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Making Your Successful Co Valuable

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Making Your Successful Co Valuable

  1. 1. DAVID BUCHAN Making Your Successful Company Valuable
  2. 2. How Do World Class Buyers Think About Value <ul><li>The buyers decision is a team effort </li></ul><ul><ul><li>Business people push for the transaction for STRATEGIC REASONS </li></ul></ul><ul><ul><ul><li>Gut feeling and emotion </li></ul></ul></ul><ul><ul><li>Financial people analyze value and work with the business people to decide the VALUE OFFERED </li></ul></ul><ul><ul><li>Hard numbers and facts are needed to get THE BEST PRICE AND TERMS </li></ul></ul>WHAT BUYERS ARE WILLING TO PAY MONEY FOR
  3. 3. What do World Class Buyers Want ? <ul><li>They want to grow their EARNINGS </li></ul><ul><li>They believe that this is achieved by </li></ul><ul><ul><li>Being in attractive MARKETS </li></ul></ul><ul><ul><li>Having the right CUSTOMERS </li></ul></ul><ul><ul><li>Offering great PRODUCTS / SERVICES / TECHNOLOGY </li></ul></ul><ul><li>Buyers will pay a price for a targets earnings that meets their financial criteria </li></ul><ul><li>Buyers want CASH FLOW returned for their investment </li></ul><ul><li>The buyers questions are simple </li></ul><ul><ul><li>How much are the earnings and cash flow ?? </li></ul></ul><ul><ul><li>Will it keep coming ?? Is it repeatable without the owner ?? </li></ul></ul><ul><ul><li>How much can it grow each year ?? </li></ul></ul>A B C
  4. 4. Capture Opportunity <ul><li>Buyers pay more for RESULTS than for OPPORTUNITY </li></ul><ul><li>Look at your business from the outside in, not the inside out </li></ul><ul><ul><li>THINK LIKE A BUYER / FINANCIAL INVESTOR </li></ul></ul><ul><ul><ul><li>Maximize Cash Flow </li></ul></ul></ul><ul><ul><ul><li>Spend cash flow in a way that add to long term cash flow </li></ul></ul></ul><ul><ul><ul><li>What opportunities would a buyer see to increase cash flow - how can you do it now, create the cash flow, and get paid for it </li></ul></ul></ul><ul><li>Do the things today that build value for tomorrow </li></ul><ul><ul><li>Turn opportunity into ACTION ; actions into RESULTS </li></ul></ul><ul><ul><li>Turn COULD into DID </li></ul></ul><ul><ul><ul><li>Don’t be saying down the road, “We could have had more sales” – hire the new salesman “we have new sales” </li></ul></ul></ul><ul><ul><ul><li>“ We could reduce costs” – take action – “we reduced costs by 5%” </li></ul></ul></ul><ul><ul><li>Be prepared to make controlled mistakes – a little risk can be worthwhile </li></ul></ul>
  5. 5. How is Value Determined PRIMARY MEASURE OF CASH FLOW EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION & AMORTIZATION EBITDA $$$ CASH FLOW A B C MULTIPLE Quantifiable / Measurable Subjective Assessment DEBT FREE BUSINESS VALUE TOTAL ENTERPRISE VALUE (TEV) X MULTIPLE RANGE LOW HIGH REDUCING RISK EBITDA GOES AW AY RATE OF GROWTH OF EBITDA POSITIVE EXTERNAL ENVIRONMENT OWNER CONTROLS OWNER BENEFITS FROM
  6. 6. Knowledge is Power KNOW Your Customers – Show they love you Buyers fear loosing them and being overly dependant upon them Demonstrate the strength of the relationship WITH THE ORGANIZATION, NOT THE INDIVIDUAL Providing service or unique features to customers is highly valued – reduce vulnerability to low cost producers Reduce customer concentration Your Market – Define your position in it Get market data for your business – don’t assume that others understand your market/business Quantify the market – dollars and units – and where you fit in locally, nationally, globally Use it as a road map to opportunity – buyers value growth highly Define market METRICS - Make sure that the whole company is aligned with them Your Competitors – Be different Understand their products, strategies and financial capabilities Compete where you can win with something they cannot offer – personal service in a land of giants C B
  7. 7. Make it Routine <ul><li>Create an Operating Infrastructure </li></ul><ul><ul><li>Become a replaceable manager </li></ul></ul><ul><ul><li>BUILD BENCH STRENGTH </li></ul></ul><ul><ul><li>Track what you do, and figure out who else can do it </li></ul></ul><ul><li>Document Processes </li></ul><ul><ul><li>Administrative </li></ul></ul><ul><ul><li>Marketing / Sales </li></ul></ul><ul><ul><li>Production </li></ul></ul><ul><li>Think about how people are managed </li></ul><ul><ul><li>Metrics </li></ul></ul><ul><ul><li>Rewards </li></ul></ul><ul><li>Create/Use Financial & Operating Data </li></ul><ul><ul><li>Daily, weekly, monthly, yearly </li></ul></ul><ul><ul><li>Forward looking data </li></ul></ul><ul><ul><li>How do customers become revenue – PIPELINE / BACKLOG / OS ORDERS </li></ul></ul>B
  8. 8. Make it Transparent <ul><li>Make it easy to understand the numbers </li></ul><ul><ul><li>Top line growth </li></ul></ul><ul><ul><li>Turning into bottom line growth </li></ul></ul><ul><li>Consider getting an audit – adds credibility </li></ul><ul><li>Push down certain operational and financial data to operating personnel </li></ul><ul><ul><li>Gives them measurable goals </li></ul></ul><ul><ul><li>Makes them committed to the success of the business </li></ul></ul><ul><ul><li>Don’t be afraid of informing key employees of operating results </li></ul></ul>A MAKE YOUR MANAGERS BUSINESS PEOPLE Empowered Able To Make Profitable Decisions for The Owner
  9. 9. Grow EBITDA Consistently <ul><li>Buyers believe in trends – show me the money </li></ul><ul><ul><li>SHOW A POSITIVE TREND - If it happened before it can happen again </li></ul></ul><ul><li>Buyers like operating leverage – spreading fixed operating and SG&A expenses over more revenue dollars </li></ul><ul><ul><li>how do dollars most easily fall to the bottom line </li></ul></ul><ul><ul><li>Does each new dollar of sales bring an increasing amount to the bottom line </li></ul></ul><ul><ul><li>Cost reduction activities </li></ul></ul><ul><li>They love to believe in Synergy </li></ul><ul><ul><li>Make yourself an easy plug in </li></ul></ul><ul><ul><li>Ready and Willing </li></ul></ul>C MULTIPLE RANGE LOW HIGH RATE OF GROWTH OF EBITDA
  10. 10. Capital Efficiency Matters Too <ul><li>Many investors value high return on capital invested in the business and strong free cash flow </li></ul><ul><li>Managing working capital frees up cash for growth, debt reduction and distribution </li></ul><ul><li>Show return on your investments </li></ul><ul><ul><li>Don’t be stuck in the middle unable to show a return – accelerate or defer </li></ul></ul><ul><ul><ul><li>If you borrow to invest $3 million </li></ul></ul></ul><ul><ul><ul><li>And your valuation multiple is six </li></ul></ul></ul><ul><ul><ul><li>You need to be earning at least $500,000 per year to get your money back </li></ul></ul></ul>GROW REVENUES GROW EBITDA GROW FREE CASH FLOW GROW ROIC INCOME STATEMENT CASH FLOW & BALANCE SHEET
  11. 11. Action Items To Generate RESULTS KNOW MARKET KNOW CUSTOMERS KNOW COMPETITORS MAKE IT ROUTINE MAKE IT TRANSPARENT GROW EBITDA

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