Lori Stuckert

Trades Companies Don’t Die Easily – PART 1 of 2

By Tom Grandy, Founder of Grandy & Associates

If companies failed quickly and all for the same basic reason, most owners would soon learn to avoid the traps and move on to profit­able growth. However, it doesn’t work like that, at least not within the trades industry. It’s often a slow death.

To illustrate the point, let’s review the often-told story of our friendly local frog named Bill. One day Bill gets caught by some neighborhood children and they drop Bill into a pot of boiling water to see what happens. Bill was the head of his class at frog school and immediately realized something had dramatically changed and not for the better. This was not the pond in which he was used to swimming. Being a smart frog with exceptional intelligence, our friendly local frog almost immediately realized the water was not good for swimming and instantly jumped out of the pot. Disaster was avoided and life as a local frog continued uninterrupted.

Now the scene changes to focus on Robert. Robert is a local frog too, but not as smart as Bill. Let’s just say he is closer to the bottom of the class than the top. The local kids remembered how Bill reacted when dropped into the pot of boiling water so they decided to try a different approach to see how another frog would react. It didn’t take long for Robert to get caught. Before he knew it, he found himself in a big pot of cool water. Life was good. He swam back and forth enjoying the cool and refreshing water.

The neighborhood kids now turn up the heat, just a little. Robert doesn’t even notice. There aren’t any other frogs around but hey, that’s great. It seems he has found the only uninhabited pond in the area. A couple hours later, the kids turn up the heat a bit more. Robert is beginning to realize the water is a bit warmer than before but it’s no big deal. It’s midday and the sun has been out all day long so the water should be a bit warmer, right?

The kids continue turning up the heat ever so gradually throughout the day. To the children’s surprise, Robert makes no effort to jump out of the pot even though he could easily do that at any point. The temperature is turned up a couple more times and soon it’s time for dinner, so everyone heads home for the night. At this point, Robert is sweating a bit but still relatively happy to have this small pond all to himself. He is getting a bit uncomfortable but then who isn’t every once in a while? The next morning, the neighborhood kids agree to meet at 7 a.m. to see how their friendly frog is doing. To their surprise, Robert was floating upside down, dead as a doornail. Robert had croaked!

How could that have happened? The water was hot and Robert should have jumped out of the pot, but he didn’t. Why? It was because the changes in his environment were so gradual, he didn’t even notice…until it was too late!

The One- to Four-Year Process of Going Out of Business

Guess what? The process of going out of business within the trades industry is not all that different than our friend Robert’s situation. It generally takes one to four years for most trades companies to go out of business. The actual process goes largely unnoticed until it’s too late. However, there are typically three very distinct steps, or stages, that take place during the process.

Step 1

The company has been in business for perhaps 18 months. Things are going well. An additional tech or two is hired and the com­pany is growing. Sales are up. Typically, the new entrepreneur is still working out of his or her home. However, there is this strange, unexpected, phenomenon beginning to take place. Sales are con­tinuing to increase but profitability seems to be slipping. Even with the increased sales, cash flow seems to be more and more of an issue. Some weeks, even the company’s small payroll is hard to meet. It’s not all that unusual for the new company owner to miss a pay­check or two. Sure, profits are down and cash flow is tight, but the new owner is 100% confident it is just a natural phase of being in business. It will pass. In the meantime, however, something has to be done.

Solution to Step 1

The good news is that the solution is relatively simple. The com­pany just needs to do more work! Instead of working 8 hours a day, 5 days a week, it begins working 10 hours a day, 6 days a week, and on occasion all 7 days. The bump in the road is averted. Cash flow has increased and with it the pressure of meeting payroll has sub­sided. The company can now pay its bills on time, consistently make payroll, and best of all, the owner is being paid — most of the time. All is good for another 6, 12 or perhaps even 18 months. Then…the company finds itself right back in the same situation it was in at the beginning of Step 1. Sales are up, profits are down, and cash flow is tight.

Step 2

The company is now two or three years old. It’s growing and gain­ing a pretty good reputation in the area. Things had gotten a bit tight working out of the house, so the company has moved to some rental space that seems to meet its current needs. Another tech or two has joined the team and sales are continuing to increase. Life is pretty good with a couple of minor exceptions.

Even though sales are up, profitability seems to be falling…again! When it comes to receivables, those lousy home builders are now taking 30–60 days to pay. Even some of the company’s residential customers aren’t paying their invoices on time. Just because it some­times takes a week or two to get the invoice out is no reason they shouldn’t pay on time. The receivables problem is also causing a domino effect with the company’s suppliers. Suppliers are no longer getting paid on time, every month. Sometimes payments are 30, 60 or even 90 days late. As a matter of fact, last week the rep even mentioned those dreaded letters COD* during his visit. Gee, it’s not our fault. If we don’t get paid on time, how can they expect us to pay on time?

Some of the minor bumps in the road are getting rather serious. However, the company is continuing to grow, with sales up nearly 30% over last year. If the company can simply hang on, just a little bit longer, everyone is totally convinced it will get over the hump and everything will be lovely on the other side. The owner is work­ing 60–70 hours a week but that can’t be all that unusual for young companies. Purchasing that boat and cabin at the lake may take a bit longer than originally anticipated but it will come. Since sales are increasing, significant profitability can’t be that far off. We just need to buy a bit more time so we can get over the current hump.

Solution to Step 2

Once again, the solution seems relatively simple. The first year or two, when the company was making money, the owner was smart enough to put some of that money aside in a savings account. The current “temporary” bump in the road can easily be solved with a bit of additional cash. The owner simply needs to take funds out of his family’s savings account and invest those dollars back into the company. The owner’s wife won’t be thrilled but she worries too much. Entrepreneurs take risks; it’s a natural part of the growth process, right? Anyway, it will be a temporary loan. With a little luck, the money will be returned to the savings account soon, plus some. The owner’s wife will then understand and be grateful for her husband’s wise business decision.

The savings account money is then invested back into the com­pany, and everything seems fine, for another 6, 12 or perhaps an additional 18 months. The bills are paid, the threat of COD has pretty much vanished and everything “seems” ok. However, as the months pass, an all-too-familiar pattern seems to be repeating itself. Sales are continuing to climb, cash flow is getting tighter, and profits are falling.

Next month we will discuss the third, and often the final, stage of going out of business.

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Change the Channel

By Dave Ramsey, CEO Ramsey Solutions

When I was a little kid, all the TVs in our neighborhood had a remote channel changer. I remember the three channels on the TV—ABC, NBC and CBS ruled the world. Walter Cronkite and David Brinkley were the deliverers of all truth on the nightly news, be it good or bad.

Shortly before my fifth birthday we bought our first color TV. On my birthday we had a Super-Saturday-Cartoon-in-Color party, so all the neighborhood kids could come see cartoons in color. For a moment, I was popular. The TV my parents bought was the size of a small pickup truck. In those days, TVs were a piece of furniture—a large piece of furniture. This TV was so cool that we ran a wire out the window to a big-time antenna on the roof to increase the quality of the signal. Gone were the old rabbit ears, and the instructions on how to hold them just right by my dad.

But the most groundbreaking, life-changing technology this TV had was a Remote Channel Changer. It was a small handheld device that notified the TV with a “click” to change the channel. The changer was a “clicker,” and that is what we call the remote in my home to this day. This marvel of technology gave hope to all the kids on my street that they, too, could be set free from the drudgery of being the manual channel changer.

You see, when I said all the TVs in my neighborhood had remote channel changers, I was telling the truth. The channel changers just looked like little kids. The dad would position himself after hard day’s work and a great dinner in the recliner. He would then grab the TV Guide, the bible for TV watchers that detailed the times and content of programing. Then as the evening progressed, if the program was slow or even if it wasn’t, the dad would proclaim to the kid on the floor, “Change the channel!” We small children were the remote changers for dads in their recliners.

It’s also possible the remote began the downfall of our civilization. I’ve wasted hours of my life surfing channels. For no apparent reason, I stumble onto a movie I’ve seen six times, and watch it again. Often, I’m not even intentional about what I watch. See, back in the pre-remote age, we watched things on purpose.

I’ve noticed life is like that. I have to do things on purpose if I want to win. What I do on purpose, what I’m intentional about and pay attention to, I win at.

Life doesn’t have a remote. You have to get up and change the channel. When I take the easy path, and don’t make clear, purposeful decisions, the result is mediocrity. When I pay attention to my wife, my marriage is better. When I run a half marathon, I have to focus on training. If I don’t, race day is embarrassing. People who become great leaders, or build successful businesses, don’t do it by accident. People don’t win by accident.

The bad news is my success is up to me. The great news is my success is up to me. Yes, there are systems and prejudices that are stacked against me and you. We can’t control those, but we can control what we pay attention to.

So, what do you want to win at? Business, leadership, parenting, marriage, health, generosity, spiritual growth? You can do it. But you have to get up and change the channel!

  * Leadership and small business expert Dave Ramsey is CEO of Ramsey Solutions. He has authored numerous best-selling books, including EntreLeadership. The Ramsey Show is heard by 18 million listeners each week on more than 600 radio stations and multiple digital platforms.

This is the Way to Grow Your Business

By Tom Grandy, Founder

Working with this contractor, as a customer, was an out of body experience!  It was kind of like riding a great roller coaster.  Each part of the journey gets better and better.  The ride ends and you take a deep breath and say to yourself, “That was a great experience.”

The paint store recommended a specific painter for our project as it meant stripping and re-staining our front door.  It takes a unique talent for this type of work.  I was not familiar with the company they recommended but I made the call.  To my complete amazement, the owner answered the phone and set an appointment to meet with me the following day.  He showed up right on time.  My wife and I walked him through our list of painting needs both inside the house and outside.  He took notes and made a list of what needed to be done.  After sharing his hourly rate, he informed us that since it was fall it would be at least 6 months before he would be able to do the work.  We were a bit downcast but to date, had not been able to find any painter willing to tackle the door.  He was given the go ahead and we were on the list.

Two weeks ago, he called.  Since we had inside and outside painting to do and it was still too cool to work on the door, he asked if he could start the inside painting the next day.  We gave him the go ahead.  He told us he and his son would be at our home at 8:30 AM the next day.  They showed up at 8:30 AM sharp!  After some introductory chit-chat we discovered this father/son team were third and fourth generation painters.  His grandfather was a painter and had 12 children, seven of which were boys.  All the boys were painters.  His dad was one of them.  Their work ethic and attention to detail quickly became evident.  They were not only good at what they did, they enjoyed it!

We never touched a thing.  Furniture was moved, pictures were taken from the walls and clean drop cloths covered everything.  They left at 3:00 PM but before they left everything was in order.  Drop cloths picked up, all paint and supplies were neatly stored in the corner of the room, and they vacuumed the area.  Yes, they vacuumed the entire area!  Except for their small pile in the corner, all was neat and clean.

Each day they arrived at 8:30 AM sharp and left at 3:00.  Later we found out that he left at 3:00 each day to go do estimates for customers.  He explained that he answers every phone call personally and visits each potential customer the next day, no matter how backed up he may be.

The quality of their work was amazing, and they were fast.  What I thought would take at least a week to do, inside the house, took less than three full days.  Best of all, the price was about a third of what I expected.  Quality workers tend to work fast because they are good at what they do.

By the time they left everything was back in order.  Furniture was in its place and all pictures were back on the walls.  If you didn’t know they had been here, you would never know it. 

What Did We Learn?

  • Answer the Phone – It’s hard to make a sale if you don’t answer the phone. If your company is large, it may take a team…but answer the phone 24/7/365.  If you or your staff can’t answer it personally, have someone (real person) answer it.  When a customer calls, they want to talk to someone or they would not have called.  If no one answers the phone, the lead is likely lost.
  •  
  • Give the Customer a Visit ASAP – Remember, the customer called because they have a need. Slow responses give the impression you are not interested in their business.
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  • Show Up on Time – Show up for bid appointments and for the actual job on time. Respect the customer’s time.
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  • Tell Your Story – Potential customers want to know how long you have been in business and why you started the company. In general, you need to share your history.  It creates a bond and builds relationships.  Customers want to work with people they trust.
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  • Fully Realize There Is a Direct Relationship Between How Clean You Leave the Site and the “Perceived” Value of the Work – Most customers see a direct relationship between the quality of work performed and how clean the area is when the work is done. Clean the area when you leave = Great job.  Mess when you leave = Poor quality of work.  It may not be true but perception (in the customers mind) is truth.
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  • Top Quality Work Is a Given – Top quality work is very important. However, if you fail in the above areas, quality work will not be enough to win over the customer.
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By the way. How many people do you think I will share with about the great painting job I just had done?  That is why my painter invests zero dollars in advertising and marketing.  Word of mouth keeps his schedule full.

Although everything we just discussed is true, if the product or service isn’t priced right the company is still going to go out of business.  If your office staff and employees don’t believe in your pricing, they will tend to undercharge the customer. 

This month’s Website Special is our Why Do We Need To Charge So Much? program.  It helps everyone within the company understand why the company needs to charge what it charges.  The program is normally $139.95 but this month it’s only $99.95Order today and enter coupon code: Why40 at checkout.   

Valuations & Pricing of a Business For Sale…What Should be Considered

By Glen Herman, Business Intermediary, Creative Business Services

We often discuss the importance of clean and accurate financials when running a business or positioning it for sale.  To properly value your business, you will need to have 5 years of financials (specifically, the Profit & Loss Statements and Balance Sheets).  While the financials will help determine the baseline of your value, they may not reflect the potential pricing of the business in terms of what the market is willing to pay.

We often see “rules of thumb” and see calculators on the internet when it comes to the value and pricing of businesses.  These are often based on a multiple of revenue or income but inevitably fail to consider some key components that will leave money on the table when you exit your company.  The reason is simple, they often fail to account for the personal use items that can be added back to earnings (cell phones, autos, etc.) and, also fail to consider the market forces that impact value (scarcity of labor, geography, availability of capital, etc).  We will discuss a few of these methods and considerations:

 Multiples of earnings:  While these are typical starting points for the value of a business, there is a lag time between the data reporting of business sales across the nation, and the valuation of a business at a given point in time.  We have seen an increase in multiples since 2021 in several sectors.  Although these multiple changes do not represent dramatic shifts, having an in-depth understanding of the market niche clients are in can have an impact on value.  Think about the difference between a multiple of x3.5 and x4.0 would do to a business with earnings of $500,000/year.  “Rules of thumb” in the case of multiples are not the most effective means of determining value.  They really need to be considered by a valuation and pricing specialist. 

Scarcity of labor:  There are occasions where a buyer is looking to expand market share or grow into a specific territory but is constrained by labor.  This can mean a potential value proposition in terms of sale value.  Labor can be a large barrier to entry for competing firms to enter your market.  If you have a well-trained and professional team, there is value there.  A firm’s greatest asset is often times it’s people!

Geography:  For well established companies (not in terms of longevity but in terms of market share) that have 90% market share in specific communities, geography can be a barrier to entry for competition.  If demand for entrance into a specific geography is desired by the market of buyers, a premium may be available in terms of pricing of a company.

Buyers-test method:   This is a determination of value that provides the value based on what traditional lending sources are willing to lend to a buyer to purchase a business in a particular industry of a particular size.  While this approach takes into account traditional financing, it does not look at creative deal structure, like owner financing and earn-out provisions.  This is often the consideration of value that individual buyers will focus on because they are using traditional lending.  A business broker can help add value to the sale through creative deal structure to maximize seller value. 

When considering the sale of a business, a professional business broker sets a sale pricing with their clients based on the determination of financial value, market value, and market appetite.  While the process of setting a price begins with the valuation, the process of positioning a business for sale often starts years before.  An early result will almost always result in a higher sale value!

If you have any questions regarding the sale of your business, please call or email me today!

Glen Herman   |   Business Intermediary

Creative Business Services / CBS-Global LLC

Business Brokerage | Mergers & Acquisitions | Consulting
p 262.719.2270

Just Add Value to Their Lives

By Dave Ramsey, Ramsey Solutions

Turnover rate is a vital measure of a company’s overall health

Turnover rate. It isn’t fun, it isn’t sexy, and it has absolutely nothing to do with delicious pastries. If you know anything about balancing the science of running a business and the art of having employees, you know it’s a vital measure of your company’s overall health and culture.

Employee turnover rate pertains to the percentage of your employees who leave your company over a specific amount of time. Think about all the people who quit voluntarily, are fired or choose to retire. That’s what you should factor in when calculating your company’s turnover rate. Why is it so important to keep that pulse? Because you need to know when and why employees “turn over,” not just wave goodbye and hope you can replace them quickly.

How to calculate turnover rate

As if employees leaving wasn’t painful enough, now we have to do math. Most companies want to know their employee turnover rate on a quarterly or annual basis. Why? It just takes that long for anything meaningful to show out of it.

Here’s how to calculate turnover rate:

                                                     Number of employees who left
Monthly turnover rate % =    ———————————————    x100
                                                     Average number of employees

                                                                    Number of employees who left                         
Annual turnover rate % =    —————————————————————    x100
                                                   (Beginning + ending number of employees) / 2
                                                                     

                                                 Sum of employees from all pay period reports                     
Average # of employees =   ————————————————————-
                                                                       Number of reports

What’s a high turnover rate?

The question every leader asks when it comes to turnover is: What is a high turnover rate? The answer is that it depends on the business. You’ve got to calculate it over time, combine that with what you know to be true about your specific business and industry, and factor in your understanding of your employees.

No one wants to be in a bad spot with employee turnover. It’s a huge, expensive pain that takes a ton of time and effort to fix. That said, a high turnover rate usually happens because of a combination of things: company culture, compensation, benefits, job market conditions, employee stress, and more.

If you want to compare your business’s turnover rate to national averages, the Bureau of Labor Statistics is a great place to start. Beyond that, the most effective way to reduce turnover rate is to take a long, hard look at how your employees experience working at your company.

Reducing turnover rate

Understanding where your employees are coming from and what they’re dealing with is like having a silver bullet to solve many of your company’s retention problems. It’s also vital to have a firm grasp on the competitive hiring landscape. What’s that mean? It means knowing where you stand in the marketplace, and not being behind the times—or your competitors—with what you’re offering employees.

While conventional benefits form a good base, today’s employees want and need more than just the basics. They need life-changing benefits to justify staying in one place for more than a few years. And your company stabilizing its turnover rate for the long-term depends on it.

Recruiting isn’t just about hiring new employees. You’ve got to continuously do things that build your culture, and make your employees want to stay with your company. That means your employee retention strategies—your culture, compensation and benefits—need to be unique and on point.

If your employee turnover rate is high, it doesn’t necessarily spell doom for your business. Having a healthy employee turnover rate is possible, and it doesn’t take a complex process to get there. It just comes down to adding more value to your employees’ lives!

* Leadership and small business expert Dave Ramsey is CEO of Ramsey Solutions. He has authored numerous best-selling books, including EntreLeadership. The Ramsey Show is heard by 18 million listeners each week on more than 600 radio stations and multiple digital platforms.

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