash flow perspective, will be spent. 

Net profit needs to be allocated in four (4) areas:

  • Profit Sharing
  • Debt Reduction
  • Hill & Valley Account
  • Money Left in Operating Account

 

Let’s review each area. 

Profit Sharing (5%)

Chances are the company made a net profit because of the team.  The team is made up of all employees from the owner to the parts runner.  All worked hard to help the company make a profit therefore, all should share in the profits when the company makes money.

Typically, the company will want to take 5% of the net profit and share it will all employees.  The company not only needs to pre-determine how the overall net profit will be spent ahead of time but it likewise needs to determine how the profit sharing will be allocated ahead of time as well.  Below is an example.

 

Allocations can literally be based on any criteria you wish from income earned to years with the company. How you allocate the profit sharing is up to you.  The important thing to note is that the percentages are determined before the profit is earned.

 

Debt Reduction (40%)

Debt is a ticking bomb.  When all is well and the company is growing, debt is seldom thought of.  However, there is a good chance that at least some reading this article lived through 2008-2009 when the world, from an economic standpoint, came crashing down.  Those with low overhead and little debt made it through, others did not.  Being totally out of debt should be every company owner’s goal.  The sooner the company becomes debt free the better the owner will sleep.  When it comes to telling our net profit how it will be spent, 40% of it should be used directly for debt reduction.

Hill & Valley Account (40%)

What are the chances that it will rain in your area of the country at some point over the next 12 months?  Certain areas of California see little rain while the mid-west generally see lots of rain.  In either case, it’s going to rain at some point.  It’s just a matter of how often and how much.  Guess what?  Your company has slow times too.  The typical trades company has roughly 90 slow days per year.  During the slow times, how do bills get paid?  Most borrow money through a line of credit, utilize credit cards or delay payments to suppliers.  Although those work, they are expensive and make the company less financially stable.  A better way is to have monetary reserves held back for those rainy days. 

When we were talking about cash flow, one of the things we subtracted from the accountants net profit figure was a pre-determined amount of money the company was going to put back to fund the Hill & Valley account.  In addition to that money, 40% of the “real” net profit should also go towards funding the Hill & Valley account.

Now, some of you have been doing a bit of math in your heads.  If you are sharp at math, you have noticed we have accounted for 85% of the net profit.  Now the question is, “What happens to the remaining 15% of the net profit?”  The answer is that it stays in the company checkbook therefore building up a bit of extra cash flow.

We have now achieved our goal.  We have pre-determined where every “real” net profit dollar will be spent.  As time goes on the company will have funds to invest, buy extra inventory when it goes on sale, fund increasing inventory and accounts receivable, and/or invest in expansion. 

Company owners sleep a lot better at night knowing what their “real” net profit is.  They also rest better knowing that slow times are funded, debit is systematically paid off and the worries of increasing inventory and accounts receivables are funded.

Rewarding technician performance is important.  However, data must be collected in order to evaluate performance.  This month Grandy & Associates is featuring it’s Profit Smart KPI Tracker.  This program tracks nine (9) Key Performance Indicators for each individual technician.  This program will allow contractors to pay bonuses based on real, accurately measured, performance.  The good news is that it only $299 this month!  That is a $100 discount.

As always, Grandy & Associates offers a 100% satisfaction guaranteed.  If you are not completely satisfied simply return the program for a full refund.  Order today!

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