CEO Advisor Newsletter July 2018
Maximize the Value of Your Business for a Big Exit
There are many aspects of your business that contribute to maximizing the value of your company and building a sellable, growing business. How you manage your business, your strategy and business model, your growth rate, your pricing, your gross margins, your recurring revenue stream and other critical factors not only play into the growth and profitability of your business, but your ability to sell your business and sell it for a maximum value when someone comes knocking or you proactively put the business up for sale.
A successful business is built over time by a CEO or business owner who is able to assemble a cohesive, focused management team that produces quality products and services. Then, the business must create a sales and marketing machine coupled with operational processes that generate profits of a magnitude to both compensate the shareholders and owners adequately for their risk, and ultimately make for a lucrative exit. This requires astute planning and skilled execution.
Why do most CEOs and business owners fail to create a sellable business or a business that has a value worthy of the risk of ownership? Or better yet a business that yields a large exit?
Here are 10 key issues to maximize the value of your business and make for a large and lucrative exit. 1. Planning and Goal-Setting to Raise the BarPlanning and goals are vital to focus your efforts, measure progress and track achievements. Forecasting, accountability and strong management are the path to success. Creating a plan for this growth in the form of long and short term goals, and Business Planning, or even annual goals and tasks will help your business reach new levels of success. Seek expert advice to formulate, quantify and implement your goals to maximize your company's value.
2. Management Management is the number one factor in achieving success and building a business of real value. The CEO or business owner must share in the responsibilities and have a well-chosen, seasoned team, even if very small, to enable the company to grow and prosper. In companies of 5 - 50 employees, the management team typically comes in the form of a business advisor, and other professional service firms that round out and provide specialized expertise to facilitate this growth and success so reach out to a professional for the help you need.
3. Recurring Revenue The true test of a solid business model is, a) A "Need to have" product or service and b) A recurring revenue model. CEO Advisor advises on formulating repeat, forecastable revenue to increase sales, profits and value of your business. This is not only critical in software and other technology companies, but in all types of businesses.
4. Growth RateYour growth rate is a major factor in the value of your business. Many CEOs and Presidents of the companies that I meet feel that a 10% growth rate is typical and acceptable and will suffice when they get to the point of selling their business. The truth is that this lack of strong growth not only costs them tremendously each year, it cripples their business value and in fact inhibits them from being able to sell their company at all 99% of the time. A strong growth rate of 25% - 50% is needed each year as a small to mid-size business to maximize your value.
5. Sound Sales Strategy Without a solid, well thought out sales strategy and plan to focus resources effectively toward goals, there is little to no opportunity to grow sales, increase profits and maximize the value of your business. This is critical and is rarely done consistently in small and mid-size businesses today despite its importance.
6. Gross Profit Margins Gross Profit Margin is the profit from creating and providing your products and services before expenses and overhead. This is the most important aspect of achieving strong profits and a high value of your business. Predominantly, businesses are based on a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). If your Gross Profit Margin is low, then your profits after expenses are highly likely to be low, as well. These depressed earnings will crush the value of your business or exclude you from selling your business at any price.
7. Large MarketSellable businesses have large markets to sell into and grow. If you simply can't grow your business past a few million dollars in sales, it is highly unlikely that anyone would pay good money for it and expect to grow it further. Your strategy and planning should position your company to sell into a large market, while being focused on the highest and best target markets within your total addressable market.
8. Unique or Proprietary Products and Services"Me too" companies tend to be far less valuable, as well as, have a much harder time achieving sales goals. Having unique or proprietary products and services sets you apart in the marketplace with sought after, in-demand services. Because this and other factors are so critical to your successful exit, engage a business advisor to assist in sorting out your strategy and formulating your new products and services, as well as, reviewing your current products, pricing, sales channel and gross profit margin to ensure adequate profitability.
9. Addressable, Identifiable Target MarketA critical mistake by many small to mid-size business owners is trying to sell to anyone with a pulse and a dollar in their pocket. This creates tremendous inefficiencies and is the largest waste of time and money in most small to mid-size companies. A strong sales strategy includes an identifiable target market that is researched and imported into your CRM software with 90% of your sales focus and efforts selling to these prospects in your target markets. In order to maximize your value for a large exit, you must specialize and provide expertise in one or a few markets and bring exceptional value to your buyer.
10. Strong Sales, Sales Management and MarketingIn the end, it is a sales and marketing play that makes for a growing, profitable, valuable business. Sales and marketing execution is not only the most critical aspect of most businesses, it is the hardest to execute on. Faltering or failing in sales, sales management and marketing will cost any business from millions of dollars to hundreds of millions of dollars over the life of the business through to the sales price of the business.
Timing is another critical factor although it is tough to time the market for most privately-held companies. The fact is, valuations are very high now with a tremendous opportunity for nearly all business owners, but this cannot continue for long. Business cycles are recurring every 7.9 years since WWII and we are now 9.5 years into the current business cycle. Selling on the way up is critical. Selling on the way down is nearly impossible and may delay your plans for an exit for another 5 to 7 years or more.
CEO Advisor, Inc. provides hands-on advice to grow your business to the next level and help you in realizing the biggest payday of your lifetime. With over 30 years of experience in mergers and acquisition, we can provide a full service to realize your ultimate goal.
Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. to discuss your options for your exit with a free initial consultation at your office by calling (949) 629-2520, by emailing MHartsell@CEOAdvisor.com or visiting us at www.CEOAdvisor.com for more information.
Hiring, Building and Managing a Sales Team
Measuring Sales Productivity
Tracking sales by salesperson is an essential part of effective sales management. To track your sales team properly, you will need to set goals by creating a Sales Plan with sales goals by salesperson by month for the fiscal year. Then, communicate these goals to each salesperson regularly and hold each of them accountable for meeting their goals. A Custom Relations Management (CRM) software such as Salesforce.com that is kept up to date, used daily by your sales team and monitored regularly is critical to meeting your sales goals.
Adding salespeople can result in steadily increasing sales. This can free you up to better manage the sales team and spend time and energy on other critical tasks. Hiring salespeople could also hurt sales, erode profits, damage valuable customer relationships, and destroy your image in the marketplace. The difference between these two scenarios is the difference between hiring the right salespeople and a potential disaster. CEO Advisor, Inc. has a 10-step approach to assist its clients in making sound, profitable sales hires.
Salespeople have the most daily contact with your prospects and customers. They need to be pre-screened, interviewed three times, have their references checked and have a background check performed on them. To hire the right salesperson for the job, you have to have a clear understanding of what you are looking for with a concise job description. Do you want someone who is a closer or someone who takes more of a consultative sales approach? Do you need someone fully trained and experienced, or hungry and willing to dial 100 times a day to secure appointments.
Good salespeople want to be treated fairly and with respect. This starts with disciplined and consistent training. Misunderstanding your company's compensation plan is one of the main reasons for sales staff dissatisfaction and turnover.
For all potential new hires, explain precisely how they will be compensated. In addition, clarify the territory, your sales goals and performance expectations, the training you will offer, and the sales tools you will provide including a CRM software solution, target lists and leads. You should also provide candidates with a thumbnail description of the market and the competition.
Once you initiate the salesperson search, consider the following:
1. Look internally. You may have technical, support, operations or administrative people who would and could successfully move into sales. Post the ad internally or discuss the opportunity with specific employees that represent a realistic fit.
2. Ask for employee referrals. Chances are your existing employees know the kind of people who would be great salespeople and happy working for you.
3. Network with suppliers, customers, colleagues, advisors and social contacts. This can be cheaper, faster and more reliable than advertising to the general public.
4. Check with professional associations. They may have job lines to help members find employees.
5. Online advertising. The speed, freshness and searchability of online job sites make them attractive options for both candidates and employers.
6. Check with your local universities. You may be able to hire a recent graduate who's enthusiastic, effective and less expensive than a seasoned professional, or an intern for lead generation or sales appointment setting.
Types of Salespeople
Direct Sales TeamThis is the heart of your sales team and where you will leverage your sales for growth. Be disciplined in your hiring and training to increase your odds of successful hires. Make sure you hire salespeople that are hungry to get on the telephone, aggressive to gain meetings and close sales, motivated by money, are professional, coachable and experienced.
Manufacturer's Reps or Independent Contractor Reseller SalespeopleManufacturer's representatives and agents are terms used to describe independent contractor salespeople who work on commission. Independent reseller salespeople are not on a base salary, they receive a percentage of what they sell. They offer a practical, cost-effective alternative to a direct sales force for many growing companies. There are more than a half-million reps in North America, most selling to targeted markets in select geographic regions. The real benefit is that these sales teams have both local prospects and clients, and may have deep industry experience.
Telemarketers/Inside SalespeopleTelemarketers who contact prospects and customers by telephone can provide customer service, perform sales, as well as, take orders. One of a telemarketer's most useful jobs is generating qualified leads. Because you contact customers by telephone, it's easy to track results from a telemarketing effort. You can build your own telemarketing operation in-house by implementing a CRM software and secure lead lists, setting goals and managing the sales effort.
Sales ManagementIt's never easy to hand over responsibility for an important management job to someone else, but hiring an effective sales manager is a critical step to growth. It's unreasonable to expect you to be able to make 30 - 40 sales calls a day, direct other salespeople and run the company at the same time.
Once you hire a sales manager, you'll be able to greatly reduce your sales calls, mostly eliminate managing salespeople, and devote the balance of your time to the jobs you're uniquely qualified to handle, like devising the company's strategy, securing funding, making opportunistic acquisitions, developing new products, etc.
A good sales manager has to be able to:Manage salespeople and train them effectivelyDevelop sales strategies and plansSet sales goals for the sales teamMonitor sales performancePersonally handle key customersAchieve resultsPrepare sales reports and monitor and track the CRMReport directly to you or a superior A sales manager should have good leadership and communication skills and have a proven record of growing sales in past positions.
CEO Advisor, Inc. is a specialist in helping companies build and manage their sales team so they can grow to the next level. Contact us today at (949) 629-2520, or email us at MHartsell@CEOAdvisor.com for a free initial consultation.