December 2024 Newsletter
CEOs Don't Know What they Don't Know
- Today, CEOs are required to know just about everything regarding running a business and the universe of knowledge continues to expand, including technologies such as AI. Most CEOs and business owners are extremely well equipped and knowledgeable about successfully run a business and they do it very well.
- But there is one area that too many CEOs and business owners are not knowledgeable about – the path to a successful exit strategy and the sale of their business. When I ask CEOs of small to mid-size companies about the most important aspect of the end game – successfully selling their businesses – too many CEOs simply don’t know what they don’t know.
- Far too many small to mid-size company CEOs and business owners tell me that they regularly get inquiries from outsiders wanting to buy their businesses. So I ask them, “Are these inquiries from strategic buyers, private equity firms, a portfolio company owned by a private equity firm, an investment banker / M&A advisory firm that has an engaged buyer (strategic buyer or PE firm), or are they investment bankers / M&A advisors trying to position themselves to sell your business?” Their answers are all over the map and very surprising, and this is extremely unfortunate to hear.
- Most CEOs and business owners of small to mid-size companies cannot discern what these inquiries are about other than someone asking about buying their company. Because many CEOs don’t know enough to ask probing questions of these people inquiring about buying their businesses, the CEO doesn’t know exactly who they are and if this inquiry is in the best interest of their company to pursue a conversation.
- The CEO cannot clearly determine who is calling and lacks the expertise to distinguish whether the prospective buyer is a strategic buyer, a private equity (PE) firm, a portfolio company of a PE firm, an investment banker / M&A advisor that truly represents a PE firm or strategic buyer, or an investment banker / M&A advisor stating they have buyers in their hip pocket when that is not exactly the truth and they are just fishing for new clients to sell.
- What are the Advantages of Private Equity Firms?
- Everyone understands that a strategic buyer is an operating company that is a complimentary buyer of a business. But many CEOs and business owners of small and mid-size businesses don’t understand exactly how private equity firms work, or what their options are with a PE firm financial partner / buyer. These CEOs immediately assume that a PE firm will take advantage of them, rule over their company and take control over it, the CEO will become a slave to the company, that the PE firm will remove the CEO and place them in a useless position in the company or show them the door, or will change everything and ruin the company you have worked so hard to build.
- In fact, PE firms provide multiple roles that can be very valuable, but you need to have representation from an experienced M&A advisor to ensure a win-win relationship is struck, as PE firms are professional investors / buyers and you need the same level of expertise by your side in all cases to realize this win-win transaction.
- Portfolio Company
- For businesses with $10+ million in Revenue and $2M+ in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), PE firms can make an investment for a minority stake in your business or acquire 50.1% to 100% of your business (typically 70% or 80%) as a portfolio (or hub) company to help you to grow the business faster in order to achieve a larger exit 5 - 7 years in the future. A private equity firm provides additional professional management, can also help you take some money off the table ($2+ million in your pocket), if you prefer, by buying some of your personal stock, which can be a real plus when no other buyers exist for minority stakes in privately-held companies.
- Bolt-on Acquisitions
- For businesses under $10 million in Revenue and under $2M in EBITDA, PE firms can buy 100% of your company as an add-on or bolt-on acquisition to an existing portfolio company that the PE firm already owns. For 20 years, CEO Advisor, Inc. has helped its clients in selling minority, majority or 100% of their businesses to private equity firms or 100% of their businesses to strategic buyers. As you can see, PE firms provide the added flexibility of buying a fraction of your company if you are not ready to sell 100%, while adding expertise and capital for accelerated growth.
- The Smart Path Forward
- Like having a lawyer as soon as a serious issue strikes to protect you and guide you in the right direction, this is precisely the time that you need an M&A advisory firm like CEO Advisor, Inc. Both strategic buyers and PE firms are professional investors / buyers and you will need the expertise of an M&A advisor by your side at the on-set of inquiries from prospective buyers.
- Many inquiries are from a single prospective buyer (strategic buyer or PE firm) trying to become the sole suitor of your company, which is not optimal for you and is the one way you can be guaranteed to, a) Receive the lowest offer, b) Get dragged through a long, drawn out process, and c) Receive the worst terms of a sale.
- As a CEO or business owner, I can assure you that unless you sell your business to a family member(s), sell the business to your management team or employees, or simply close it down, you will be dealing with strategic buyers and private equity firms as your buyer in the future and the time to learn how this process works is now.
- M&A Advisors
- M&A advisors have a fiduciary duty to honestly represent their services yet many M&A advisory firms will contact you and state they have an interested buyer for your business when they do not. CEO Advisor, Inc. operates honestly and transparently with CEOs and business owners in every step of the sale process. We are trusted, hands-on M&A advisors that inform and educate you while generating results in achieving your goal of a successful sale.
- For a no-cost initial consultation, please contact Mark Hartsell, MBA, President of CEO Advisor, Inc. at (949) 629-2520, by mobile phone at (714) 697-3370, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information or to schedule a no cost initial consultation at your office.
Focus on Growth and Metrics for Success
CEOs of small and mid-size companies remain focused on growth as a top priority. We will look at two critical paths for growth, with a focus on organic growth. The two primary paths for growth are:
A) Organic Growth - Business expansion by increased sales to new and existing customers
B) Inorganic Growth - Business expansion through acquisitions (this will be covered in future articles).
CEOs that put strategy, sales and sales management as their top priority outperform their competitors in revenue and profits by up to 80%. While CEOs and presidents of small and mid-size companies play a key role in driving performance improvements across all aspects of a company, sales has traditionally not been the main focus of CEOs and business owners for many companies.
This is a very costly mistake. CEOs, presidents and business owners of top performing companies are very hands-on in driving their businesses forward. Setting budgets and sales goals are just the beginning.
The best CEOs pinpoint a specific sales strategy, tools, sales management processes, analytics and metrics or key performance indicators (KPIs) to ensure substantial growth (at or above industry growth rates) in revenues, gross margins, and profits in order to substantially increase shareholder value. Similar to marketing, sales is both an art and a science.
If sales and sales management are not your strengths, gain the help you need from a seasoned business advisor as failing in these important aspects can cost you millions of dollars in sales, profits, value and your ability to sell your company in the future.
Here are 5 key sales and KPI initiatives that will create a tremendous return on your investment and grow your business to the next level for an optimal exit in the future.
1. Sales Goals to Increase Results and Profits
Well managed sales teams produce big results. CEOs should demand more than monthly sales goals for each member of the sales team. CEOs must require sales goals that produce heightened, consistent results to meet company goals. A direct sales team should have clearly defined goals for each salesperson that include:
• Dials per day to targeted prospects in your customer relationship management (CRM) software• Number of Opportunities created in your CRM software per week and month• Number of new sales appointments per week and month to qualified prospects• Number of Proposals presented per month• Closed number of sales per month• Closed sales in dollars per month• Closed upsells and cross-sells in dollars per month• Referrals secured per month
2. Key Performance Indicators (KPIs) to Drive Sales and Profits
Additional goals that can be readily tracked monthly (in real time if possible) will be the difference in a proactive, results-oriented sales team vs. a reactive sales team that is always behind the curve.
You should monitor and track the following KPIs:
• Average dollar size of each sale (ensure you are selling to larger customers with larger budgets)• Average length of contracts in years• Amount of sales to your top 25 customers per month, quarter and year to ensure you are properly servicing them and hitting sales goals• Average Number of Days to Close a Sale (Ave. Sales Cycle)• Renewal rates of contracts• Customer Churn• Revenue Churn• Net Revenue Retention Rate• Growth Rate (quarter over quarter and year over year)
3. Build a Sales and Marketing Machine to Optimize Sales and Value of your Business
By building a sales and marketing machine within your company, you will optimize your gross and net profit margins and tremendously increase the value of your company. As part of your sales strategy, expand your direct sales efforts with indirect sales by formulating a Reseller Channel Program and then recruit, build, train, motivate and support these Resellers and Referral Partners.
This takes planning, focus and attention to details to put in place and manage, so gain the needed outside help from a business advisor to get this right the first time.
4. Get Out of the Office and Visit Customers for Real ROI
As the CEO of your company, get out of your office and go with sales managers and individual salespeople and visit your major customers quarterly or at least annually. Understand the customers' needs and satisfaction level, understand how you can help them by upselling and cross-selling additional products and services, renew annual contracts and secure a tighter relationship by demonstrating real interest and commitment to your customers.
5. Focus on Sales Management and Account Management
Strong sales management should be part of the fabric of your company. Sales are the lifeblood of your business and will be the difference in reaching your goals and a successful exit in the future versus strained cash flow and diminishing value of your business over time.
• Making top sales performers heroes at your business should be paramount to you• Training your sales team should be exciting and part of every weekly sales meeting• Designing the right sales compensation plan and retention of your best performing sales team members should be a top priority • Consistently held weekly sales meetings that are motivating, numbers driven and training-intensive should be a weekly occurrence like clock-work• Ensure Account Managers focus on large customers weekly, mid-size customers at least monthly, and smaller customers quarterly to provide top service levels, generate cross-sells and upsells, and renewals• Creating a written, disciplined Account Management Program will enable you to create loyalty amongst your customers, increase renewals, generate cross-sells and upsells, and increase sales, profits and the value of your business substantially
CEO Advisor, Inc. has the expertise and experience to help you focus on the growth of your business, prepare for an optimal exit, and achieve your goals of a successful exit strategy. Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. for a no cost initial consultation at (949) 629-2520, by mobile phone at (714) 697-3370, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.
A) Organic Growth - Business expansion by increased sales to new and existing customers
B) Inorganic Growth - Business expansion through acquisitions (this will be covered in future articles).
CEOs that put strategy, sales and sales management as their top priority outperform their competitors in revenue and profits by up to 80%. While CEOs and presidents of small and mid-size companies play a key role in driving performance improvements across all aspects of a company, sales has traditionally not been the main focus of CEOs and business owners for many companies.
This is a very costly mistake. CEOs, presidents and business owners of top performing companies are very hands-on in driving their businesses forward. Setting budgets and sales goals are just the beginning.
The best CEOs pinpoint a specific sales strategy, tools, sales management processes, analytics and metrics or key performance indicators (KPIs) to ensure substantial growth (at or above industry growth rates) in revenues, gross margins, and profits in order to substantially increase shareholder value. Similar to marketing, sales is both an art and a science.
If sales and sales management are not your strengths, gain the help you need from a seasoned business advisor as failing in these important aspects can cost you millions of dollars in sales, profits, value and your ability to sell your company in the future.
Here are 5 key sales and KPI initiatives that will create a tremendous return on your investment and grow your business to the next level for an optimal exit in the future.
1. Sales Goals to Increase Results and Profits
Well managed sales teams produce big results. CEOs should demand more than monthly sales goals for each member of the sales team. CEOs must require sales goals that produce heightened, consistent results to meet company goals. A direct sales team should have clearly defined goals for each salesperson that include:
• Dials per day to targeted prospects in your customer relationship management (CRM) software• Number of Opportunities created in your CRM software per week and month• Number of new sales appointments per week and month to qualified prospects• Number of Proposals presented per month• Closed number of sales per month• Closed sales in dollars per month• Closed upsells and cross-sells in dollars per month• Referrals secured per month
2. Key Performance Indicators (KPIs) to Drive Sales and Profits
Additional goals that can be readily tracked monthly (in real time if possible) will be the difference in a proactive, results-oriented sales team vs. a reactive sales team that is always behind the curve.
You should monitor and track the following KPIs:
• Average dollar size of each sale (ensure you are selling to larger customers with larger budgets)• Average length of contracts in years• Amount of sales to your top 25 customers per month, quarter and year to ensure you are properly servicing them and hitting sales goals• Average Number of Days to Close a Sale (Ave. Sales Cycle)• Renewal rates of contracts• Customer Churn• Revenue Churn• Net Revenue Retention Rate• Growth Rate (quarter over quarter and year over year)
3. Build a Sales and Marketing Machine to Optimize Sales and Value of your Business
By building a sales and marketing machine within your company, you will optimize your gross and net profit margins and tremendously increase the value of your company. As part of your sales strategy, expand your direct sales efforts with indirect sales by formulating a Reseller Channel Program and then recruit, build, train, motivate and support these Resellers and Referral Partners.
This takes planning, focus and attention to details to put in place and manage, so gain the needed outside help from a business advisor to get this right the first time.
4. Get Out of the Office and Visit Customers for Real ROI
As the CEO of your company, get out of your office and go with sales managers and individual salespeople and visit your major customers quarterly or at least annually. Understand the customers' needs and satisfaction level, understand how you can help them by upselling and cross-selling additional products and services, renew annual contracts and secure a tighter relationship by demonstrating real interest and commitment to your customers.
5. Focus on Sales Management and Account Management
Strong sales management should be part of the fabric of your company. Sales are the lifeblood of your business and will be the difference in reaching your goals and a successful exit in the future versus strained cash flow and diminishing value of your business over time.
• Making top sales performers heroes at your business should be paramount to you• Training your sales team should be exciting and part of every weekly sales meeting• Designing the right sales compensation plan and retention of your best performing sales team members should be a top priority • Consistently held weekly sales meetings that are motivating, numbers driven and training-intensive should be a weekly occurrence like clock-work• Ensure Account Managers focus on large customers weekly, mid-size customers at least monthly, and smaller customers quarterly to provide top service levels, generate cross-sells and upsells, and renewals• Creating a written, disciplined Account Management Program will enable you to create loyalty amongst your customers, increase renewals, generate cross-sells and upsells, and increase sales, profits and the value of your business substantially
CEO Advisor, Inc. has the expertise and experience to help you focus on the growth of your business, prepare for an optimal exit, and achieve your goals of a successful exit strategy. Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. for a no cost initial consultation at (949) 629-2520, by mobile phone at (714) 697-3370, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.
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