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Reflections

Hold up our mirror to your business, as we share fresh Bank Your Moment® insights

Have a checklist to vet new opportunities

When your company is faced with an exciting new growth opportunity, do you have a good process for vetting it to ensure it will help build the long-term value, or worth, of your company?

Here is a check list to help you vet how a growth opportunity could impact the worth of your business:

Predictable Revenue – predictable revenues create higher company worth than those that are more one off, transactional in nature. Does this opportunity bring you a degree of predictable revenue such as you get from long-term purchasing agreements, subscription models, licensing or royalty fees, etc.?

Diversity of Revenue – evaluate what the opportunity will mean to your overall revenue mix and concentration. Will it help you build a positive diversity, or might it cause a risky concentration?

Margin – assess whether the opportunity will be equal to or hopefully greater than your average company margin today. Opportunities that can be captured at a greater margin than the overall average margin for your business will be viewed as creating greater company worth for your business.

Competence Leveraging – does the new opportunity allow you to fully leverage what your company’s capabilities currently are or will it require you to invest in new ones? If new capabilities must be built, is the cost of doing so factored into your analysis of the opportunity?

Fulfillment Economics – will the new opportunity fully leverage your current product/service fulfillment model or will it require a variation? Fulfillment model variations generally translate to higher cost for your business so ask yourself, have I factored in a potential variation in to my margin analysis?

Contract Terms – will the opportunity require you to sign agreements or contracts that will be the same, more, or less attractive to others you have signed? For those thinking of selling one day to a third party, know going into a new opportunity that the future acquirer will look closely at the contract terms you sign up for and will determine what this means to the valuation they place on your company.

Working Capital Requirements – growth opportunities should be evaluated for their revenue, margin and working capital impact. Will the cash cycle (ie: Receivables timing) be different from your current business and/or will it place new raw material or finished goods requirements that you want to be aware of on the front end of evaluating the opportunity?

Brand Image – ask yourself how this new opportunity will confirm or potentially change your brand image in the market. By taking this new work, will customers (current or new) view your business in a more positive or potentially negative way as a result of taking on this new work.

Price Control – determine how the pricing going forward might change with this opportunity. The revenue and margin could be attractive in the early periods but how do you project it will evolve. Or perhaps to secure the opportunity you have to accept a lower margin initially, will you have an opportunity to improve the margin over time?

Liability Exposure – evaluate the opportunity as it relates to whether it will expose your company to the same or greater liability than you face currently. Just because it might increase exposure isn’t a deal breaker, but you will to be aware of this going in and making sure your pricing it accordingly to reflect the increased risk.

The bottom line here is as your company pursues new growth opportunities, have a process for how you will evaluate what they will mean to the longer-term worth of your business. Having this discipline could help you command a premium for your business one day.

How Will a Future Acquirer View Your Business?

Ask yourself this question – when the day comes that I want to sell my company, how will a future acquirer view my business?

Every day we view our business through the natural lens of our eyes. However, when the day comes that you want to present your business to potential acquirers, do you know how they will view your business as they look at it through their lens? Use time as a friend to start thinking about this and preparing a business that will present well in their eyes. Here are some questions to facilitate healthy dialog between you and your team on this topic:

Will a future potential acquirer view our company as a single business comprised of complementary products and services or will they view our portfolio as lacking complement, and as a result, will view our offering almost as multiple businesses under the umbrella of a single company?

  • As an example, you have a direct-to-consumer business where you sell pet products to consumers and as part of this same company you also have a light assembly shop where you make surgical tools for veterinarians. You view your business as a single company serving the pet industry. But will your future acquirer want both aspects of this business, or will they view one of value to them and the other possibly not a fit?

Will they view your customer base as highly attractive or will they view it as not being the more quality types of customers available within your industry?

  • Think about this question as it relates to in every industry, there are what is considered quality customers and not so quality customers. Lower quality customers may constantly pressure you for lower prices, extended payment terms or just generally well known for being difficult to work with.

Will they view your company as being well positioned to avoid being disrupted and/or well positioned to play the role of disrupter in your industry?

  • An acquirer will generally be attuned to what trends are already impacting or may soon impact your industry and business. Will they view your company as being well prepared to avoid any disruptions that might occur as a result of these trends or will they see a risk that you are not preparing for what they may mean to your profitable growth?

These are just a few of the many questions to consider but the key is challenging yourself to view your business through two sets of lenses, yours and that of a future potential acquirer. Doing so could help you in making important business decisions now and help build the future exit valuation of your firm in their eyes.

Leverage an effective strategic thinking & planning campaign to build your exit valuation

We speak with many private business owners and a common theme is they aren’t confident that their business strategy is going to help bridge the gap of where their business value, or worth, is today and where they want it to be in the future. The root cause we most often see is the lack of having an effective strategic plan development process, or campaign as we refer to it, for developing your strategy.

Strategic thinking & planning aren’t easy and they are elephants that few private businesses tackle well. And as a result, the natural comfort zone is to focus on more near-term tactical matters and avoid what’s really needed and that is developing a comprehensive strategy for building company worth.

In our frequent guest speaking events on this topic of strategic planning that helps owners build company worth and a business that will one day make them euphoric at time of exit, we share with audiences an effective four part campaign. Review our comprehensive campaign (Four Part Campaign Here) and give us a call (949.874.0787) or email me directly at Larry.OToole@YosemiteAssociates.com so that we can provide more color on how to execute on this campaign specific to your business.

Don’t rely on hope that your future will be euphoric when the day comes you want to sell your business. Build your company and team muscle for developing and executing an exciting strategy for your business. The campaign for doing so is available and awaits you.

Strong leaders create forums for effective dialog

Building the value, or worth of your business involves having a plan and aligning your team around that plan. A missed opportunity we often see relates to how a company owner or CEO aligns their key managers around priorities and general business performance. Having such discussions periodically, such as monthly, can help a team gel while facilitating much needed productive strategic and tactical dialog.

We see owners/CEO’s struggle with facilitating such dialog with their direct reports and/or key managers most often due to a lack of a quality agenda. Here is our recommended agenda to consider with your team for a monthly general business review:

  • Red Flag items – opportunity for a meeting participant to share a business item of major significance. Any item raised here goes beyond the normal operating matters of the company as they are so important, they shouldn’t wait until later in this meeting. Most matters don’t raise to this level of Red Flag and many times there aren’t items to discuss so the group moves to the next topic. Red Flag matters relate to major legal or financial impact items or customer or employee major impactful items.
  • Period to Date Financial Update – opportunity for the team to understand how the business is performing financially. Some teams will go through a very detailed financial review (P&L, Balance Sheet, Cash Flow, Forecast) while others may only discuss high level information.
  • Customer Experience – opportunity for the team to discuss any significant customer issues or opportunities. These are matters that are in the normal course of business versus major ones that you might cover during the Red Flag agenda topic.
  • Organization – opportunity to discuss matters related to employee health & safety, recruiting, retention, etc. These are normal course of business employee matters versus a serious matter that may arise during the Red Flag agenda topic.
  • Strategic Priorities & Progress – opportunity to discuss key areas of focus for the business that each manager should be aligned in supporting. For businesses with more detailed strategic plans, this is the part of the meeting where the team discusses specific progress or barriers related to key initiatives.
  • Key Performance Indicators – opportunity for the team to review the non-financial metrics that the team is tracking. These would include important Operations, Customers, Employees, Information Systems related metrics.
  • Miscellaneous – opportunity for the team to discuss upcoming calendar items, customer visits, facility audits, facility maintenance matters, etc.
  • New Business – opportunity for any matters that a meeting participant believes is of value for sharing with the team that didn’t arise during the prior agenda topics.

This agenda can be modified to suit your business. Move topics to higher or lower on the flow of the agenda and/or expand or reduce certain topics. Meetings of this nature are worth investing 90 minutes to even 2 or 3 hours a month toward. The key is building this cadence with your team utilizing an effective agenda to ensure your team is discussing strategic and tactical matters of importance. This cadence can serve you well in the long term by building a team that works well together and builds the worth of your business.

Protect company valuation by ensuring retention of your key people

Labor challenges are a concern of just about every business owner today. These concerns begin with finding good employees and then once on board, moves to how to retain them. Our finding, more often than not, is the core retention issue relates to culture and less about compensation.

Of course, the amount of money an employee can make working at your business is essential to their decision to join your company and remain with you. But for many businesses, their comp and benefits are market competitive. But what is causing the employee turnover challenge goes beyond comp and benefits and speaks to the culture of the company. And unless the root issue of culture is addressed, throwing money at the situation will only mask an attrition issue short term, but it won’t address the issue longer term.

Here are good questions to discuss with your team relating to employee retention:

  • Do our employees feel connected to the greater purpose of why our company exists? Do our employees understand how their job supports the reason our customers work with us?
  • Do our employees (especially our key/high potential employees) feel like they are learning and progressing in their roles/careers with our company?
  • Do we do a good job of making our employees feel a part of a team, especially now with workers that are remote
  • Do we keep our employees updated in terms of what our key business priorities are and how we’re performing overall – or do they feel like they are operating in the dark?
  • Do we do a good job as a leadership team of addressing personnel performance issues so that our good performers know that we don’t tolerate weak performers?
  • Do our employees feel encouraged to bring forth ideas to help our company strengthen?
  • Do we do a good job of monitoring our employee attrition at the department/function level so we know what it is company wide and by specific parts of our company? Meaning your attrition issue, if you have one, might be coming from just one area of your company.
  • Do we know what the employee attrition numbers are for those employees that have been with us for less than 1 year versus those with us for longer time?

Bottom line is don’t assume that money is the issue people might be leaving your business. The expression is people vote with their feet and leave companies when they don’t like the culture. Investing time with your team and discussing your culture during these challenging times can help you retain key people and help you protect, even build the long-term valuation of your business.

Are You Strategically Preparing for 2022?

As many businesses start a new financial year in January, now is a good time of year to be thinking about your strategic direction. We’ve all heard the expression, “hope is not a plan” and this is important for all business owners to have in mind as we get ready to start a new year.

Our discussion with business owners is this – you as an owner have a vision or desire for what you want your business to achieve for you one day both professionally and personally. And then your business is operating at a certain level today. Therefore, what is the gap between where your business is today and where you want it to be at a future time? If there is a gap, having “hope” alone won’t help you fill the gap(s). But a strategic plan will.

We then find business owners that will agree that hope is not a plan, but they lack the certainty on how to go about developing a plan for their business. Our job is to take this certainty away. To get you started, here are a few questions to discuss with your team to help you better prepare for 2022:

  • What is our financial and non-financial company data telling us about our general performance? When we look at our performance data for 2018, 2019, 2020 and now 2021 Year to Date, what are our performance trends telling us about where we are strong and where we need some improvements?
  • How are each of our products or services performing for us? Are we seeing the desired level of growth in each or only in some? If some are performing well, what steps can we take to ensure this continues and if there are some underperforming, what steps can we take to improve them?
  • How has COVID impacted our organization culture? Is our culture helping us make progress as a business or do we have organization issues holding back our performance?
  • Do we see any changes occurring in our industry or business related to how customers are making purchase decisions? Are there any new technologies that could impact our business in a positive or negative way?

We work with business owners on a 4 Part Campaign for developing a powerful strategic plan that provides them the bridge they desire to one day be euphoric with the sale of their business. Part 1 of our campaign begins with “Where is our company today” and includes many questions, a few examples listed above. Start today preparing for 2022 and use the questions above to begin having productive new strategic dialog with your team. Use time as a friend in building the worth of your company and ensure you’re ready to maximize the year ahead strategically for your company.

Bridging these two will greatly enhance your company value

A common challenge many owners have is when the day comes they try to sell their business, they deliver a message, or narrative, that describes their company to the acquirer only to then find their company internal performance data isn’t available to back up that message. We often reference the great quote, “in God we trust, all others need to bring data”.

Here is an example of a common business exit narrative delivered by private owners/CEOs: “Our business is a growing market leader with a loyal customer base and a strong product/service portfolio that has us positioned to drive future strong, profitable growth.”

On the surface, this could be a good narrative but does your data back up this narrative because your acquirer will ask the following questions:

  • What data can you show us that reinforces that your business is growing year over year? Do you have lumpy year over year growth or does your data show a consistently growing business over the last 3 years at a minimum?
  • What data are you basing your reference to being a market leader on? Is this based on industry data that is readily available, 3rd party market studies that have been conducted or just your team’s opinion?
  • What data can you present that shows your customer loyalty? Are you able to show things like your top 10 customers 3 years ago remain top customers today (very little customer attrition) or can you show data that shows customers repeat purchases over time?
  • What data or specifics can you show that you’ve been investing in building your portfolio of products/services so the acquirer sees the effort and resources you’ve put in to this key aspect of your business? Does your data show that you have continued to invest in your portfolio?
  • What data can you show that supports your forward-looking growth outlook? Are you projecting a hockey stick of growth with little backup data/specifics as to the basis of this growth or can you show effective levels of detail and backup data that show your growth outlook is realistic?
  • What data can you show that your portfolio of products/services is profitable across the board? Acquirers will initially be impressed with your consolidated profit performance but they will want to see the specific data related to the details of each product/service within your portfolio so they understand how each performs.

The bottom line here is years prior to thinking about selling your business, you will want to think about what your ultimate desired exit narrative will be in presenting your business to potential acquirers. As you think about this narrative, plan for how you need to lead your business to deliver, track and ultimately be able to report the specific supporting metrics and data that will effectively reinforce your message. Acquirers will want to see good history of data which is why you want to start thinking about this now and use time as your friend in preparing to one day experience a euphoric exit event based on receiving a great company valuation.

A new way to think about strategic planning

Many businesses struggle doing effective strategic thinking and planning. Our message to company owners and executives is to think about strategic planning as identifying and filling gaps. Gaps that you have between where your company is today and where you want it to be at a future period.

As we close out 2021 and prepare for the new year, here are some strategic questions to discuss with your team. Start your strategic thinking and planning with insightful questions to facilitate productive new dialog.

  • Are we clear on what good looks like for our business in the years ahead and what key metrics we will use to measure progress?
    • What top financial metrics do we want to achieve in the years ahead, where are these metrics today and what are the gaps?
      • What are the top 2 or 3 issues causing these gaps?
    • What top non-financial metrics do we want to achieve in the years ahead, where are these metrics today and what are the gaps?
      • What are the top 2 or 3 issues causing these gaps?

What opportunities do we have in the period ahead to truly stand apart from the competition? What gaps stand between where we are today and executing on this opportunity or opportunities?

Effective strategic planning starts with the first step of asking insightful new questions to facilitate strategic thinking. As you ask new questions and discuss arriving at answers, this then helps you evolve to capturing your ideas in a strategic plan. Talk with your team about the gaps standing between where your business is today and where you want it to be and build the future valuation of your company.

A Great Metric Could Mean A High Company Valuation

Recently one of our posts asked executives to think about their company Shut The Door Metric. We had many people reach out to us asking if we could provide a sample and here it is - (Shut The Door Metric Template)

As a reminder of this critical business metric, ask yourself this question – if today you announced to your customers that your business is closing its doors and no longer available to accept new business, how many minutes, hours, days, weeks, months or years would it take them to find a replacement for what they have been purchasing from you?

How to use our template - start by developing your scoring model using the example table provided on the left side of the graphic. Identify what criteria you would use with your business using our example for ideas. Setting this score criteria will help you think about what aspects of your business afford you the ability to be very important to your customers and/or show that they are reliant on you. Then identify the customers, or customer groups or segments, you'd like to plot. The bubble size reflects the magnitude or revenue for your company from this customer/group and is plotted based on the vertical axis. Then think about each customer, or group/segment, and assign each a Shut The Door metric score using the scoring system you established and plot on the horizontal axis based on having a low metric of "1 to 5" or a high metric of "5 to 10". Once you plot your customers, use the graphic to faciliate great internal dialog in terms of how your team can protect those you have a high metric with today and steps you can take to build it with those you don't.

Having a meaningful number of customers, or groups of customers, with high Shut The Door metric scoring greatly helps build the value of your company. The reason your company value increases is because a higher Shut The Door metric means your customers are reliant on you and this is a good predictor of future revenue and acquirer's of businesses love having visibility to future revenue growth.

Give us a call if you want help customzing this enabling strategic template for your business!

Managing your pendulum and building company exit value

Picture your business and its two most critical aspects. One is creating demand for your products or services and the other is the fulfillment. Your strategy should be to ensure the proper balance of each of these critical areas of your business because if one of these gets ahead of the other, your business is out of balance and your financial results will be less than optimal.

Now picture a pendulum swinging back and forth and envision this representing on one side the demand creation activity of your team and the other, the demand fulfillment. As you lead your team, avoid creating a pendulum effect where for a period of time your business pendulum is swinging to a focus on creating new demand. Then as the demand grows, you realize your fulfillment team isn’t able to keep up and therefore your focus needs to swing from creating demand over to ensuring you can catch up with fulfillment. A business with this type of pendulum activity is out of synch and is not optimizing financial performance. In addition, this pendulum effect will cause frustration for your sales and fulfillment team as they manage through the stress and frustration of this approach to doing business.

To build the future value, or as we refer to it the worth, of your company, avoid building this pendulum model. Your future acquirer will reward you for delivering consistent financial results, not lumpy results that swing back and forth from period to period. Build your business strategy to avoid the pendulum effect and build your company worth.

How to build critically needed alignment

A private business owner recently shared his frustration related to what he felt the company needed and how his view differed from that of his co-owner partners. He felt their focus on revenue growth was coming at the expense of profitability and was asking us how he might broach this with them.

We see this commonly with co-owners and although it may manifest itself in different ways, the root issue is the same. This root issue is lack of alignment specific to what good looks like long term for the business. It’s difficult to effectively discuss short/near term business focus and priorities if there isn’t alignment around what the end game is. If you have co-owner partners and you are frustrated by not seeing eye to eye on short/near term business matters, start by asking yourself, “do we see the long term the same in terms of how we each define what good looks like?”. Ask yourself and your partners questions like:

  • What is each of us looking to get out of this business long term?
  • Do we envision managing this as a lifestyle business or do we see one day trying to sell it to a third-party acquirer?
  • Do we each have personal financial expectations and needs that we want to get from our company and what are these expectations specifically?
  • Are our short and near term strategic decisions supporting our desired end game?

This conversation about defining the future can be difficult but it’s essential. You are less likely to build short term consensus if you’re lacking alignment related to the long term. This is not an issue to take lightly or to keep deferring. Talk with your advisors to get their insights or give us a call to help guide you. You don’t want the stress and frustration to grow and certainly don’t want to let time pass you by in building the company you’ve dreamed of. Drive for alignment with your co-owners and increase your likelihood of building great company worth.

Why Will An Acquirer Want Your Business One Day?

The answer from many private company owners is, “I don’t know, that’s up to them”. Our suggestion is that you could greatly build the future value, or worth, of your company by giving this question further thought.

Why? Because having an idea, even a general idea, could help you make more effective and worth creating strategic decisions in the years ahead of an exit.

Ask yourself – Is our future acquirer one that will likely:

  • Place the greatest value on our products/services versus our facilities or infrastructure, so we therefore should focus and prioritize our investments in this area?
  • Be drawn to our product/service fulfillment capacity to help expand their own so therefore our investment focus should be in this area of our business?
  • Want our technology/process expertise primarily and would see high value in our infrastructure or facilities?
  • Want to remove our business as a competitor from the market and our focus therefore should be more on customer market share capture?

There are more possible scenarios, but as you consider this overarching question, it could help you in making key business decisions over the years.  We’d all like to invest equally across all areas of our business but limited capital can inhibit this. Giving this question strategic thought can help you fine tune your strategic plan and help increase the likelihood of experiencing a future euphoric exit event.

The short answer may be No.

The future acquirer of your business will determine what value they will derive from owning yours. If they believe your business is perfect as it is, this may translate in their eyes to having achieved its peak and taking it any further is filled with risk. Acquirers generally don’t like risk.

If your long-term plan is to manage your business purely as a family life style one, there is nothing wrong with this and your definition of a “perfect” company might be one that provides you a great compensation and benefits, perks and periodic distributions for decades to come.  But if your longer-range plan is to sell to a third party, now you have to think more about the definition of “perfect”.

The acquirer of your business will have a specific reason for wanting to buy it. Their reasons may include adding revenue and profit scale to their business, expanding their products or services portfolio, expanding their access to customers and markets, giving them access to your processes or technology, access to your team or perhaps even just removing you as a competitor from the market. In their plan to benefit from one or more of these, they will determine where they can take your business to benefit their future plans. If you present them a “perfect” business, they may not be willing to pay a premium for a business that potentially has reached its peak in their eyes.

You will build the worth of your business and position yourself for a future euphoric exit event by building a company that excites the acquirer because it has runway left for them to benefit from. Talk with your advisors or give us a call (949.874.0787) and we'll help you identify how you can have the plan for not building the perfect company, but the right company to excite the future acquirer.

Protect and build company worth with a comparison to best-in-class

A question we will ask clients in the early stages of working with them is what is their approach for determining how their company compares to those that are best in class. The answer is most often that they have a general feel for this but don’t have a good way of really knowing what best in class is. Our suggestion is to periodically compare their business, not to itself, but to those best in class.

To help them do this, we offer Yosemite Diagnostics (Yosemite Diagnostic Tools) and specifically our Stethoscope tool . Stethoscope is a health diagnostic tool that guides an owner/CEO through 10 business categories and over 100 thought provoking statements. Each category and related statement is designed to help you ask new, insightful questions about your business and see how best in class companies operate in each.

Protect and build your company worth by rethinking what you’re comparing your business to. Let Stethoscope guide you to new thinking, new dialog with your team and get an overall business health score. And with the score, get practical tips on steps you can take where our diagnostic tool identifies opportunity for improvement.

Let us help you conduct your business health checkup today and receive a 25% “friends of Yosemite” discount. Where you see “enter a coupon”, simply use DIAGNOSE25. And once you've completed it, give us a call at 949.874.0787 and we'll happy to offer additional insights based on the health score you receive. (Start Your Stethoscope Diagnostic Here)

Identifying your model to build company worth

The future acquirer of your business will start by learning about your historical financial performance. But equally, or more important to them, will be your future growth potential. A key part of exciting an acquirer is to show them you have a well thought through growth plan that will continue the success of your business for years to come under their ownership. By asking the right questions, you can identify and summarize your company growth strategy in one word.

Ask yourself this question: To accelerate the growth of my business, do I need to expand my market, increase my product/service offering, expand my company visibility to potential customers or improve my business win rate? These are your four options.

Market: expanding your business to serve a broader or new market is one of the four options your company has. If you currently possess a high market share of the current market you serve, growth may have to be found by repositioning your business to serve a larger portion of your current market or jump to a near neighbor market.

Product/Service: adding a new product or service to your portfolio is a viable option for accelerating growth. If you have loyal customers, this may be a ready-made market for you to introduce additional products or services to. And a subset of this growth option is to update your pricing strategy. Developing a new pricing strategy for your current product or service may be a driver of new growth.

Presence: is your company brand and capabilities visible to all the possible customers that have need for your product or service? If there were just two buyers in the market buying your type of product/service and only one of them knew of your company, then your market presence would be just 50%. If you can get your company visible to the second buyer, you would have a meaningful new growth opportunity. Now extrapolate this same concept to your dozens, thousands or millions of customers. What percentage of potential customers are aware your company exists?

Win: this fourth growth option relates to taking steps to increase the success rate your company has when chasing new opportunities. Out of every 10 opportunities your team pursues, how many do you win? If your win rate is low, discuss with your team what steps can be taken to increase it. Your company may not need to invest time and money in new leads, you may just need a better win rate on the work you’re already pursuing.

Growing your business is a complex matter. But with the right planning process, you can identify which of these growth options would best serve your company and help position you with an enabling future growth model that will excite a future acquirer. Give us a call (949.874.0787) and we can give you tips on how to determine which one of these growth options will help you build the worth of your company.

Knowing this will be key if selling in the next few years

For those owners considering their exit strategy options, having strong Earnings Before Interest Taxes Depreciation & Amortization (EBITDA) is of course an essential element in order to command a premium valuation from outside parties. There are some exceptions to this such as high technology companies, where profit may be less of a driver in the valuation of a company, but for most businesses EBITDA is essential. Thanks to Zachary Scott & Co, they're now bringing much needed attention to EBITDAC, adding COVID adjustments to the equation.

In a normal exit event for a business, adjustments to profitability are taken into consideration. These adjustments fall into the following categories:

  • GAAP Adjustments – these adjustments relate to how you may currently be reporting various areas of your financial statements versus what the GAAP (Generally Accepted Accounting Principles) requirements call for. Ask yourself, are my financials to GAAP? If not, discuss this with your accountant to understand how your financials may look different if they were to GAAP.
  • Owner Adjustments – these adjustments relate to costs to the business directly related to monies that ownership may be taking out of the business that a future owner may not incur. Things like cars for family members, perhaps a boat, travel, etc, that the current owner may incur but a future owner most likely will not.
  • One Time Adjustments – these adjustments relate to costs your business incurs in a given period but will unlikely ever repeat. These could be one-time legal expenses, one-time warranty expenses that were unusual, employee training that is not being repeated, etc. Work with your accounting partner to ensure these types of costs are regularly being captured for future reporting of your adjusted profitability.
  • COVID Adjustments – these adjustments relate to two possible areas. The first is what costs did your business incur through this pandemic that are one-offs (or at least until another pandemic hits). Costs related to extra cleanings of your facility, buying cleaning supplies, gloves, hand sanitizers, etc that you normally wouldn’t incur had there not been the pandemic. These costs reduced your profitability and should be reflected in your adjusted profitability.

The other COVID related adjustment is a more difficult one to capture and represent and that is any negative revenue impact your business experienced due to COVID. One could argue that had the pandemic not hit your business, your revenue would have been higher and so too would your profit have been. Some business owners project their adjusted profitability through COVID trying to reflect this impact but of course it’s much more difficult to get an investor or acquirer to embrace this. They can certainly see the facts behind the COVID costs related to cleaning and supplies but less so related to the revenue you believe you lost.

Bottom line is this, if you’re hoping to implement an exit strategy for your business in the next 5 years, being able to represent your adjusted EBITDACA will be essential as those placing a valuation on your business will want to look back at least 3 years and potentially back 5 years which means 2020/2021 will be part of their analysis. As part of presenting your adjusted profitability, be fair to yourself and make sure you are including an effective monitoring and tracking of your annual profit adjustments which now includes the COVID impact.

Successful transitions need a plan

We regularly talk with private business owners that are either considering or are in the process of transitioning their company leadership to a son, daughter or even a third party recruited CEO. In our work, we see the transitions that are going seamlessly and protecting, even building the value or net worth of the company. And we see those that are eroding it. Let us share with you some key thoughts and steps to have in mind to increase the success of your transition.

First is conducting an honest assessment by the retiring owner as to their true willingness to hand over the reins. This includes self-reflecting on questions like these:

  • Do I really want to step aside or am I getting pressure from others?
  • Am I truly willing to handle over all aspects of the business or do I want to retain certain aspects?
  • Can I place full trust in the new leader of my business? If not, then is it the right person or right time?
  • Is my business at a place I believe no longer needs me personally and I’m prepared to let a new leader leave their imprint on the company?
  • Is the financial condition of my company where I want it to be so that I don’t need to worry about it supporting my financial needs in retirement?
  • Can I separate my personal identify from that of the business or are they one in the same? Do I view the business as simply a means to another end or is my business everything in my life?
  • Am I ready to start spending time elsewhere beyond my business so I truly allow someone else to take it over without my involvement?

Next is ensuring alignment with the son, daughter or third-party CEO in terms of expectations you might have. Open dialog to drive alignment around things like:

  • Have you discussed longer term deliverables you are looking for, even the vision of the business?
  • Have you identified what communications and information you want to receive periodically from the new leader of your business? Do you want to receive weekly updates, monthly, etc and what specific types of information will you want to receive from them?
  • Have you gotten aligned around what strategic/financial decisions you are empowering them to make on their own? Are you giving them full authority and decision making or are their limits you will place on them?
  • If you aren’t going to remain involved, are you providing them with mentoring from a board or an advisor, so they have support to be as successful as possible in their new role?

These types of leadership transitions generally don’t happen naturally on their own. They need quality dialog and effective planning. If you’re an owner thinking about transitioning leadership to another, just know that others have gone down this path before you and there is much to learn from those that have done it successfully. Give us a call and we can help ensure that the transition of leadership continues to build the worth of your company that you have established.

What we did as kids we should do today

We often laugh when young children ask so many questions. We laugh because their “what” or “why” questioning can be incessant and despite our attempt to provide answers, the questions continue. This is their instinctive way of learning. As we get older, this shifts from a focus of asking questions to providing the answers. On the surface this makes sense based on the experience we gain. But at its root, it’s a problem as it pertains to leading our businesses relating to building company value, or as we refer to it, company worth.

The journey of building the worth of your company must include a healthy balance of asking thought provoking questions with your team and having a process for finding the answers. But for too many business owners and CEO’s, their focus is racing to the answers when the first step should be to determine if we’re even asking the right questions.

If we were kids again today but still running our businesses, here are some questions we’d be asking and should be asking now as adults:

  • As a result of COVID, is our value proposition (the value we bring to our customers) and our unique selling proposition (how we deliver the value uniquely versus our competition), that worked for us prior to the pandemic, still relevant now going forward?
  • What technology trends in our industry were accelerated in terms of being adopted and are we prepared to leverage them?
  • What is different now relating to our workforce and have we developed a plan to manage it?
  • Have we captured our COVID learnings so that when the next crisis hits, we have immediate access to the playbook we developed in terms of what we did well and what we would do differently in the future?
  • Are there new opportunities to build the “stickiness” with our customers (increase our importance to them) – which in turn builds the worth of our business?

These questions could continue, and if we were kids again they would! But for now, you get the gist. Reinvigorate the internal dialog with your team and be the leader that asks great strategic questions of your team and in so doing, build new company worth.

Asking new questions can help

Many private business owners are expressing frustration in terms of finding and retaining talented and engaged workers. This frustration relates to finding new people to support growth and retaining those they’ve invested in their training.

To protect and even build the value or net worth of your company, it obviously takes having the right people, in the right roles with the right focus.  Our guidance to business owners who are struggling with labor is to ask new question to generate fresh dialog with your team that might trigger changes you could make to help address the labor challenge:

  • Do we truly understand the root cause of employees leaving? Are they expressing pay is the issue or are there other reasons they don’t feel comfortable sharing with us?
  • If retention is our challenge, are we losing the newer employees or are we losing those with 2 or more years of service? If it’s the newer employees, is our new employee onboarding serving us well?
  • Do we see the labor challenge across our organization or is it in select areas only?
  • Do we see certain managers or supervisors struggling more than others with loss of employees? Might managers or supervisors be lacking good managerial/leadership skills and that is frustrating employees?
  • Can we redeploy any employees to move them temporarily to critical areas where labor has been a problem? This may mean making a sacrifice in another area of the business but it may be worthwhile at least for an interim period of time. And this could be your opportunity to increase cross training which will help the business long term.
  • When is the last time we reviewed our major workflow processes to determine the most labor intensive ones and identify potential improvements we could make to drive productivity gains? Many processes were designed years ago, are they efficient or are we having to apply labor to outdated processes?
  • Are we monitoring available technologies that could help us rethink how certain job functions or processes get done?
  • Are we offering spiffs to existing employees if they recommend new employees?
  • Are we leveraging local groups that could help us engage with individuals with special needs but they are very capable of performing some jobs we have labor shortages in?

View this as more than a tactical issue. View it as a strategic opportunity to ask new questions about your business.  Getting innovative in labor planning, recruiting and retention is critical to protecting and building your long term company net worth.

Preparing for a euphoric future exit event requires a plan

AES Nation (AES Nation) recently released their survey results of private business owners and “only 12% were highly satisfied with the outcome and less than 50% were satisfied at all”.

This survey result and that of many others recently, including one conducted by BizBuySell (BizBuySell), all are reaching this same conclusion. The vast majority of private business owners are either not getting their businesses sold at all despite their wanting to or they are selling but not happy with the outcome.

At Yosemite Associates we see a common reason for this as we talk with many private owners and are now engaged in helping many of them. It is because private business owners know their company and their products or services but what they don’t know is how to ensure they are preparing it successfully for a future euphoric exit. And it’s human nature to avoid the hard things and allow ourselves to get distracted to return to our comfort zone of what we know. This comfort zone is answering emails, phone calls, attending tactical meetings, and this list goes on and on. These things are in our comfort zone as we know how to approach each. But what most private business owners don’t know is how to approach preparing their business years in advance to achieve a successful exit event.

You don’t want to leave what could be the biggest event of your professional career to hope or chance. This is what the 88% club has done and this is not a club you want to join. You want to join the elite group of the 12% and these are the owners, when spoken with, that had a plan. Their plan helped bridge where their company was when they started their exit preparation activity and how they would navigate it to commanding a premium valuation from an acquirer at a future period. If you’re unsure how to tackle effective exit preparations, reach out for assistance today. Use time as a friend because preparations, to be done right, can take years, not months. Give us a call or talk to your company lawyer or CPA and get their advice. But to do nothing is not a plan and should not be the option you adopt.

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Use Greenpoint Testing to Achieve Your Desired Exit Valuation

It only takes 106 questions, scanning 10 essential business functions, to stress test your readiness for a successful exit.

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During this up to hour-long online testing, you'll see questions such as the following.

Sample Question 02

After internalizing each question, select among three answer options – Agree, Unsure and Don’t Agree – choosing the answer which best describes you and your business.

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During this up to hour-long digital Q&A, you'll see questions such as the following:

Sample Question 02

After internalizing each question, select among three answer options – Agree, Unsure and Don’t Agree – choosing the answer which best describes you and your business.

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Format: Digital

Delivery method: Email

Report included: Your Stethoscope results