Reflections

Capture the costs now before you forget them

When the day comes you want to talk with an investor or an acquirer, a key question asked about your profitability will pertain to the costs your business incurred in recent years that won't repeat once the new owners take over. This is what helps you arrive at the Adjusted Profit number for your company and it's often this number that the investor or acquirer bases their purchase valuation on. These costs are often referred to as "one off costs", "owner benefits" or "addbacks". The concept is that these costs get reflected in your net profit at the end of a year but because the new owner won't incur them, they should be added back to your historic profit performance to arrive at a higher or adjusted profit number. You don't want to find yourself having to think back over the prior few years to try and recall what these one off type costs were because you will forget some and this will only serve to help the investor or acquirer since the profit of your business is higher when adjusted properly but they won't be basing their valuation on what should have been a higher profit amount.

Now is the time to be remembering and documenting the costs your business is incurring due to this pandemic. This is a one off or perhaps once in a many year event so you don't want a few years to go by and having a dialog with an investor or acquirer and forgetting to adjust your 2020 profit to separate the one off COVID related expenses from the normal operating expense of your business.  Here are a few ideas to get your thinking started:

- Lost productivity due to work stoppages (staffing shortages, employee meetings to discuss COVID matters)

- Purchasing of supplies (extra cleaning supplies above the norm, masks or gloves for employees)

- Cleaning staff (expenses above the norm in terms of more staff, overtime hours)

- Pricing discounts offered to help key customers thru the difficult time

Brainstorm with your controller/CFO to ensure you capture all COVID costs now and if you need ideas, speak with your accountant. Don't put yourself in the position of having to think back a year or more to capture every COVID related cost. Capture them now while fresh on your mind because doing so can mean receiving a higher exit valuation for your business when that exciting time is upon you. When it does, you want it to be filled with euphoria and not regret.

Understanding the last 45 days can lead to building your company value

At this point with Coronageddon, everyone has far more questions than answers. But business was always more of an art than a science which means we need to continue to navigate the unknowns. The fact that there are now more unknowns today than perhaps two months ago doesn't change the need for every business owner to view cash as king but to now add data as the partnering queen.

Now is the perfect time to invest a deep dive in to your data to see what it's telling you about the last week, last 2 weeks, last 30 or even 45 days. The pace of change has gotten crazy fast, so fast that the what you knew to be true about your business back in January or even mid February, has now potentially dramatically changed. And of course a major question is, has it changed permanently or just temporarily? Regardless, you want to know the answer to help navigate at least the near term.

Starting today, challenge if what you knew about your business back in January is still true to this day and leverage what your customer purchase data is telling you:

1.) What is occurring with your new orders...which sources are down, which might actually be flat or up? For those that are up, can you do more to build upon that even more? For those that are down, are you clear on the reasons why? Don't assume it's because the customer's business is down...could it be they need something different or faster than you have made available and they have had to make a quick switch to another source?

2.) Where new orders may be holding steady or even up, what is the profile of these customers/sources and could you find more of them in the market and now would be a good time to introduce your company to them? We all know that online is the market to be playing in...if you're not, can you quickly navigate your way to particpating somehow?

3.) Is there a change geographically where your orders are/are not coming from versus prior to COVID-19?

4.) Has there been a mix shift in terms of what customers are buying from you? What of your offering is down, flat or perhaps even up? What is up, can you build upon it?

5.) Are customer buying patterns now different in terms of the volumes/units...are they buying larger volume in a single purchase than prior or have they adjusted downward and do you undersatnd what's driving this new behavior?

6.) Are customers buying new packages or bundles of what you offer? Perhaps prior you seldom saw a customer buying Part A and Part D together from you on a single order but now they are. Look for any changes to the combination of what customers are/are not buying to see what you can learn.

7.) Talk to your sales people, your customer service people...talk to your customers and see if they are needing a new product or a new variation of an existing product and they would like to get it from you. A few clients I'm helping have done this and sure enough it uncovered some quick bolt on products they can add to their offering and customers are jumping on it.

Again, challenge your paradigms about what you confidently knew about your business just 60 days ago. Look at your data in smaller chunks...see what trends may have changed in just the past two weeks versus the prior two weeks. It's not a time to be looking just at a full quarter or the past 12 months of your data given how things have changed in just a few weeks. Drill in to the last few weeks and see what trends might be evolving. The more you learn, the more you might be able to protect or build your company value or worth today and the future exit valuation you might receive from an acquirer.

Thinking about moving from protecting to building your future company exit valuation

No one's crystal ball can tell us with any degree of confidence when business will get back to "normal". As business owners and CEO's, despite having our days right now filled with tactical matters related to COVID-19 such as personnel items, customer requests for extended terms, supplier challenges, monitoring cash, etc., etc., we also have to find time to think about how our business will respond when our industry begins to recover.

Being prepared for how your particular industry will come out of this event could be the difference between losing or building your longer term company value or company worth. And as I recommend to business owners and CEO's frequently, always look for opportunities to put on the glasses of your future investors/acquirers and look at your business through their lens. Months or even a few years from now, your future investors and acquirers will ask you how you performed through this event but even more so how you bounced back. How your company bounced back could be an opportunity to build your business valuation in their eyes.

Start thinking now about how your industry, how your specific business is going to recover. Is it going to come back very slowly so that it could take months or even a year or more to get back to pre-2020 levels? Or is your industry or business one that will roar back like a lion and will do so relatively quickly? Thinking this through and doing your own projections will help you determine what level of inventory you may want and when, your labor requirements, etc.. What you want to avoid is your industry rebounding more quickly than you are prepared for and therefore not able to meet demand. Many companies aren't losing their customers through the COVID-19 event potentially as their purchases may have decreased. But it's when they are ready to buy again, will you be a partner they can turn to or will they have to turn to others and therefore you will lose business that could have been yours?

In prior Reflections on this site, I've referenced the need to do modeling of various scenarios for your business. Now is a great time to do that becausse you want to be ready to be the kitten or the lion in terms of being ready to participate effectively as a leader in your industry when things start to recover. Talk with your team and think about whether your business needs to be ready for a kitten or lion event. Getting this right can be a great company valuation builder not just in the near term but long term as well.

Leaders versus managers and the impact on your future company valuation

When COVID-19 is a bad memory, it will be evident which businesses had strong leaders and those which did not. Strong leaders are stepping up and providing leadership to their teams in 3 key areas.

1.) Communicating effectively with their employees. And this doesn't just mean sending out memo's just wishing everyone well. This means connecting through phone, video, social media, etc. and hearing employee thoughts, concerns, ideas and assuring them that leadership is on the job. This isn't a time to be a dictatorial leader but one that is engaging with and for the team.

2.) Leading the team to ensure the company remains financially stable in managing cash. Strong leaders are maintaining a proactive position in monitoring cash with their teams. Given revenue impact, what will the impact be on receiveables? Strong leaders are monitoring whether their normal percentage of "current", 30-60 days, etc. are remaining the same or looking for the earliest hint that receiveables are moving to the right. And if they are, leading the team to take counter steps to maintain the health of the business or at a minimum, minimize the damage.

3.) Providing leadership to have an effective blend of strategically playing defense and offense. What defensive steps are needed to protect the business? What strategic initiatives were underway prior to COVID-19 that the team could defer for now to free up resources and which strategic initiatives should remain full steam ahead? What new opportunities have arisen from COVID-19 that your team could take advantage of?

The bottom line is that strong leaders are ensuring their teams remain engaged as best as possible and looking for opportunities to keep protecting and building their company value or business worth through this crazy time. For some, their company's will come out of this in a weaker and lower valuation position and others will have built their company valuation and be better prepared to one day be euphoric at time of exit!

Business owners should have both defense and offense in mind

This week included many phone call meetings with my various clients as we discussed addressing the rapidly evolving COVID-19 challenges. Our focus was on their people, cash and near term forecasts. And as part of the forecasting, we did scenario planning which included brainstorming around playing defense and offense.

Defense had to do with looking at inventory management and raw material purchases to ensure they are brought in line with forecasts. Defense also had to do with identifying discretionary spend that could be eliminated or deferred. And lastly, defense included tapping in to available lines of credit to various degrees depending on the particular client so that if things get worse before they get better, these companies would have cash on hand to manage through it.

We also made sure that our meetings this week included steps for playing offense. And the greater the balance sheet strength of the client, the greater the offense that can be played. Here are some of the very basic steps that are being taken now by those with a balance sheet and cash position to leverage:

1.) Reach out to customers and let them know the operating status of your company. All across the country there is great inconsistency from city to city regarding how quarantines and lockdowns are being implemented. If your company remains open because you're excluded from local government requirements, let your customers know. If you have customers in other States, they may hear on the news that your city is in lockdown and may assume incorrectly that you're closed for business. If you're open, let your customers know it.

2.) Review all current open proposals/quotes that are currently pending with customers. A review of each to determine which went to customers that might be struggling and a modified proposal that includes better pricing or better terms could help them through their difficult time. The best time to build a long term relationship with an existing or new customer is when they are facing a difficult time. Partners that help them through this may have a strong partner for years to come.

3.) Review recent "lost" proposals/quotes and determine which are worthy of revisiting immediately. They may be worth revisiting because the company that was awarded the order might have to close given their local quarantine requirements or they might be cash challenged and unable to fulfill on the contract in a timely fashion. Odds may be low that you could change the award decision, but all it takes is one to make this strategy pay off for you.

4.) Review your current strategy for new proposals going out during this challenging time. Your strategy pre-COVID-19 may have focused on price or delivery or terms, or specific features of your capabilities. But things are currently very different in the eyes of your customer. Rethink immediately what may have changed on their end and perhaps your proposal should change to reflect their new thinking. For some right now, access to product is even more important than pricing. And for others, it's more about payment terms right now then it would have been just a few weeks ago.

As a business owner/CEO right now, don't play the role of a turtle only. Yes, protect your business value and net worth by playing needed defense. But don't miss opportunities to play offense. Balancing defense and offense will help your company come out of this crazy time either with less damage to your company valuation or best case actually with a greater foundation for building it.

COVID-19 reminds every business owner that CASH is still king!

Even the most junior business person knows that cash flow is everything to a business. But now that the Corona Virus is sending chills through the economy, it's critical that every business owner and CEO do an immediate indepth review of their cash position and projections.

With most businesses looking at supply and labor challenges, it's critical that leaders sit with their teams and discuss cash flow. The following are just a few steps to take:

1.) Develop a cash projection tool for your business if one doesn't already exist. Contact me and I'll send you a template if you need one. But this tool should enable you to project out for the next 4, 8 or even 12 weeks what the incoming and outgoing cash needs of your business will be under various scenarios.

2.) Immediately identify high risk customers that you might already have in your Accounts Receivable or soon might have given product/service you plan to deliver in the days ahead. Think about which customers might be hit by this virus extra hard and realize they will most likely slow down their payables to you. Consider those you might have to reach out to and open immediate dialog.

3.) Look at possible scenarios that are looking more likely for your business as it relates to employees working from home and/or not being able to produce anything for your business and what this will do to your near term revenues. Your revenues and costs may get out of whack in these next few weeks so you'll want to get out in front of this now.

4.) Look at your available line(s) of credit and determine if you may need to tap in to one now. If credit markets tighten, your lender may reduce the amount you think you have available so you may want to grab some cash now in the event the worst case scenarios hit your business.

5.) Look at your upcoming projected costs and determine which non-essential ones you can eliminate or at a minimum defer. 

Bottom line (literally) is to immediately huddle with your team and discuss your cash requirements. Get in control of this otherwise it will take control of you and your business and do damage to the value or worth of your overall company. Future acquirers will want to see that you managed through this storm effectively because it will show them your team has the muscle needed and it could help boost the exit valuation they place on your business.

Having a contingency plan can be the difference between enabling or disabling your company value and net worth

Business is tough enough but never more so than when a challenge such as COVID-19 arrives. And although this pandemic brings its own specific challenges, in general it's similar to other events that cause a business to be challenged with revenue and ultimately cash flow. For this reason, every business owner should always have a contingency plan in place to turn to when times like this arrive. The ultimate purpose of such a plan is to help you prepare your business to weather a downturn such as an upcoming reduction in revenue and ultimately cash flows.

A boss said to me early in my career, the time for creating a good contingency plan is when you don't yet need it. This is because you will not feel stressed or panicked in developing or executing on your plans. You will have clarity of thought and you'll have the time to think through your plans from various angles. Ask yourself now, does my business have a contingency plan in place if an event such as COVID-19 gets worse? If the answer is no, then there is immediate need to develop one.

First thing to do is identify what are the triggering events for your particular business that will give you an early warning indicator that special steps need to be taken. Discuss with your team what leading business indicators will tell you that actions need to be taken soon. For example, if your new business quoting/proposal activity drops to a certain level, this could indicate that in the coming weeks or months that your revenues and then cash flow will be challenged. Or if your backlog of new orders falls to a certain level, this could be a triggering event that lets you know action needs to be taken to eliminate or minimize the negative business impact that is brewing. For some businesses, there is a single triggering event to monitor and for others, it's a series of events such as if BOTH new quotes/proposals AND your order backlog fall at the same time, these two together will let you know definitive actions need to be taken.

Once you have your triggering event(s) identified, next is to identify what steps you will then take with your business to protect it. What I generally did with my businesses is have 2 or 3 levels of actions identified within the contingency plan. Level 1 was basic steps, even easy steps that we could take to reduce our cost structure and help our future cash flow. These might include reducing all non-essential travel, deferring some non-essential expenses or looking at use of temporary labor and reducing it and even revising our forecasts to ensure our material costs were being planned properly. Then identifying Level 2 steps become more challenging but more impactful. These might include freezing all new hires, freezing all travel, cutting back on material purchases, and even knowing what parts of our workforce might be layed off or furloughed. And if you get to a Level 3, these steps become very painful and much more impactful. Work with your financial partner to model these various Levels of contingency plan so you can see where the steps will deliver the protection your business needs. You and your team will get quite innovative when you have a healthy dialog around where your business could cut back if the triggering event or events come to fruition.

But the bottom line is we always had a contingency plan to open and review for the ideas we came up with back when we had clarity of thought. You don't want to be thinking through your actions when you are already at the point of needing them. Have your game plan ready to go and doing so can help you protect and ultimately build your company worth. And as I said to a business owner recently, future acquirers will ask you to review in detail how your business did during a prior downturn and from this it can build or reduce their confidence in your team's ability to manage through a storm. And if the future acquirer doesn't believe your company can handle a storm, their offer valuation will reflect this and you won't be happy, never mind euphoric at time of exit!

Build your company value or worth by showing you have a robust sales pipeline underpinning future sales growth

Two of the clients I'm working with have been prepping for the past 2 years and it's now "go time". Meaning, they have been working our 5 step campaign and are now ready to begin the process of talking to potential acquirers. Both company owners are quite happy that they started their sales and marketing teams on building and managing an effective sales opportunity pipeline back now for two years. The simple reason for this is the acquirers are coming in assuming that the sellers believe their businesses have reached their maximum growth potential and the owners are selling so as to avoid the pending downturn. This is the skeptical view of most potential acquirers so it's important that they be presented with a robust sales pipeline to show that there is plenty of growth runway left for your business. Both these businesses are now presenting robust sales opportunity pipelines and it's impressing the acquirers.

I've heard business owners say that when it's time to sell, they can "whip" together a sales pipeline and present that to the acquirer. The reason this approach is ineffective is because you won't be able to show a successful track record of your team managing opportunities and closing them successfully. Managing an effective and growing sales pipeline will prove to an acquirer that your team has the discipline and the muscle to identify opportunities and turn them in to revenue. Lacking such track record, the acquirer may discount any future growth you might be projecting and this discount will manifest itself in the purchase price they are willing to pay for your business.

So ensure today that your sales and marketing team is capturing your sales leads, tracking them effectively as your team moves them from suspects to propsects to customers and then monitoring win/loss data. As each quarter passes, you want to see this pipeline growing and you want to see your win rate either increasing or remaining at a healthy level. The more track record you can show, the greater the liklihood that the future acquirer will believe what your team is forecasting for future growth of the business. And this in turn may result in the acquirer willingness to place a greater valuation on your business and make you as the owner more likely to be euphoric at time of exit!

Wearing future acquirer glasses might help you build your company value

This week a client called to discuss a new piece of capital equipment his team was considering. He wanted my input on whether making a 6 figure investment would help build his company's future value. After a brief overview of the equipment and how he was thinking about the return on investment he might realize, I shared that he was doing a great job of evaluating the investment opportunity through his pair of glasses. But then we switched to wearing the pair of glasses that his most likely future acquirer would be wearing. And although this particular client is still 3 to 4 years away from exiting, we are preparing now to ensure he has a euphoric exit outcome and making this investment decision required we factor this future exit event heavily in to our thinking. We pulled out the prior prepared list we have of his most likely potential acquirer's. In looking at this, it was clear that this particular piece of capital equipment was one each of these potential acquirer's had plenty of at their existing facilities. This then could mean they wouldn't see value creation in this particular piece of equipment so this client wouldn't be rewarded for the investment unless of course it helped generate revenue and margin that he wasn't generating today. This then led to a discussion about alternative production paths the client could take that would allow him to capture the new business growth but eliminate the need for the large capital outlay. And sure enough, his team came up with an idea that would work.

This is an example of something I frequently recommend to clients. When considering important business decisions about new facilities, new equipment, hiring of new executives, etc, etc, after you've thought about the decision through your glasses, put on the glasses of those that might one day consider investing in or acquiring your business. How will they view the investment you made years earlier and will it help further excite them about your business and therefore help build your company value? Always have both pairs of glasses in your pocket, knowing when to wear both can help you on your journey of one day being euphoric at time of selling your business. 

Dress rehearsal for the big game can be the difference between disappointment and euphoria

Many business owners don't realize that getting potential acquirers to one day consider buying their business is in many ways the easy part. The difficult part is maintaining potential acquirer excitement to do the deal even after they get a close look inside your company tent. A little known fact is that a large number of companies that try to sell actually aren't able to get their exit transaction over the finish line. And my experience on being on the acquiring side of the equation many times is that this is because the seller isn't prepared to maintain acquirer excitement through the due diligence process.

When the acquirer first shows up in your lobby to consider buying your business, they may have some excitement building up at the prospect of taking over what you've built. But as the owner and/or CEO, it's your job to ensure that the excitement holds up even after they do their due diligence, or what I fondly refer to as the proctology exam. What few business owners realize is that exit transactions often go south because their team and their business in general isn't prepared in advance to support the due diligence requirements of the acquirer. The acquirer looks for information that either isn't available but essential to having in their eyes or the due diligence has the acquirer probing areas you as the seller just weren't ready to impress them with. All of this can lead to either a reduction in their initial offer price range or cause them to back out of the transaction entirely.

What I learned with my businesses is the power of conducting a Due Diligence Readiness Assessment (DDRA) long before you consider selling your company. This is the dress rehearsal of your business to withstand a typical due diligence probing that an acquirer will put your company through. Doing a DDRA a minimum of two or more years before you consider going to market gives you enough time to address where your company/team will have shortcomings in maintaining acquirer excitement and allow you time to improve/address them. Have your attorney or ask an advisor to share with you a sample due diligence check list from the typical acquirer and review it for how your business would hold up if you had to undergo the process today. You will most certainly see areas where you will question your readiness to withstand the proctology exam and will be giving yourself time to address it. 

Don't wait until it's game time to find out your company can't maintain acquirer excitement through due diligence. Going this route could deliver a very disappointing outcome for you. Your goal is to be euphoric at time of selling your business. Do a dress rehearsal early on to ensure you're supporting your path to euphoria!

Is your internal dialog creating company value and your personal net worth?

I met with a business owner recently who shared that he was frustrated with his CEO because he feels they aren't aligned. He expressed that they meet  frequently but feels they are often working at odds. My reply was you may have quantity of interaction but may be lacking the quality.

Our conversation led me to asking 2 questions:

1.) Have you both discussed and agreed upon what good looks like in the future for the business?

2.) When you meet, do you have an outline of preset topics to cover that aligns your dialog with the short AND long term plan for your business?

He answered "No" to both questions. I shared with him that herein lies his problem and opportunity for meaningful business improvement.

Unless there is alignment at the very top of the leadership of an organization, you run the risk of lacking alignment. This in turn can lead to people creating motion but not delivering progress or results. And when I refer to aligned, I'm not referring to theoretical, immeasurable elements. Having alignment around things like let us look to sell the business in 3 years and get a great price is not going to drive quality of alignment. Dialoging to reach tangible alignment around the future should be the goal. Tangible goals such as we want to achieve $X millions of dollars upon exit, cash at close with no earnouts required and we want to achieve this within X number of years. Having tangible targets will now faciliate more healthy and productive dialog on how to get there.

Next is to establish a productive mechanism for when an owner meets with their CEO or with senior leadership. Set a broad outline of topics that will allow for covering short term tactical matters but also provide for discussing progress against longer term, value building goals. A common agenda I used to use with the owners of companies where I was the CEO included:

- Red flag items - my opportunity to share status of items that could have major financial or legal impact on the business.

- Customer update - discussion around key issues or opportunities being managed.

- Employee update - discussion around any strategic personnel matters or even health & safety issues.

- Finncial update - discussion around the status of the top 3-5 financial metrics we had agreed we would monitor.

- Strategic Initiative Progress update - discussion around progress being made or inhibitors to progress being addressed.

- Operational/Facility update - discussion of 2-3 key non-financial metrics we've agreed are important for us to monitor

- Miscellaneous items - discussion of things related to calendar, customer visits, travel, etc.

Whether it was a weekly phone call or a face to face meeting, I would work this consistent agenda whether our time together was 30 minutes or a few hours. This helped me and the owner have a healthy blend of tactical and strategic dialog. Having this discipline helped me avoid only discussing "flavor of the moment" matters that would make our time together be tactical only. It elevated our time together to bring quality of dialog.

If you're a company owner or CEO that feels like there is a lack of alignment with your team, either or both of these steps can help you move from quantity to quality of interaction. Making this change can be the difference between working hard and making progress on your journey of building the longer term valuation of your company or working hard and being disappointed one day with the outcomes.

Protecting your company value and net worth

At a recent meeting, an FBI cyber specialist had a clear message for business owners. He shared, it's not a matter of if your company will be hacked, it's a matter of when and how you will respond.

More companies today are finding that despite the fire walls and security protocols, hackers and sometimes even employee insiders are causing data breaches that are crippling businesses for hours or days and in so doing, dragging down company value. Our jobs as leaders is to protect the profits of our businesses and we certainly take precautions to avoid a cyber hack. But we also have to be prepared for the unthinkable.

Have a playbook, prepared ahead of time. Effective planning isn't done when you're in the middle of the fire, it's done when you have the peace of mind to think clearly. Follow these tips in putting together your company playbook for recovering from a hack:

- Discuss security protocols with your 3rd party IT partner who manages your networks and data storage. When is the last time you reviewed these protocols to ensure all precautions are in effective?. Review the approval process (written AND verbal) required between your companies for authorizing a change to the network or a deletion of a file backup. Avoid a third party or a rogue employee from being able to give directives to your IT partner. Also discuss having 2 independent back ups for your data, one gets hacked, you still possess the other.

- Know what champion you'll assign to work with your 3rd party IT partner to fully investigate what was breached. It will be critical to know exactly what type of breach occurred as this will dictate the extent of your response. Did the hacker simply lock you out by encrypting the data or did they actually transfer and take control of it? Did they take customer or supplier files, engineering files, source codes to software or even employee records?

- Parallel path to knowing what happened, you obviously want to be working on getting your system/network back on line to minimize disruption to your production or services.

- Know who on your team will reach out to a lawyer that you have identified from your planning that you will call. You will want to ensure that steps you are taking and communications you will have to have with stakeholders (customers, vendors, employees) will be professionally and effectively managed. A misstep in handling a breach could compound the cost and the headaches of recovering.

- If you have a cyber insurance policy, understand whether it requires you to first notify law enforcement before they will open your claim. Most often it's recommended to have in your playbook the number for your area FBI office and ask for the "Duty Officer". This person will be able to start giving you guidance and help you determine whether local police or the FBI should be involved. Going this route will also help you get advice on whether you should be paying ransom to retrieve your data if that is what has been demanded. If you don't yet have a cyber policy, it's still a good time to evaluate getting one as the rates only continue to climb as the frequency and severity of the breaches is intensifying. This insurance can cover your costs of legal fees, lost production time, public relations activity with customers, etc, etc.

- Make sure you keep your playbook updated in terms of what customers or suppliers have language in signed contracts related to how they need to be notified if a breach occurs. Those that do have a requirement most often state that you will notify them within just a day or two of the breach. You therefore can't take a week or two just to look at your signed contracts to see where this clause exists because you'll have already breached it and made matters worse. Track and maintain a listing of all contracts you've signed that require notification of a breach so you can comply with the terms. For those that do require communication, your cyber lawyer can help you craft it.

- And if the breach impacts employee records, have a champion that will help you manage communications. Your employees can quickly lose confidence in their leadership if their personal information is mishandled. The lawyer once again will be very helpful.

- Through all of this, ensure you are tracking the associated recovery costs because you'll either want it for your insurance claim or for being able to identify it as a non-operating one off expense that should be highlighted as such in your financials.

One other piece of advice based on hacks I've seen recently. Ensure that your Accounts Payable Department is clear on protocols for accepting a change of address or change of payment lock box. A common breach these days is a hacker being able to fake being a vendor calling with a change of lock box for sending your payment. Ensure you have effective protocols for both written AND verbal notification and authorization requirements.

Having a playbook with these various actions ready will save you valuable time and can help minimize the damage the breach will cause. During a breach, your company is losing value and worth. Having a playbook can help you minimize that value loss but will help you get back on your feet to regain it and even help build the valuation from a future acquirer as they will see the strong planning disciplines that you have within your company.

Make sure your decision making has a company value and net worth building process

Like so many executives, I prided myself early in my career on being decisive, make that quickly decisive. I came to realize I was placing as much importance on the speed of my decision making as I was its effectiveness. In my first general management assignment at Ingersoll-Rand Corporation, the group president said to me, "Larry, good leaders learn the art of decision making." He went on to explain that the art of decision making included having a repeatable process for runing each decision through in your mind. Doing so over time would help you build the decision-making muscle so critical to building the worth of your business.

The next piece of advice given to me early on was to ensure that before I jump to making the decision, I should first start with determining if I have the right people and right information available to me in order to make the best decision. Not making this my first step puts me in danger of making a poor decision and one I might regret later. So before starting to solve the issue and make your decision, think about whether you have included others that perhaps have prior experience with the particular matter and can add great value by keeping you from repeating mistakes others have made.

Let me share the muscle that I was encouraged to build early in my leadership career pertaining to effective decision making. These questions come naturally to mind whenever I'm navigating the smallest to largest of decisions. With smaller decisions, I run through these same questions but just very quickly. For more a meaningful decision, I am much more methodical in how I address each:

1.) Do I need and/or do I have access to the person or people that could help me look at this decision from all the right perspective? Is there someone on my team who might have experience with this particular matter, someone on my Board, my accountant or lawyer, etc. and am I including them in this particular decision?

2.) Do I have the data or information I will need to make the best decision? Using my gut is great with some decisions but for others, could be dangerous. As the old expression goes, "In God we trust, all others bring data".

3.) What is the magnitude of the decision, so I know what level of thought/time to give it? If it's a minor decision and easily reversible if I were to make the wrong decision, perhaps I can shoot more from the hip. But if I assess the magnitude could be greater, I need to give it due time and energy.

4.) Will this decision impact my company value in the near and/or long term? If it has the potential to do so, that clearly tells me I need to address it very carefully. If not, I can move to decision making much more quickly.

5.) Relating to specific drivers of company value, do I understand the impact this decision will have on my company brand/reputation in the market, on my employees and on my financials?

6.) Is there a precedent for making this decision? Perhaps I've made it before and want to be consistent or perhaps need to be consistent for legal purposes. Or in making this decision, what precedent might that set for me and my business going forward?

7.) Have I played the movie forward on this decision? Meaning, have I thought through any ramifications from my decision by anticipating how others might react (and do I care?) and do I understand how their reactions might then impact me so I can anticipate the fallout I may have to manage?

8.) Who are the various stakeholders that I should convey my decision to? Who are those that will need to know and should hear it directly from me, so as to avoid confusion and who should I communicate with simply out of respect?

9.) For the higher magnitude decisions, how will I monitor the impact on my business? I need to monitor the higher magnitude decisions not only for their potential business impact but also for the purposes of learning from them to further build my decision making muscle.

10.) And ultimately, I ask myself how might a future investor or acquirer perceive the decision made on this matter? Is this a decision they would ever see the outcome of and if yes, need to ensure they see it was well thought through otherwise they may question lots of things about the business if they believe your company lacks a good decision making process!

In order to build your company valuation and overall worth, it takes building lots of various muscles. Decision making is perhaps the largest muscle group of all. Start today by evaluating whether your decision making muscle is repeatable, scalable and whether you should step back and rethink this key aspect of your leadership and your business.

Understand your financial trends

Early in a new year is a good time to look back at the year just ending and do some trend analysis. Looking at your financial trends can help tell a story about whether your business is building worth or losing worth. And if it's building worth, congratulations and make sure you know why it increased so you can protect whatever it is and continue to build upon it. But if the trends tell you you're losing worth, now is the time to stem it. When the day comes that you will want to exit your business and perhaps sell to a third party, guess what they are going to do? They are going to take your financials and look for trends. Knowing this is going to happen some day, you should start now doing the same thing for yourself.

What trends am I referencing? Revenue, Gross Margin, Sales-General & Administrative costs, Net Margins, R&D investments are good starting points. Look at each of these and graph them for at least the last 3 years, 5 is even better. When you do this, step back and ask yourself what are the trends telling you. Ask yourself, if I had to share these today with a potential acquirer, what story would it be telling them? Would they see a rapidly growing and evolving company, a lumpy and inconsistent performing one or even one that is decelerating in performance or even deteriorating? This story will tell them what valuation to place on your business if they were to make you a purchase offer. Know your trends and know the story now for your own business so if you don't like the story it's telling, you still have time to address it. Don't lose valuable time now that you could be using to build the value or worth of your business. Use time as your friend!

"Data is the new oil"

This expression by Clive Humby in 2006 relates to the most valuable resource in the world today, beating out oil, and it's data. Why is this concept being embraced by both small and large companies around the world? Because the data being referred to pertains to our customer's buying patterns.

Over a year ago, Amazon applied for a patent that pertains to their ability to use the data they collect about each of us so they can predict when we will need and/or desire certain products in the future. If our Prime account shows that we purchase detergent about every 4 months, Amazon will see this from their data analytics and can proactively send us a bottle without us ever having to tap or swipe a finger. I'm sure they will let us opt out of such a program or decide when they are wrong and return the product, but that's not the issue for now. What is of importance now is thinking about this example of a company mining their data about our buying patterns and using it to build the long term value of their company.

With this data mining example in mind, here are questions I encourage business owners and CEO's to think about:

1.) What data is your company gathering already about your customer buying patterns? Is this data helping you understand what they buy, when they buy, combinations of products they buy, even what they might return for refund, etc?

2.) Are you capturing your customer data in a manner that allows you to learn meaningful things from it? Capturing and storing of data isn't building enterprise value of your company unless you're using that data for helping to make strategic decisions.

3.) Do you capture any customer data that another company might find value in having? You might be capturing data about customer buying patterns that the original producer of that product might want to see so it can help them make their strategic decisions. Thinking in this way might afford you the opportunity to build a new revenue stream for your company.

4.) Are you using your customer purchasing patterns to help you better forecast your business, improve production and/or distribution efficiencies, bundle your products or services in new ways and even identify opportunities for adding complementary products or services?

5.) Ask yourself what key strategic decisions you have about your business and think about whether the data you're capturing (or could be capturing) is helping you make those decisions.

In this world today, each of us is someone else's value building data because every tap, click and swipe is being captured and those behaviors and patterns are being mined by some business for their benefit. It's time to start thinking about how the data your company is collecting (or should be collecting) and maintaining on your networks could be benefitting your business. Think about your data in a new way....and that is how can it start helping you build greater long term value and worth for you and your shareholders!

Is your team aligned to start the New Year

Here are some key questions that every business owner and CEO should be asking themselves this time of year:

1. Have me and my team defined our financial goals and supporting key strategies for the year?

2. Do these goals and strategies align with my longer term "what does great look like" (Optmizing Your Company Exit Valuation) for my business?

3. Does my leadership team understand our goals and strategies for the New Year?

4. Have I met (collectively and individually) with members of my leadership team to help them understand and embrace the role they play in enabling and supporting successful plan implementation?

5. Does my team's incentive plan align with driving the right behaviors to ensure the effective focus and implementation of our goals and strategies?

6. Have I established a mechanism for an effective cadence (daily, weekly or monthly) of monitoring and reporting on our progress?

These are just some of the healthy questions a good business leader is asking themselves and dialoging with key members of their team. If you answer "no" to any of the questions, now is the time to strengthen how you're leading your team. No company ever created great shareholder value or exited one day at a premium valuation by having a misaligned team. Whether you are thinking about exiting your business successfully in just a few years or even 10 years, now is the time to ensure you have value creating alignment with and amongst your team.

Here is a basic tool (Annual Team Goal Cascading Template) I used in my businesses so I could see how everyone's focus for the New Year was adding up to the bigger picture. In most cases, I built this template with my key leaders so it helped them better understand our bigger picture, understand the importance of their focus and gave them an appreciation and understanding of their peers so they could act as a team in delivering our desired results...and build our company value.

Will your company be disrupted....or be the disrupter?

Every business owner and CEO must ask themselves the following questions: 1.) Where could my company be disrupted by an existing or new competitor? 2.) Where does my company have the opportunity to be the disrupter within our industry?

As business leaders, we are faced with the reality of these questions. With the unprecedented level of advances in technology, these questions are more and more relevant every day. My advice to business owners is to have internal dialog with their teams about where their company could be vulnerable to actions by a competitor and be distrupted. And equally important, discuss where your company could implement plans that disrupt others. In doing so, technology will play a potential key role. My advice is always to look at technologies as enablers because they are not the end games in and of themselves. Start by considering what your business needs and opportunities are. Your opportunities to avoid disruption or to be the disrupter fall within 3 major categories and potentially a 4th. Is your business need/opportunity related to Revenue Growth, Improved Operations, Enhanced Customer Experience or Improved Employee Engagement? The dialog should start by identifying which of these are your primary priority for either avoiding disruption or as an opportunity to disrupt others. Once you know this, then you can look at the various technologies available to all businesses to leverage which can help you get to your end in mind.

Don't lose another day in thinking about avoiding disruption and playing the role of distrupter. Doing so can help you protect and build your company long term worth.

Knowing how future acquirers will value your company

If a potential acquirer knocked on your door today and intrigued you enough to open a dialog about a possible sale of your business to them, do you know what the top 10 most important areas of your business that they will do the deepest dive in for determing the value of your business? If yes, well done as this would indicate you've done your homework in years prior and know that you have your strategic priorities right for building company worth. But if you're not comfortable with your answer to this question, then resolve for yourself today that it will become an important priority for you in the new year ahead.

Knowing how to excite future acquirers to want to look at your business for possible acquisition and then also retain their excitement through due diligence (or the proctology exam as I fondly refer to it) is your most important job in building and ultimately delivering an optimal exit valuation for you and your shareholders. You don't want to work on your business for years, only to one day want to exit and present your business to potential acquirers only to then find out what is going to excite them to pay you a premium. If this occurs, it's too late generally to fix the situation and you'll be filled with unncessary regret. 

Knowing where future acquirers will place the greatest value on your business will help you set your strategic priorities to ultimately help you exit for a premium. Check out this brief article and sample template (Article) to help you know how to begin to tackle this critical business need for building company worth.

Play the movie forward

Too often business owners utter the phrase, "If I could turn back time" as it relates to decisions they've made for their business. The phrase is most often used when referring to decisions they made months or even years earlier and unfortunately, it's used with great regret. I had a boss one time tell me that every leader needs to learn how to assess each business decision and whether it will have impact on future compnay value. Too often, in our desire to make progress and get things off our desk, we might make snap decisions regarding such things as adding a new customer, expanding a product line, buying a piece of equipment or hiring a new employee. But the key is to know which decisions will have a meaningful impact on the future value of your company. Just like when we pick up the remote control to the TV and fast forward to play the movie forward to see an outcome, we more regularly need to do the same with business decisions. Some decisions are certainly tactical and whatever decision is made will have no impact on future company value so little time or thought needs to be given. But as leaders, we need to be able to assess that a decision we're addressing may in fact play a meaningful role in the value of your business. In my past running of businesses, I'd often say to my team, "let's play the movie forward on this decision and talk about what it will mean in the eyes of potential customers, banking partners, investors or acquirers." Looking through these lenses broadens your paradigms and more often leads to better decision outcomes. Certainly you need to make decisions for how they will impact you today (ie: impact on near term revenues and/or cash flow) but equally and potentially of greater importance is determining the impact your decision will have on future company value. 

Start today to build your teams muscle of playing the movie forward on decisions you're facing. Doing so could have a meaingful difference on the future value of your company.

The difference could be hindering your long-term company value creation.

In running various companies in my career, I saw my advisors fell within two camps. There were those that were great tactical advisors and those that were great strategic advisors. The difference being that the tactical advisors will stand ready to answer the questions you think to ask. The strategic advisors on the other hand will not just answer your questions, but they will add great value by knowing questions to ask you that will provide new insights and new paradigms to offer you a new way to look at business issues and opportunities. There is certainly a place for both types of advisors. Sometimes you just have a quick question on a more tactical related matter and tactical advisors can provide quick guidance. But how often does your advisor make you realize that the matter you're addressing is more strategic than perhaps you're thinking and there could be future impact from the decision on your long-term company value? Or how often do your advisors proactively raise valuable discussions points with you that will help you look out longer term? This is where the strategic advisors are worth their weight in gold. You don't want to spend years building your business only to find one day you didn't put all the needed puzzle pieces in place that will excite a future investor or acquirer. Doing so takes years and having access to advisors that have succeeded at doing such value building before can greatly increase the likelihood that you will be euphoric at time of exit.

Start by asking yourself today, are my advisors proactively helping me on my value building journey? If yes, well done, you have built a good base of advisors. But if the answer is no, then don't lose more time and surround yourself with those that have been down this company value building road before. To read the full article to help you think through how to optimize your advisors, (click here)