Reflections

Doing so can help you build your company value

For some business owners and CEO’s, Corona-geddon impacted 2020 in a painful way and yet for others it enabled their business. Regardless which category you find yourself in, think about how you want to finish the year in terms of how it will impact multi-year financial performance trending.

I always play the movie forward on business matters, especially those that can impact my future company value, or company worth. As you play your business movie forward with potential thoughts of wanting to sell your company in the next few years, 2020 will be a critical part of the historical assessment a potential acquirer will conduct as they place a valuation on your business.  Think about the performance trend you will want to show and how 2020 factors into that. For instance, if you want to consider selling in 2022 or 2023, a potential acquirer will review the historical revenue and profit trends of your business and 2020 will be included. You therefore will want to show 2020 as a base year with upward performance trending for 2021 and 2022.  Start thinking now about how to help ensure that 2021 will be stronger than 2020. For some, this may mean piling on to a bad 2020 and pushing some revenues out to 2021 to begin ensuring it’s an upward trend in your multi-year view.

If you do find yourself now thinking about managing your product and service deliveries these last 60 days and possibly moving some out to build a stronger 2021, you certainly want to have in mind commitments you’ve made to customers for November and December and only make changes if they also find this acceptable for their business. And in planning your revenues these last weeks of the year, you want to take into considerations the impact any movements will have on your profit trending picture, your business cash needs and of course year-end tax planning.

The bottom line is this. Don’t think about 2020 as a standalone year. Think about it in terms of how it will appear as a part of your company multi-year financial performance trending. Playing this movie forward can help you show a positive performance trend that will give a future acquirer confidence in the valuation they place on your business in the event you desire to sell.

Doing so could help you protect and build company value

Frequently, when I would speak with a customer I’d ask a basic question. And this question would facilitate interesting dialog and it would later help me and my team discuss how to protect or improve our customer experience. Here it is:

Are we your best supplier?  Of all the businesses that you work with, of any type of product or service, are we the best in terms of providing your team the best customer experience?

If the answer was yes, the natural follow up was discussing specifics around what they appreciated so me and my team could ensure protecting it. And if the answer was no, then of course it was a natural follow up to query where they were seeing a better customer experience. This often led to hearing new ideas that we could discuss and consider evolving to with our business.

Bottom line is this – your job as the owner or CEO is to build long term company value, or worth. And you can do this far better by understanding regularly where you stand in terms of providing a uniquely competitive offering and overall great customer experience. Don’t assume you know…ask.

Increasing your company valuation starts here

Selling your business one day and having a euphoric outcome is a dream only a few ever achieve. This is a good time of year to be thinking about the campaign your company should prepare to work in the new year to build your company value, or worth. Although selling a company one day is a mystery to most owners because they’ve never experienced it, there is a formula that I share with those that I meet with.

Proven Successful Exit Formula:

Future Euphoric Exit = Financial Performance Trend + Stickiness + Pricing Authority + Outlook

This formula is simple in concept, but heavy lifting is required in terms of planning and executing. And it takes time which is why you want to be thinking about your worth building campaign as early as possible. Here is a little more detail on each aspects of this powerful formula:

Financial Performance – this is the first area a future acquirer will want to look at. They will be drawn to your company because of its product or service but they will quickly want to see how attractive it is to your current customers via your financial performance trends. Are you taking the steps to build your financial performance so you would be able to show at least three years of upward trending financial results?

Stickiness – this relates to how important your company is to your customers. Are you taking the steps to develop and position your product or service to be so important to your customers that even if you tried to get away from them, they would stick to you like glue? Acquirers place premiums on businesses that are unique, not easy replicable by competitors and that are very sticky in relationship with its customers.

Pricing Authority – if you’re able to translate stickiness with your customers in to having pricing control that allows you to command a solid profit margin, you enter a realm few businesses do and that could excite a future acquirer to consider paying a premium for your business. Are you taking the steps to develop and execute on a pricing strategy that leverages your customer stickiness and puts you in the driver seat in terms of the pricing you can command in the market?

Outlook – an acquirer will ask themselves whether your business is yesterday’s news or whether it is tomorrow’s news as well. Any acquirer excited about your business because of the prior 3 elements to this formula will look to this fourth and if they see it, a possible future euphoric exit outcome certainly awaits you. Are you taking the steps today to build the case for a positive future outlook in areas such as a robust sales model, sales opportunity pipeline and new product/service roadmap?

Building a business to one day deliver a euphoric exit event is a dream many owners have but few will realize. Those that do realize it developed a campaign and executed well. My advice to owners, think about this formula for your campaign to build the future worth of your business because doing so will very much increase your chances of one day achieving a future euphoric exit.

Doing so can help you protect and build your company value

For many business owners and CEO’s, this is the time of year to think, and take action, as it relates to developing or updating a plan and a budget for the pending new year. I learned years ago with the businesses that I was the CEO for, do not start worrying about your strategy until you know you have an enabling culture that can develop and execute on your strategy.

Too many businesses burn many calories developing a plan, only to get frustrated later with poor execution. And when you dig into the root cause of this, it’s due to the culture of the business. Here are two great definitions of culture to think about for your business:

• Culture is what your employees do when nobody is watching
• Culture is reflected in the worst employee behavior your company will accept

I encourage you to give serious thought to these as they relate to your company.  And a key question to ask yourself, has my company been effective at developing plans in the past and implementing them? If yes, you may have a great culture and are ready to refresh your plans for the year ahead. But if you answered this question no, then before you start burning more calories developing yet another plan and getting frustrated yet again, focus on addressing why execution has been lacking. This is often related to culture.

I learned years ago, without the right culture a company strategy is going nowhere unless it’s lucky. And you do not want to rely on luck to build the value, or worth, of your company. Assess your culture, then once you know it will be an enabler to your plan, focus on having a great plan.

But a mistake than can be avoided

A business owner reached out recently saying he was considering exiting in the coming months. As he shared an overview of his business, I asked what the compelling message would be to a potential acquirer as to why his business would be attractive to them? The response was, “My business is growing and has good, loyal customers”.

I offered my congratulations on achieving this point with his business and then asked if during the due diligence process that a future acquirer would take his company through, would his data support the compelling message about his business?

The reason I asked this question is it’s not that difficult to get potential acquirers willing to at least listen to learn more about your business. And a seller can provide an interesting, compelling message about their business that could get an acquirer to say they want to learn more as they might consider acquiring the business. But as they ask for data about your business to place a valuation on it, will the historical and recent trends back up the initial message shared with them?

In this particular case of, “my business is growing and has good, loyal customers”, here are examples of data that you’d want to be ready to provide to back up this message:

• What is your revenue trend of the past 36 months, steady increase or is it choppy
• What is the revenue trend of your top 10, 20 or 50 customers
• Related to the revenue growth, can you show solid gross margins
• Do you have visibility to what your customers will be purchasing from you so you can show a reliable future forecast
• What is the Trailing 12 month trend of your revenues and margins, by your major product or service offerings
• What is your customer attrition and can you show customers have been with you for many years
• Can you show that a meaningful number of customers purchase multiple products or services from you

These are just a few examples of specific data points you’d need to have ready to back up the initial message about your business. As you think about the compelling message you may want to deliver one day for your business to a potential acquirer, think now about how to ensure you’re building the data to back it up. Doing so can help you attract an optimal exit valuation for your business and sustain it through the due diligence process.

Refresh your approach to strengthen your planning

Many  business leaders are now giving thought to their 2021 planning. Time for us to share some thoughts to help strengthen your planning for the new year:

• Assess this year before you start your plans for next. Ask yourself and your team, how did we do this past year in executing on our current plan? Certainly, COVID threw a severe wrench in to things but there may still be strategic initiatives your team worked on and you should assess progress. Not doing this could mean factors that inhibited progress this year may very well impede progress going forward. What we see in working with many businesses, most aren’t struggling from a lack of strategy, they are struggling from a weak culture in terms of being able to execute. Do an honest assessment of this in terms of what didn’t get done in 2020 that had more to do with culture than it did with COVID.
• Ask new questions, get new answers. Determine if you need to introduce new blood and new thinking in to your process. Now is the time to ask yourself whether the effectiveness of your planning and execution could be enabled by changing up the people helping you with your plan. Good leaders always look for new and broader perspectives.
• In God We Trust, All Others Bring Data – in advance of doing your strategic thinking and planning, consider what data you have available. Now is a great time to look at your sales data and your operating key performance indicators to evaluate what they are telling you. COVID has certainly impacted our businesses and your data might have an interesting story to tell you about your customer buying patterns. Ensure you include looking at your business data to underpin your thinking about your strategy for the new year.
• Disrupted versus Disrupter – every business leader needs to include in the strategic planning these days how technology is impacting their industry and business. If you don’t already include a review of new technologies being adopted into your industry, now is the time to start. As you do your strategic thinking, discuss with your team:1. Are we doing all we can to keep from being disrupted? 2. Are we looking for ways that we can be the disrupter in our industry?
• Are you preparing to excite a future acquirer or investor – as you conduct your strategic planning, ask yourself and your team this question. Are we identifying strategic initiatives that will help us attract future investors or acquirers? A strategic plan should bridge to building company value, or worth, and asking yourself this question is key.

Now more than ever business leaders need to have and build upon their competence of thinking, planning and execution. Especially with the impact of COVID and its remaining uncertainty, it’s our job as business leaders to ensure we are protecting and building the worth of our company. Use this strategic planning time of year to do just that.

An important step to protect and build your company worth

As business owners and CEO’s, we have to ask ourselves how many more crises do we have to navigate before we realize we need a playbook? The ‘08/’09 was painful and now just over a decade later, Coronageddon hits us. This tells us that there will be another crisis so it’s just a matter of when, not if.

We should learn from this one. What did we do well with our business and what should we have done differently? Capturing our learnings can help us when the next crisis hits.

Here are some questions to ask and more importantly, capture the answers. Capture the answers so when the next one hits, you can call the document up and help you protect company value, or worth as we refer to it.

A few suggested questions and your answers to capture in your company crisis playbook:

When COVID first hit, what top 3 things did we do that served us well?

When COVID first hit, what top things did we not do well and/or fast enough and next time will manage differently?

During COVID, what top 3 things did we do well in communicating with our employees?

During COVID, what top 3 things did we not do well in communicating with our employees and will do differently next time?

During COVID, what top 3 things did we do well in communicating with our customers, vendors or other key partners?

During COVID, what top 3 things did we not do well in communicating with our customers, vendors or other key partners and will do differently next time?

As COVID evolved in its impact on our business, what steps did we take with our cash and cost management that worked well for us?

As COVID evolved in its impact on our business, what steps did we not take fast enough with our cost and cash management and will do differently next time?

You see the idea here as we could continue with these types of questions. Meet with your leadership team for even just 30 minutes to quickly brainstorm questions like this and capture your learnings while they are fresh of mind. When another crisis hits your business, you can draw on these learnings and doing so can protect, potentially even build the valuation of your business.

Periodic new perspective can help build your company valuation

Most businesses monitor various metrics helping to indicate the type of customer experience they are providing. They monitor on-time-delivery, fulfillment rates and various quality metrics.

Another way to consider viewing your customer experience is by customer. So rather than looking at your metrics in a consolidated view, look at the metrics for specific customers. In my business one time, we had good overall consolidated customer experience metrics but when we took the new perspective and looked at metrics for individual customers, we had interesting findings.

We looked at our top customers and our on-time-delivery specific to them. Our fulfillment rates specific to them. And our quality performance, specific to them. And what we found surprised us.

Despite our overall consolidated customer experience related metrics being good, we in fact had a few top customers where we weren’t treating as well as we should have. They were not getting a great customer experience from us and had we not looked at our metrics in this new way, we might have missed this and lost the customer before we could correct things.

As a business owner or CEO, talk with your team to bring a new perspective to how you look at your customer experience related metrics. This might help you find gaps or opportunities that ultimately lead to building the future value, or worth, of your business.

"The most serious mistakes are not made as a result of wrong answers. The truly dangerous thing is asking the wrong questions". - Peter Drucker

For the past 5 years, we researched the drivers of successful strategy execution and desired exit valuations in a variety of companies and industries.

Through this work we identified the questions all business owners should ask of themselves - and be able to answer.

Answer these question, master the results, and you will accelerate the climb to your desired exit valuation.

More to come, with news of a unique, action oriented, exit strategy tool we soon will make available to business owners everywhere.

Avoid knee jerk decisions that could hurt your company valuation

It’s clear that COVID is causing not just frustration, but exhaustion for many business owners. On top of this, owners are worried about what the upcoming Presidential election might mean for personal and business taxes. It’s causing a tipping point for some owners that are thinking enough might be enough and perhaps it’s time to think about exiting the business to someone else’s stewardship. This is great if your business is prepared to command the premium valuation you’ve dreamed of. But if not, this is not the time for short term, knee jerk actions.

If this is you or someone you know, here are a few tips that will hopefully help to maintain a rational mindset and avoid doing anything that could cause regret. There has been too much hard work to get the business to where it is today, don’t let COVID allow knee jerk decisions. A few thoughts:

• Revisit what your long-term plan has been for your business and what you wanted it to mean at time of exit to you and your family financially. Reminding yourself of the initial dream and plan you had for your business might invigorate you to hang in longer and muscle through or at least get you to avoid any hasty actions or decisions without giving deep thought to new expectations from an exit.
• Perhaps the exhaustion is being caused by all the defense you’re having to play during COVID. Could there be some degree, even if minor, of playing some offense and this might help to reinvigorate even the slightest spark in you to keep your head productively in the game at least until COVID passes and your business returns to some better days.
• Get away for a few days and take some time to recharge a battery or two. For some owners, this could also help further develop key members of the team that should be able to operate more autonomously without owner involvement.
• Think about your employees and remember that short term, knee jerk decisions right now might not only cause regret for yourself but could have negative impact on your team if the exit process doesn’t result in a positive outcome.
• Leverage an advisor or a member of your Board to help keep you focused on protecting and even trying to build the worth of your company. Having this outside coach and cheer leader can help keep you rational and focused on your bigger picture plan that you’ve been working towards.

Bottom line is this….you’ve worked hard for years to build what you have. Don’t start making knee jerk decisions about your business that could harm valuation and cause regret later. Find a way to keep focused on what has been your desired end game!

Leveraging emerging technologies to create new value

We hear the phrase Digital Transformation quite frequently these days but few small to mid sized business owners and their executive teams truly know what this is. And not understanding it could be causing a future risk to your company value.

An easy way to think about Digital Transformation is it’s your company opportunity to leverage one or more evolving technologies to transform positive change in your business.  We live in an era with multiple technologies evolving and converging such as advancements in 3D printing, Artificial Intelligence, Virtual or Augmented Reality and the list goes on. What these all have in common is they individually or in some cases collectively are enabling business owners to transform their companies in ways that are building new value.

But the uncertainty for many owners goes beyond what Digital Transformation means. It then extends to understanding how to leverage these emerging technologies for the betterment of your business. I encourage business owners and CEO’s not to get lost or scared off by the technologies themselves but to first think about what their business strategic need is. Is the strategic need of your business to drive more revenue, or is the need for a more efficient and effective model for producing your products or delivering your services or might it be that you need to create a better customer experience? Digital transformation starts by first answering this question. Once you answer this, then you can move to learning which evolving technologies can serve as the enabler to your business need. Don’t think of technologies as your end game…your end game is the strategic need your business has. Then look to leverage technologies as the enabler to that end game and this then becomes the digital transformation for your business.

For many business owners, they realize their teams don’t have the experience to navigate a digital transformation. Get some external help from a trusted advisor that can guide you through navigating your digital transformation. Doing so can help your business avoid being disrupted and possibly find ways your business could be a disrupter in the market. Digital transformation could accelerate your pathway to building the value of your business in the eyes of your future acquirer. And as always, if you want to get on a phone call and get our insights to help take away your uncertainty, just let us know.

Generate new team thinking by looking at your time/cost consuming work streams

As we continue to navigate Corona-geddon, many company owners and CEO’s still have great uncertainty around what inning of this bad baseball game we’re in.  This uncertainty for many businesses means the leadership team must continue to look for how to effectively manage their costs to ensure they can maintain positive cash flow.

What I’m hearing from owners and CEO’s is that most are confident in the cost adjustments they’ve made up to this point to support the downturn in revenues. But what’s also clear is many of the cost cutting is tactical. What I mean by this is it’s reducing the cost of materials and supplies by reducing the volumes being purchased or reducing direct labor costs by eliminating overtime or even reducing headcount. And then of course there is lower travel and entertainment expenses or deferring R&D or capex investments or even deferring facility maintenance expense. All great actions to take but very tactical because none change the fundamental way the company conducts its business for the longer term.

The question I’m encouraging owners and CEO’s to be asking is what business transformational changes are being considered that could change how you conduct your business to not only find further cost reduction opportunities but also better ways to create a stronger customer experience for the future. The tactical cost cutting is great but it’s not really helping you build long term value or worth in your business.

Transformational change can mean many things but one definition is looking at key work streams in your business to see where there is need/opportunity for strategic changes to how you conduct these aspects of your business. Are your big costs incurred on the front end of your business in selling your product/service or are they on the back end in terms of how you process and deliver your product/service? Where can you identify these large cost centers and revisit how you perform them?  Many of your company work streams were probably designed many years ago and may no longer be efficient for you or your customers.

To rethink your business work streams and related costs, identify what these key work streams are in the front and back end of your business. Take each of these work streams and flow chart the process and identify with each step in that process the total labor hours needed to deliver on that work stream. Looking at each step and the number of labor hours required to achieve may help you see areas that highlight inefficiencies. You might be surprised when you look at various work streams to see the number of labor hours your company is spending money on.

Anytime with my businesses that we looked for more than just tactical cost improvements, we looked for transformational ideas and found them in looking at work streams. Don’t let a competitor expose an inefficiency, find it yourself by thinking about transformational changes to your business. Looking at work streams and related labor hours never failed to help my teams find new ways to create new value or worth in our business.

Doing so can help build and protect company valuation.

July and August are busy times for members of company boards. Q2 and H1 are over and it’s time to look in the rearview mirror and more so look out the front windshield.

As a business owner or CEO, now is the time to challenge your advisors/board to challenge you with great questions. Especially given Corona-geddon you don’t want the usual questions, you want challenging new ones that help facilitate healthy new dialog…dialog that can help you protect and build company value, or company worth as we like to call it.

Here are some questions you and your advisors/board should be discussing now:

• Have we managed our cash position well and if not, what lessons learned and what changes should we make for H2 given the pandemic is still ongoing?
• Have we done sufficient cost cutting if our business has been negatively impacted…and just as important, are we addressing our fixed costs and our variable costs? Some businesses are only doing the easy cost cutting associated with variable costs, not doing the tough cost cutting measures that hit fixed costs.
• Has our market size and market potential changed permanently? Some markets have shrunk and others have grown either temporarily or permanently as customers’ needs and desires have changed. Make sure you know which is occurring.
• How has COVID impacted your company culture? Is it helping you to live up to your company Values or is it challenging them in new ways? Are you effectively planning for post COVID in terms of whether any of your workforce will continue to work remotely and be productive doing so?
• Is your company value proposition still relevant or does it need to be rethought? Are your customers needing a minor or major change in value provided from you and is your dialog with them effective enough to help you determine this?
• Have you planned for how your market and business will come out of COVID – will it roar back or will it come back slowly? Planning this well will help you ensure having the right degree of resources (materials, supplies and people) and not too much or too little which may impact your ability to stay financially healthy and meet customer demands
• Are you having a healthy dialog around whether your company is taking necessary steps to avoid being disrupted…and are you looking for opportunities to be the DISRUPTER!
• And for those thinking that selling their business in the next few years might make sense, are your advisors/board discussing with you how the M&A market is changing potentially in your industry? And are you monitoring how potential future acquirers might be viewing company's like yours differently now in terms of value drivers so you want to use time as a friend and be on top of this sooner versus later?

Use this natural time of year to step back and look at your business from 100,000 feet and challenge your advisors/board members to ask great new questions. You don’t want to be having stale dialog as it will hurt your company valuation…new questions will generate new thinking and potentially create great company valuation, great new company worth!

Think this through wisely

Corona-geddon has allowed many business owners to see first hand what having a small or large number of employees working from their homes looks like. In my past running of businesses, remote working was a frequent topic even without a pandemic going on. It was often a topic either for cost management reasons or even trying to provide a life balance for certain employees. Here are some thoughts to trigger a business owner/CEO's thinking about this topic for their business:

- ask yourself if a future acquirer to your business will care if you have remote working employees. In some industries, it's already not well accepted and in others it's become more the norm. So as I've pointed out in prior blogs, put on the glasses of potential future acquirers when making these types of business decisions.

- are your employees that are currently working remotely reflecting (tangibly) that their productivity is equal or better to when they worked in the office? You don't want this to be solely a "feel good" decision, see if you can determine if objectively you're seeing a performance difference. And as HR experts are currently pointing out, keep in mind that some employees working remotely are in fact more productive but it's also because the world around their homes still has businesses like coffee shops, restaurants, salons, etc still closed. Once these open, will there then be productivity distractions through the course of a day?

- can your organization be clear in terms of who can work remotely and who can't? You don't want to negatively impact your organization culture over this issue. You don't need employees complaining at the water cooler why some are offered the remote working option and others are not.

- are your IT systems robust enough to support remote working AND ensure security protection of your data and IP? Talk with your IT team or external IT partner and discuss your company capabilities in this area.

- do you in fact have to make this decision now or can you keep employees working remotely while COVID is still in play but communicate to these employees you're still monitoring how long this working format will last. You don't have to commit to it today because there are still many unknowns related to it. Communicate to employees that it's a good option for now but you will monitor it for making any changes in the months ahead.

Although to some making decisions about employees working remotely might seem like a tactical decision, it's not. This is a strategic decision because it can impact your team in protecting and building the value or net worth of your company both today and for the future.

Is your leadership team still effective during COVID in protecting and building your company value

I’ve been having frequent dialog recently with business owners that are seeing their leadership teams in a new light, the light of a crisis. For some, they have a CEO exhibiting the right leadership qualities and experience to navigate this crisis. Unfortunately for other business owners, their CEO that was able to lead the team during “normal” times is not exhibiting the needed leadership during this crisis. What I’m seeing with most of these business owners is they need to step up their leadership and articulate more clearly what their expectations are for their CEO’s now.

Early in my leadership development years, I had a boss say to me that true leaders know how to lead effectively during normal times and equally as well during times of crisis. But because so few have truly experienced crisis, they turn out to be inexperienced and potentially ineffective when the crisis hits. This ineffectiveness can harm your company worth for the short and long term.

If as a company owner you find yourself in this current mindset of losing confidence in your company CEO, here is the dialog you want to be having now so that your expectations are clear:

• Analyzing the current business performance – convey to your CEO that you expect them to truly understand how COVID is impacting your business, not emotionally but through data and facts. Are they effectively using data (i.e.: new customer purchasing patterns) as a friend to help convey where your business has changed and may be changed permanently?
• Making the tough decisions around costs – convey your expectations around your CEO making the really hard decisions to adjust the operating cost structure of the business. Are they just letting variable costs make the natural adjustments they make as a business ebbs and flows? (example: your material purchases are lower because your revenue is lower or your team is traveling less to see customers so T&E expenses are down). Or are they taking the hard look at fixed costs as well to truly protect your margins? Are they looking at indirect labor, not just direct labor? Are they looking at office positions to see which could be consolidated? Are they looking at processes to find opportunities for improvement and cost out?
• Providing strong leadership to employees and customers – convey your expectations for how your company is communicating with employees and customers (even suppliers) during this crisis. Are you pleased with the quantity AND quality of the communications your company is providing to all stakeholders.
• Protecting your company value proposition – convey your expectations regarding any changes your company should or shouldn’t be making to the overall value you bring to the market. How do customers view your company in terms of the value you deliver and your uniqueness versus competition, is your CEO managing this effectively during this crisis?
• Planning and forecasting effectiveness – convey your expectations around the types of planning you want taking place now and what business projections or forecasts you want to be monitoring. Although you want your CEO looking in the rear view mirror during this crisis to understand what your customer data is telling you, you want them also looking out the front windshield and developing their crystal ball of business projections so you can be confident that your resource planning (materials and labor) are being done effectively to protect, even build the worth of your company.

If you are pleased with how your CEO is navigating this crisis, make sure you clearly let them hear this feedback. If you see gaps, especially in these areas above, show your leadership and convey your thoughts and expectations clearly. And if you don’t feel comfortable or confident having these types of dialog, turn to a member of your Board or engage with an advisor who has the CEO operating experience to be able to hear your expectations and effectively coach your CEO. As the owner, it’s also your job to protect and build the value (or company worth) even during a crisis. Decide now if you think you have the right leadership team in place to help ensure you one day receive a euphoric valuation upon exit!

Planning to the right run rate can protect and build the value or the net worth of your company

Speaking with a business owner this week, she was sharing her company revenue forecast of $95M for 2020 which included the impact of Corona-geddon. My question to her was this...."have you set your forward looking materials and supplies purchasing levels and your labor requirements to this full year forecast or have you reset them given your current run rate?" Her answer was, "we're planning to this $95M revenue rate."

My response was that if this forecast is based on looking at their year to date actual performance and extrapolating this out for the balance of the year, this may be over inflating the real run rate they should be planning to. I reminded her that her business year to date performance is clouded by the first 3 months of 2020 in which her business had a strong start and no COVID impact. It wasn't really until May that her business began to feel COVID impact and her May, June and July performance numbers are meaingfully different than the Q1 performance. If I look at the real, new run rate for her business which factors much of the early 2020 pre-COVID results out and use that as the basis for a forecast, I came up with a business closer to $85M in the next 12 months.

The next question I posed is what product and service mix changes her projections were assuming because these too could be impacted by the Q1 numbers. Sure enough, as we talked it through, she agreed that she had to rethink the revenue mix of the next several months because some of her lower margin products are potentially going to be a higher percentage of the mix. 

So although her $95M revenue forecast for 2020 may be close (because of the first few months being of no to little COVID impact), she didn't have in mind that her new business run rate may be closer to $85M and potentially at lower margins than normal. This is a very different level by which her team should be planning materials, supplies and labor.

Working with your team now to truly understand your run rate and product/service mix is critical to protecting and possibly building the value or worth of your business today and the future valuation you might one day receive. Use this time to build your company forecasting and planning muscle to ensure you're planning your business resources to the proper revenue and profit run rates. Be careful extrapolating out your YTD performance because Q1 was COVID free!

Great leaders know the power of soliciting breadth and depth of inputs

There is a lot of discussion taking place around diversity in our country and there are many parallels we can draw to our businesses. This great country was built on diversity of gender, race, culture and religion, all of which has provided a powerful, diverse range of thinking. Our strength was and should continue to be the ability to draw from and meld the best of all of these. The same holds true for every business owner and CEO. As you look to build the value or net worth of your business, are you leveraging the diversity of paradigms and perspectives from those that are and could be around you as you navigate key decisions?

Here are a few questions to ask yourself to see if you're getting the benefit of diversity:

- Think about those around you that you turn to for insights on business matters (your team, advisors, lawyer, accountant, etc), are you getting a diverse range of inputs or have the inputs become narrow and potentially stale? The world continues to change, are your perspectives?

- Do you have people around you that may sometimes disagree with you as they offer different paradigms or perspectives and do you openly embrace this or look to avoid it?

- When facing important business matters, do you first ask yourself if you have the right people around you to leverage their experiences and paradigms to maximize how you process your decision....or do you just quickly jump in to solve the matter, not giving much thought to whether the right people are providing input?

- Would your employee base say that your company leadership team has good diversity represented on it or do they view you and your key leaders as lacking any real diversity of backgrounds, cultures, race, etc?

- Do you have a good mechansim internally for your team and employees to talk about diversity of thinking? Are their formal or informal opportunities for you to solicit insights and opinions from a broad cross section of your employees?

Don't let your team and your thinking go stale by falling in to a comfort zone of like minded people around you. Challenge your paradigms and perspectives on a regular basis and grow as a person but also grow the current value/worth of your company and prepare for a more euphoric exit valuation one day.

How the pandemic is changing acquisition due diligence - use time as a friend to be prepared

Even if you're not thinking about selling your company for several more years, understand that COVID-19 is going to have a lasting impact on acquisition activity and the process itself for years to come. And you don't want the day to arrive when you want to exit only to find out that you weren't prepared for these changes and the ultimate company proctology exam known as due diligence. Let's review below some of the current known impacts from COVID on the acquisition process that could take you time (months or even years) to get prepared for. Using time as a friend now could better enable you in your dream of commanding a euphoric valuation outcome at time of exit one day.

How COVID is impacting due diligence:

- The due diligence process was already onerous, this pandemic is only making it more so. In addition to acquirers needing to become intimately knowledgeable about your business before they are willing to let you cash their check, now they need to dive even deeper to better understand how you've been navigating COVID. All this simply means don't expect that due diligence somehow will be easier, it won't be.

- Data was key before, more so now. When you look at a typical due diligence check list from most acquirers, you'll see it's filled with requests for you to provide them all types of data. Now with COVID, this data scrubbing is only getting more intense. Data related to your customer buying behaviors, your cash flow, your operating efficiencies, etc. And getting your data in good shape for sharing during due diligence can take months, even years to get right.

- Customer stickiness takes on a whole new meaning now. Even before COVID, acquirers wanted to understand how reliant your customers are on your company for a solution. The more reliant your customers are on your company, generally the higher the valuation you might expect to see from the potential acquirer. COVID is exposing this stickiness factor even more. During due diligence now, you can expect to see a very deep dive by the acquirer to truly understand all aspects of your customer buying behaviors and which behaviors temporarily changed and which may have changed permanently. Use time as a friend now to be analyzing this to understand it clearly. Even if you're not planning to sell your business for several years, you'll still be asked how COVID changed your customer buying behaviors THROUGH and AFTER the pandemic. Start monitoring it closely NOW.

- The mergers and acquisition world is now using the word RESILENCE very commonly as a result of COVID. The due diligence process months from now and even years from now will still include a deep dive to understand how resilient your company products/services were for your customers through the pandemic. Most importantly, they will look to understand how quickly you felt the pandemic, how resilient your products and services were during the pandemic and how rapidly your business returned back to positive growth levels. Use time now to be analyzing this resilience and monitor it closely as the pandemic continues to play out.

- During any due diligence, acquirers deep dive in to your financials to understand the financial performance of your business and to do so, they want to understand the normal operating aspects of your business separated from "one offs" that may have helped or hindered your financial performance. COVID is one such "one off" that you will one day want to be able to show the acquirer your "operating results" apart from COVID specific elements. 2020 COVID financial impact from things like government funds you tapped in to such as Payroll Protection Program will be considered a one off and should be identified uniquely versus the normal operating financials of your business. Costs you incurred during COVID that are one off items such as cleaning supplies and labor used to clean your facility above your normal cleaning expense, paying HR and Legal advisors to navigate COVID, lost productivity such as facility closure, etc. Capture all these separately now because during a future due diligence the acquirer will ask for clarity of your operating results versus these one off expenses and you won't want to rely on memory in addressing their questions.

- This pandemic has been so impactful on our economy and each of our businesses that acquirers are going to come out of it assuming your company captured a playbook of learnings for use when the next crisis hits. In the recent past, we had the financial melt down of 2008, twelve years later we have COVID....fool me once shame on you, fool me twice, shame on me. There will be a third crisis in the foreseeable future and acquirers during due diligence will expect to see that you've captured your playbook of learnings, what actions you took that worked well and which that did not.

- Lastly, COVID is changing how the due diligence process itself plays out in terms of a time line. Historically, the acquisition process got underway with the acquirer visiting your facility(s), having a presentation from your management team, tours and then beginning data sharing. COVID has now moved this around given facility visits have been deferred. More acquirers are getting comfortable with moving site visits and face time with people to later in the process. The process is starting with Data (see above) and only upon this exciting the acquirer, will they look to wait to schedule site visits. This raises the importance of your data even more because it's now the first taste the acquirer may get of your business versus prior to COVID they'd be able to sit with you and see your passion for your business. Now your data has to set the hook to get their interest. And also note that the first time an acquirer may want to meet you and your team could be moved to video as they begin to learn about you and your culture. Even after this particular pandemic has passed, this change in the due diligence process itself may remain in place as acquirers won't want to incur up front costs of time/travel to first sample what your company has to offer them.

Bottom line here is this, even if you see selling your business over the next few years versus now, you need to use time as a friend to be prepared to optimize your outcome. You don't want your dreams of a euphoric company sale to be dashed due to not being well prepared...start now!

To protect and build company worth

"The smartest person in the room is the one asking the smartest questions". This is a variant to the quote by Confucius and one every business leader should embrace. Given we are still well within the grasp of uncertainty due to Corona-geddon, now more than ever we need to be asking smart questions of ourselves and our teams. Here are the smart questions to be asking now (read article and do your company scoring).

Don't assume a crisis will only hurt your company value and your net worth

Even if a crisis, like COVID-19, negatively impacts the revenue, profit and cash flow of your business, don't assume that it still doesn't give you the opportunity to help build your company valuation for the long term. Specifically, building a more effective company organization culture.

A crisis affords your company the air cover to make personnel changes to reduce your cost structure. And if labor cost cutting is needed, then make changes that also help you improve your long term organization culture. Think about your culture today, and if you know that you have toxic employees that are hurting your culture and therefore company value or worth building, use the cost cutting need through the crisis as a time to make needed changes with these particular employees. And it's important to think in the opposite sense, if you know you have positive aspects to your organization culture, ensure that any labor cost cutting is minimal in those areas where you want to nurture and protect your culture. You want to avoid labor cost cutting in a way that eliminates certain employees from your organization that underpin a positive culture.

For legal purposes, you certainly have to develop a labor cost cutting plan that is fair in terms of the employees selected to participate in any downsizing, but as you develop this plan, have your future desired state of your organization culture in mind. Developing your labor RIF during a crisis could be the opportunity you've wanted to protect positive aspects of your culture and accelerate improving your problem areas. Your company culture will be a huge contributor one day to the valuation you might receive from an acquirer. Use the crisis as a time to enable your culture and enable your company value, or company worth as we refer to it!