A story:
Many years ago two hard working guys took jobs as laborers digging ditches. The first laborer worked hard 10 hours a day but never lifted his head up and looked around. 40 years later he was still a laborer.
Whereas the other guy also worked 10 hours a day but after a year or two he asked for and received training to learn how to lay brick. After working as a mason for 5 years he figured out how to oversee other men for the owner and became a foreman. Finally, he took a big chance and started his own masonry company.
Did he really work harder than his associate who 40 years later was still digging ditches 10 hours a day?
Now more than ever you need to both work hard and work smart. Make sure you have a way to grind out the work but also be keeping your head up, looking for opportunities. They are out there waiting for you (or your competitor).
Thursday, May 21, 2009
Thursday, May 07, 2009
Build a Sales and Marketing Process
Sales and marketing is the most important system in at least 90% of the businesses we look at. It is also one of the biggest weaknesses in many companies. Many businesses are started by tradesmen and technical experts who are determined to deliver a better service or product. Yet, there business suffers because they do not learn how to build a pipeline of clients.
Many industries like construction subcontracting and engineering are very dependent upon relationships. An owner with a few good relationships can build a fairly large volume business. This is great until it is time to sell. Then prospective buyers will view the high risk of loosing major clients negatively. This reduces the value of the business.
The solution to these two problems is the same. Build a professional sales and marketing system independent of the owner.
For instance, build a system based on networking by staff, advertising, word of mouth, direct mail, location, or other technique that generates leads. The leads are given to trained salespeople who know how to close a reasonable percentage of the prospects. These systems are tracked and fine tuned to improve performance. Auto dealerships, software companies, distributors, and many other businesses use these techniques to improve their business and increase the transferability of the business.
A sales system that is independent of the owner and proven over time increases the likely survival of the firm. If there is any way possible in your industry to build an independent system do so. This will increase your business value.
Many industries like construction subcontracting and engineering are very dependent upon relationships. An owner with a few good relationships can build a fairly large volume business. This is great until it is time to sell. Then prospective buyers will view the high risk of loosing major clients negatively. This reduces the value of the business.
The solution to these two problems is the same. Build a professional sales and marketing system independent of the owner.
For instance, build a system based on networking by staff, advertising, word of mouth, direct mail, location, or other technique that generates leads. The leads are given to trained salespeople who know how to close a reasonable percentage of the prospects. These systems are tracked and fine tuned to improve performance. Auto dealerships, software companies, distributors, and many other businesses use these techniques to improve their business and increase the transferability of the business.
A sales system that is independent of the owner and proven over time increases the likely survival of the firm. If there is any way possible in your industry to build an independent system do so. This will increase your business value.
Monday, April 06, 2009
Five Things Every Specialty Trade Contractor Should do to Increase the Sales Value of Their Business
Five suggestions that will increase the value of specialty trade contractors like plumbers, electricians, HVAC, etc. Generally these are items that need to be worked on every day, over long periods of time in order to garner the greatest benefit.
1. Increase service work. Service work that will be performed over a period of time provides proof that customers exist and cash flow will continue. Service work is more likely to continue versus new construction when the economy takes a dive. The ability to prove that some work will continue even in slow times in order to pay debt, salaries, and overhead is essential.
2. Avoid the one or two large clients syndrome. No matter how much you love each other eventually that will change. Then where will your business be? Reduce risk by having many smaller clients.
3. Keep overhead low. In good times it is tempting to buy every gadget, toy, and big expensive piece of equipment available. The same goes for purchasing yards and real estate to house the business. This is fine - just stay tuned to where you are in the economic cycle – namely buy early or use short term rentals if possible. Always focus on the amount of debt, long term rent, and other long term cash drains that you have committed to. By keeping overhead low, especially overhead you cannot shed; you will be able to survive if revenues take a dive.
4. Develop a sales process that is not owner (you) oriented. This is often a bigger problem with most new construction contractors than companies that perform service work. Make sure you have a process to generate leads, perform estimates, and obtain work orders or contracts that is not solely dependent on you and your relationships. If it is all you, how will you ever convey it to someone else.
5. Hire great people and create enticing golden handcuffs or stay agreements for the top tier. Most businesses are only as good as their people. In fact when your people go home at night so does most of your business value. Finding and keeping great people will allow you to grow and maximize your value at the same time.
Follow these steps and create a valuable company that you can enjoy owning and others will want to buy when the time is right for you to move on.
1. Increase service work. Service work that will be performed over a period of time provides proof that customers exist and cash flow will continue. Service work is more likely to continue versus new construction when the economy takes a dive. The ability to prove that some work will continue even in slow times in order to pay debt, salaries, and overhead is essential.
2. Avoid the one or two large clients syndrome. No matter how much you love each other eventually that will change. Then where will your business be? Reduce risk by having many smaller clients.
3. Keep overhead low. In good times it is tempting to buy every gadget, toy, and big expensive piece of equipment available. The same goes for purchasing yards and real estate to house the business. This is fine - just stay tuned to where you are in the economic cycle – namely buy early or use short term rentals if possible. Always focus on the amount of debt, long term rent, and other long term cash drains that you have committed to. By keeping overhead low, especially overhead you cannot shed; you will be able to survive if revenues take a dive.
4. Develop a sales process that is not owner (you) oriented. This is often a bigger problem with most new construction contractors than companies that perform service work. Make sure you have a process to generate leads, perform estimates, and obtain work orders or contracts that is not solely dependent on you and your relationships. If it is all you, how will you ever convey it to someone else.
5. Hire great people and create enticing golden handcuffs or stay agreements for the top tier. Most businesses are only as good as their people. In fact when your people go home at night so does most of your business value. Finding and keeping great people will allow you to grow and maximize your value at the same time.
Follow these steps and create a valuable company that you can enjoy owning and others will want to buy when the time is right for you to move on.
Friday, March 27, 2009
3 Steps to Build Business Profits
We are seeing many very good businesses that are having a difficult year or two. Most of the problems are the result of reduced revenues due to the downturn. Three steps to get your business back on track and rebuild profits and business value are:
1. Monitor business results daily. You should have a system so that you know where your business stands at the end of every day. It is better to be approximately right rather than 100% accurate 60 days later. For larger businesses this may be a sophisticated dash board computer program. For smaller businesses it may be a notebook with vital statistics. Most industries have vital statistics that experienced owners watch. For instance in the auto repair business shop owners watch number of tickets and average ticket size. Since they know their typical gross margin on each ticket and they know their fixed overhead costs they immediately know if they are gaining or losing.
2. Stress Test your business. Develop business projections based on what is really happening today. Then reduce revenues another 20 to 50% depending on your industry. What will you cut - how will you at least break even. Finally set firm bench marks as to when you will make those cuts. It is too easy to keep hoping tomorrow will be better.
3. Sell, sell, sell. Sell new products and services to your existing customers. Look for new customers for your existing services. As a sales & marketing expert told me: “If I was advising buggy whip manufactures on how to increase sales, I would suggest porn shops.” Be creative, take a stab and track results.
Obviously there are endless ways to get your business back on track. Each business experiences its own opportunities and challenges. These three steps are a starting point. You are welcome to contact us to discuss these ideas or any others you may have in order to build your business profits and value.
1. Monitor business results daily. You should have a system so that you know where your business stands at the end of every day. It is better to be approximately right rather than 100% accurate 60 days later. For larger businesses this may be a sophisticated dash board computer program. For smaller businesses it may be a notebook with vital statistics. Most industries have vital statistics that experienced owners watch. For instance in the auto repair business shop owners watch number of tickets and average ticket size. Since they know their typical gross margin on each ticket and they know their fixed overhead costs they immediately know if they are gaining or losing.
2. Stress Test your business. Develop business projections based on what is really happening today. Then reduce revenues another 20 to 50% depending on your industry. What will you cut - how will you at least break even. Finally set firm bench marks as to when you will make those cuts. It is too easy to keep hoping tomorrow will be better.
3. Sell, sell, sell. Sell new products and services to your existing customers. Look for new customers for your existing services. As a sales & marketing expert told me: “If I was advising buggy whip manufactures on how to increase sales, I would suggest porn shops.” Be creative, take a stab and track results.
Obviously there are endless ways to get your business back on track. Each business experiences its own opportunities and challenges. These three steps are a starting point. You are welcome to contact us to discuss these ideas or any others you may have in order to build your business profits and value.
Friday, March 20, 2009
What is Goodwill?
Goodwill is an area of confusion for business buyers and sellers.
Some believe that goodwill value is something that grows as their business gets older. “Our business name is 20 years old so it must be worth a lot.” Some believe that goodwill increases as the business gets larger. In general neither of these factors creates goodwill by themselves. Goodwill is a function of business profits. The more profits, the more goodwill. No profits, no goodwill.
An example from the recent headlines is Linens and Things. At its peak Linens had over $2.6 Billion of sales and $86 million of profits. They had over 12,000 employees and over 580 stores. Think of the infrastructure, systems, and people they had in place. Think of their name recognition, website hits, and advertising budget.
In 2006 this company was purchased for $1.3 Billion in a leveraged buy-out. Unfortunately the cash flow did not begin to support the purchase price and the buyers were not successful increasing profitability. Linens and Things was one of the first casualties of the current recession.
As part of its bankruptcy Linens’ goodwill in the form of its name, web URL, and trademarks, sold for One Million Dollars. Using that sale as a baseline for goodwill without profitability means that a company with Ten Million Dollars in revenues but no profits would have goodwill of $3,846.00. So much for goodwill without profits.
Making profits keeps you in business in difficult years and creates long term value when you want to sell your business.
Some believe that goodwill value is something that grows as their business gets older. “Our business name is 20 years old so it must be worth a lot.” Some believe that goodwill increases as the business gets larger. In general neither of these factors creates goodwill by themselves. Goodwill is a function of business profits. The more profits, the more goodwill. No profits, no goodwill.
An example from the recent headlines is Linens and Things. At its peak Linens had over $2.6 Billion of sales and $86 million of profits. They had over 12,000 employees and over 580 stores. Think of the infrastructure, systems, and people they had in place. Think of their name recognition, website hits, and advertising budget.
In 2006 this company was purchased for $1.3 Billion in a leveraged buy-out. Unfortunately the cash flow did not begin to support the purchase price and the buyers were not successful increasing profitability. Linens and Things was one of the first casualties of the current recession.
As part of its bankruptcy Linens’ goodwill in the form of its name, web URL, and trademarks, sold for One Million Dollars. Using that sale as a baseline for goodwill without profitability means that a company with Ten Million Dollars in revenues but no profits would have goodwill of $3,846.00. So much for goodwill without profits.
Making profits keeps you in business in difficult years and creates long term value when you want to sell your business.
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