Will Your Business be More Valuable this Time Next Year?

Most business owners set goals that focus on hitting certain revenue or profit milestones.  But If your goal is to own a more valuable business by this time next year, you may want to add the following targets:

  • Take a two-week vacation without checking in with the office.  Why?  When you return, you’ll see how well your company preformed and where you need to make changes with personnel or systems.
  • Commit to paper at least one process per month so that others will be able to clearly follow your system.  If you document one process each month, the task will be less daunting.
  • Offload at least one customer relationship. Like most business owners, you are still your company’s best salesperson, but this can be a liability in the eyes of an acquirer.  By the time you are ready to sell, your key customers should not be relying on you as their relationship manager.
  • Cultivate a new relationship with a new supplier.  An over-reliance on one or two suppliers can create a liability for your business.  By spreading some of your business to other suppliers, you keep your best suppliers hungry and you can make a case to an acquirer that you have other sources for your critical inputs.
  •  Create a recurring revenue stream.  Valuable companies can look into the future and see where their revenue is going to come from.  Recurring revenue models can vary from charging customers a small amount for a special level of service to offering a warranty or service contract.
  • Check your contacts and make sure they would survive the change of ownership of your company.  If not, talk to your lawyer about adding a line to your agreements that states the obligations of the contract “surviving” in the event of a change of ownership of your company.

Instead of just building a bigger company, also consider making this the year you develop a more valuable one.

 

 

 

 

 

Source of some information from The Value Builder System TM

How to Thrive as a Middleman

Being a middleman (or woman) has become risky.  When you resell other people’s product, you biggest value is your location.  However, since content can be streamed or shipped overnight, being local is becoming less relevant.  Even if you have a protected geographic territory, pricing information available to your customers through the Internet will eventually grind down your margins.

Dragging down you value

Not only do you risk losing sales and margin to online competitors; being a middleman drags down the value of your company.  If you are reliant on a single supplier who provides the goods you resell, you could be in trouble.  Having one or two suppliers means you could be at risk of an industry change (like video stores for example) or at risk of your supplier choosing to build their own sales force and start competing directly with you.

Henry Schein: a valuable middleman

The solution is to rethink the value you provide your customers.  Instead of assuming it is your location that counts, consider yourself a curator of great products for your customers.  Your job is no longer to be the local company but to be the person who sifts through  all the noise, tests and evaluates what’s available, and supplies just the very best for customers who value – and a willing to pay for – your services as a curator.

Take for example, the case of Henry Schein, Inc., a FORTUNE 500 company and a member of the NASDAQ 100 Index.  Henry Schein is the world’s largest provider of health care products and services to medical, dental, and veterinary office-based practioners.  the company is one of Fortune Magazine’s “World’s Most Admired Companies” and all it does to supply other people’s products.

The difference is that they see their job as sifting through all of the suppliers who want to provide products to dentists, doctors, vets, etc. and picking only the very best to recommend to their clients.  They are a premier gatekeeper.

Doctors, dentists & vets prefer to see & bill patients and value the role Henry Schein plays in helping to minimize the number of sales people they need to see.  This also means that supplies need to go through Henry Schein to sell to these health care professionals.  This is the acid test for a middleman – would your customers rather buy from you or go direct?

If you would like to see how we can help your business change the balance of power, contact us.

 

 

 

 

Source of some information from The Value Builder System TM

Market Share vs Addressable Market

This article highlights a unique way to view your potential customer base.

Addressable Market

Basic business sense tells us we should strive for market share so we can control pricing.  Market share is a worthy goal if your objective is to maximize your profits.  However, if your primary objective is to increase the value of your company, you want to be able to communicate that you have relatively low market share across the entire addressable market.  In other words, there is plenty of field left to plow.

Consider the following ways you might expand the way you are currently thinking about the addressable market for what you sell:

Demographics

Demographics involve segmenting a market by objective measures like gender, income, age and education level.  Marriott is a hotel chain which has created a variety of brands to address the various demographic segments they want to serve.  Ritz Carlton is a Marriott brand that appeals to well-heeled travelers, but a Courtyard Marriott provides a basic room.  The same company has expanded their addressable market by focusing on different demographic segments.

Psychographics

Psychographics involve segmenting your market according to the way people think.  Toyota produces the Prius, which gets 50 miles per gallon and is a favorite among environmentalists.  In contrast, the Tundra pickup truck at just 15 miles per gallon, attracts a very different psychographic segment.

Geography

Success in your local market is good but if you want to really boost the value of your company in the eyes of an acquirer, you need to demonstrate that your concept crosses geographic lines.  McDonald’s has more than fourteen thousand locations in the United States but they also have demonstrated success in global markets.

Increasing a company’s value is not limited to large corporations.  The key for all businesses is to be able to communicate that your concept could work in other markets and that there is still good land left to plow.

 

 

 

 

 

 

Some information is provided by The Value Builder System TM

Keeping a Positive Relationship with Your Bank During Financial Distress

Many times when I am asked to assist a company that is facing challenging times, I find that its relationship with its bank or financial lender has significantly deteriorated. Having a solid relationship with your bank is extremely important in successfully facing a difficult business environment.

There are some very simple things that you can do to maintain a positive relationship with your bank. In today’s business climate, many banks have to deal with some aspect of poor financial performance of their mid-market customers during the term of their relationship.

In my experience, consistent communication with your bank is a key ingredient to maintain a positive relationship. This means being somewhat proactive by having regular meetings or providing regular updates even during good times. When there are issues, make sure you clearly communicate them with your bank so that they do not come as a complete surprise.

It is also important that if you are going to give your bank bad news it should always include a cohesive description of the current situation and how it arose, your plan for dealing with it, including a timeline, and what, if anything, you need from the bank to achieve your plan. Although banks do not like bad news, if you also provide them with your solution and what that might mean for them, they have a much easier time dealing with it internally.

Also remember that when making requests of your bank the last resort should be to ask for more money. This is a huge red flag that you really have lost control of the situation. This usually signals to them that you have waited too long to deal with an issue. There are practical ways to make such requests, but, they usually require additional consideration from the business owner in terms of equity or collateral. Requests for waiver of covenants, extension of time to comply with certain terms or relief of certain loan restrictions are all reasonable requests in these situations. Generally, banks are not interested in foreclosing on their loans. Given a plausible plan, a bank, for the most part, will look for ways to work with their customers.

© Saddle Creek LLC