SBA Disaster Loans: What Business Owners Need To Know Now

As we are all painfully aware, the Corona Virus pandemic has led us to an unprecedented business environment.  There is no doubt that every business will be affected, but small business owners are perhaps facing the largest challenges.

In order to assist small businesses, the Federal Government has authorized Disaster Assistance through the Small Business Administration (SBA) in response to the coronavirus.  This past Wednesday, we conducted an “Emergency Podcast” to discuss this program and help business owners understand the most important elements of this program.  Our guest, Jenn Loges, Founder and COO of One Degree Capital here in the DC area,  has over 18 years of experience in business financing, having directly served over 5,000 clients throughout the nation in that time.   She and her husband Rod help business owners sort through financing options to determine which route is the best option.  She has extensive knowledge and experience in the SBA financing world and we asked her to share the critical things a business owner needs to know about this program.  This post is a synopsis of the highlights of this conversation:

 The basics of the program:  

• The Site:  Details of the program are defined on the SBA Website:  

  • https://www.sba.gov/disaster-assistance/coronavirus-covid-19

• Loan Program:  This program provides federally funded emergency loans, not grants.

• Terms: Loans may be up to $ 2,000,000 at 3.75% interest for as much as 30-year terms.

• Credit Worthiness: Because these are loans, applicants must be credit-worthy, and the application requirements are similar to any other SBA loan.  You will be asked to provide tax returns, business financial statements, and personal financial status.  

• Eligible Areas:  This program has historically been authorized for specific geographically-limited disasters such as hurricanes.  Due to the widespread effect of the virus, as of March 17, SBA has modified the guidelines to allow the entire state to be approved.  Each state governor must request authorization.  If your state is not currently listed on the SBA site, contact your governor’s office and urge them to request approval.

Guidance for Application:

• Estimates of Loss: The purpose of this program is to provide working capital to small businesses, based on an estimate of “lost revenue”.  Therefore, an estimate of how much revenue you have lost and anticipate losing in the future is the basis of the request.  Basically, SBA is looking for an honest 90-day assessment.

• Submit Early: Given the uncertainty of the duration of this crisis, you may be unsure of how much to request.  Jenn suggests submitting an application as soon as possible to establish initial funding.  If the crisis continues and there is a need for additional funding, you may apply for additional funds as needed.

• Time Frame:  The program has historically taken 2 to 3 weeks for approval.  Given the anticipated demand, the approval may take longer.

• Receiving Funding:  upon approval, it is normative to receive $ 25,000 immediately and additional funds over time.

 Other Cash Management Recommendations:

• Lines of Credit:   Currently, the general tenor of banks is that they will continue to honor current agreements.  However, if you hold a Line of Credit with a bank, ensure you understand your covenants.  A downturn in revenue may render you non-compliant with your agreement and therefore unable to draw on that line.  You may consider drawing on your existing line now to tide you over until you can establish your SBA loan.

• Unemployment:  Many businesses have had to cut way back on employee work-hours.  Affected employees may be eligible for unemployment compensation.  However, remember an employee must actually be laid off to receive that benefit. These are hard decisions, however, this is a mechanism that is in place to care for employees in tough times.

• Taxes:  The IRS has extended the required dates for tax submission to July 15th.  If you believe you will owe taxes, you may want to consider delaying filing. However, if you believe you have a refund coming, Jenn recommends filing sooner to expedite your refund.

• Vendors:  Most businesses have accounts payable that are owed to vendors.  Delaying payments to vendors can be a strategy to conserve cash.  Please remember, though that your vendors are in a similar situation as you find yourselves.  Jenn indicated that personal communication is essential in times like these – where we are all working together for each other’s welfare.  If you must delay a payment, call that vendor and talk it through.  

• Rent: Often rent is one of the largest expenses for any business.  Consider talking to your landlord to negotiate a payment deferral plan.

 Jenn concluded by suggesting that any owner who has questions to set up a meeting with her here. 

 For more, please listen to the podcast at: https://ennislp.com/podcast.

It’s our hope that as we navigate these uncharted water, that we’ll all pull together.  If there are other questions you would have on keeping your business running and healthy , we’re happy to talk and point you to resources that will be helpful to you.  Please feel free to contact us at 301-859-0860 or email@ennislp.com.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

Why a Target Departure Date is So Critical for a Successful Exit

Janice founded her business 15 years ago at age 45 and her business has realized a modest but consistent growth rate (revenue) of 5%. Like most small business owners, she has invested her time, money, blood, sweat, and tears in building her business. Her perspective has always been “if we don’t focus on today, there may not be a tomorrow!”.

Well now, tomorrow has come, as Janice is being pushed out of her business due to health issues that were sudden and unexpected. She also finds herself being pulled away by a growing desire for time with her grandchildren that are steadily increasing in number and age. She doesn’t want to have regrets around not having enough time for her “babies!”

Janice has decided that she wants to leave or exit her business ideally within the year, but certainly no more than two years. Whereas she had never set a target date for exit in the past and planned accordingly (“If we don’t focus on today, there may not be a tomorrow!”), she has now been forced to do so as her health challenges are expected to increase. Her friend Jim introduces Janice to his Exit Planning Advisor who helped with Jim’s recent business exit. Janice scheduled a meeting right away as she now had a real sense of urgency regarding the future.

Once the Exit Planner helped Janice clarify and establish her financial, values-based, and legacy goals, he then began a process of quantifying personal and business resources, including the current value of the business. Janice was stunned to learn that her business was valued at 50% of what she had assumed. A financial gap analysis was performed by her Financial Advisor to expose a financial gap of over $1 million considering Janice’s goal of departing within the next two years. The Exit Planner also coordinated a review of Janice’s life and disability insurance coverage with her insurance professional, to learn that she was now under-insured, but obtaining additional coverage would be cost-prohibitive due to her current health condition. Janice felt trapped as all she really wanted to do now was invest time with her family.

With the help of her Exit Planner and Advisor Team, Janet did exit within her target departure date of two years, selling her business to a third party. She had to do so because of her health. Indeed her business sold for a lot less than she expected, and as it was her largest asset. As a result, she is not able to do all she was hoping to do in this season of life.

In a pursuant conversation with her friend Jim, Janet asked how he was able to make it happen. Jim seemed to have exited under his own terms and conditions accomplishing all of his goals and had no regrets to how and when he left the business. One of the key takeaways for Janice was Jim’s comment, “I decided 10 years ago that I wanted to exit in 10 years…and that gave me the time to get personally ready, and get the business ready for me to exit when I wanted to.” Now, Janice was going to have to deal with her own regrets, as she had never given serious thought and planning to this day that was inevitable.

Like Janice, Jim had a target departure date for his exit. The difference was Jim’s date was established well in advance and not forced upon him. Hence, he had time to plan and be in control of when and how he left. Establishing a target departure date well in advance is a critical element for creating a successful plan for exit. It is very likely that it will change, possibly many times. Without it though, your chances of a successful exit are greatly diminished. With it, you are much more likely to exit with no regrets like Jim.

Contact us today and get started on your plan for your planned departure date. You can also get an exit readiness score with our FREE Exit Readiness Questionnaire which takes 15 minutes to complete.

Creating Business Value Through Your Key Employees

A key driver of the value of your business will be how much the business does or does not run through you the owner. The more essential you are to the business, the less value you can expect when you leave. It is actually your key employees and their involvement in the business that creates value. It is not an exaggeration to state that the future value of your business, and the level of success you realize when exiting, is largely linked to your key employees.

Let’s define which of your employees would qualify as a “key employee”. Employees that are key to your business success take initiative in their work, they want to see the business grow and prosper, they embrace challenges, are exceptionally skilled and knowledgable, and demonstrate intentionality toward personal and professional growth. Because they are on your team your business is thriving, and if they weren’t “on the bus” your business would suffer significantly. You would realize great pain if they were to leave, and key employees can be easy to identify as they typically act like owners of the business.

When you consider what will be critical for building the value of your business, a key value driver is hiring, motivating and retaining your key employees. Following are common elements of impactful plans for incenting key employees to build and remain with the business:

• Provide financial awards that are meaningful and attractive.

• The plan is specific as to the expected performance of the key employee.

• The plan is structured to build the value of the business and align with the growth and exit goals of the owner.

• Plan rewards are vested-payments tied to the tenure of the employee facilitating retention of the employee. Often referred to as “Golden-Handcuffs”.

• The plan must be in writing and clearly communicated to the employee.

Then, there is the decision as to whether to install a plan that is cash-based or equity-based, or a combination of both. Too often owners, due to their generous nature, offer an equity-based plan without thinking through the potential ramifications. For example:

• Provisions for buying the stock back from the key employee if things don’t work out as expected or hoped for.

• A method for valuing the equity interest/shares in the case of a repurchase.

• Offering stock to an employee when a cash bonus would have been sufficient.

• Not having an understanding of the substantial rights a minority shareholder has in the business.

• Awarding equity to an employee, who at yesterday’s size of the business, was considered key, but now at today’s level (i.e., three times the size) they are more of a detriment to growth than a key employee.

So, there is much to think through when it comes to effectively implementing employee incentive plans. And, you would be wise to get expert advice prior to moving forward as you will want to make well-informed and confident decisions pertaining to timing, structure, tax planning, and the type or types of plans to install. To obtain an initial idea as to whether you should consider a cash or equity-based plan, the professionals at VisionLink have created a decision-tree tool that is quite helpful.

Hiring, motivating and retaining key employees is just one of the many key planning areas for building sellable business value and a successful exit. Contact us today to learn more about how we can help you in designing and implementing your comprehensive exit plan. You can get started today with our FREE Exit Readiness Assessment.

How Long Does It Take to Prepare a Successor?

It’s an important question to answer. The company’s future, the successor’s success, and the ability to make buyout payments depends on it.

When it comes to learning the business and the industry, an owner probably knows best as to how long that will take. Generally, this will take anywhere from 3-15 years. However, learning the mechanics of a business does not necessarily make someone a good leader nor a good owner. (After all, most successors have only been an employee.)

Clearly, some people are more natural at leading than others, but one thing is sure. We're not very good at self-assessment (especially when it comes to leadership). Assuming a successor understands the business, their effectiveness as a leader and as an owner needs to be objectively assessed and their weaknesses improved.

A leadership assessment followed by a program of executive coaching will accomplish this. After 20 years of developing leaders, I can say that the process generally takes about 6-12 months.

But a major challenge can arise. What if that successor turns out not to be competent as a leader and an owner? By way of example, years ago I had a client who kept bringing on potential successors (without my help, by the way...), only to have each of them fail. One after another (three in total), each failed and either left the company or had to be fired. Before they found a suitable successor, almost 4 years had transpired.

The bottom line is that it's better to start the leadership development process sooner than later. Don't hand over the keys to your business before your successor's competence is assessed, their weaknesses addressed, and their leadership and judgment demonstrated.

————————————————-

Michael Beck is an executive coach, business strategist, author, and president of Eliciting Excellence.  His 20 years as a professional executive coach has helped leaders improve interpersonal skills, sharpen strategic thinking, and enhance judgment.  He has worked domestically and internationally with a wide range of clients from diverse industries including technology, manufacturing, professional services, healthcare, financial services, and not-for-profit.  Michael has held executive positions ranging from CEO to  VP of Business Development and has a background in engineering (BS, MS – University of Pennsylvania) and finance (MBA – Wharton School of Business). Michael is the author of the book “Eliciting Excellence”, has a Black Belt in self-defense,  and is a competitive dart player.

How Can I Minimize Taxes At The Personal Level When Selling My C-Corp?

In most small business C-Corp or regular corporation sale situations, a sale of corporate assets will result in double taxation of the assets. The C-Corp is taxed first and then the owner will also be taxed on any recognized gain when they receive payment from the corporation as a result of the sale. Whereas, if your business structure is anything other than a C-Corp (LLC, Partnership, S-Corp) taxation only occurs at the owner or personal level (NOTE: If you’re a C-Corp and planning a sale at least five years out, ask your CPA about converting from C-Corp to S-Corp).

One way to avoid a double tax as an owner of a C-Corp is to sell the stock of your business rather than the assets. This is not easily done as a buyer wants the tax benefits of buying assets, and often doesn’t want any potential liability tied to the stock shares. However, if you are successful in negotiating a sale of stock, a resulting question will probably be, “Now, how can I also minimize taxes at the personal level?”

With proper planning, a Charitable Remainder Trust (CRT) can be a very effective tool in avoiding or deferring tax and provide other benefits:

• A current income tax charitable deduction.

• Appreciated business assets donated and then sold by it avoid capital gains tax.

• Proceeds from the sale of the business interest within the CRT can be used in diversifying into other assets to generate income for the life of the donor (business owner) and their spouse.

• A significant gift to a charity of choice is eventually made at your death or the death of your spouse and is excluded from your estate for estate tax purposes.

• Income accumulated within the CRT may not be subject to income tax.

Some of the significant planning considerations include:

• Creating the CRT and transferring business assets prior to a binding sale agreement.

• A qualified business valuation will be required.

• The trust is irrevocable and cannot be changed.

• The tax benefits result due to the assets placed in the CRT eventually going to charity and not the owner’s children/family.

• There are limitations to what the trust assets can be invested in (i.e., cannot be invested in another business).

For the right situation, a CRT can be very beneficial for an owner and their tax, estate and legacy planning. Have discussions now with your tax professionals to see if it could be right for you.

For a comprehensive approach to your exit planning, contact us today at email@ennislp.com or 301-859-0860. You can also assess your exit readiness with our FREE Exit Readiness Questionnaire.

Protect Business Value with a Legal Audit

When selling your business a potential buyer will conduct their own due diligence process assessing risk. Any risk exposure identified would result in a lower offer and perhaps the buyer walking away from the deal. And an area that can be easily overlooked by owners until it’s too late is the legal affairs of their business, including practices, procedures, and documents.

We have found that owners can assume that if they have legal documents in place the documents are adequate indefinitely when in actuality they seldom are. Due to changes in the law, business relationships (i.e, vendors; suppliers), or changing goals of the owner, documents can become ineffective, outdated, or even damaging. This can also be true for practices and procedures that have legal implications and potential liability, with employment practices and procedures right at the top of the list.

We recommend that business owners have a business attorney perform an initial “legal audit” years in advance of when the owner plans to sell their business. The initial legal audit should include a thorough review of basic corporate documents, all operating documents, and ongoing policies and procedures, followed each year with a review. Again, if you’re planning to sell at some point in the future, the potential buyer(s) will certainly do a legal audit as they conduct their due diligence process, and they will not want to acquire your business if it’s loaded with risk.

You will end up minimizing stress as well as legal fees (and significantly increase your chances for a successful transaction) if you prepare well ahead of time in a more measured way, rather than having to do a mad scramble during negotiations. Protect your business value with a legal audit.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

Why You Should Fire Yourself

If you find yourself in a position where your customers always insist on speaking with you directly instead of your employees, then you might want to consider shifting your structure so you can improve the value of your business.

Here's why: a business that can thrive without the owner at the center of all its operations is more valuable because processes can run smoothly with or without you. If you're too stuck in the weeds, you'll have a difficult time improving or evolving – and your employees won't have the opportunity to grow and become advocates for your brand.

To maximize the value of your business, you should set a goal to quietly slip into the background and let your staff take center stage. Here are five ways to make customers less inclined to call you:

1. Re-rank

If you display the bio of key staff members on your website, re-order the list so that it is alphabetical rather than hierarchical.

2. Re-brand

If your surname is in your company name, consider a re-brand. There's nothing that makes a customer want to deal with the owner more than having the owner's surname featured in the company name.

3. Hire a President

Giving someone the title of president conveys the message that they have real authority to solve customer problems.

4. Use an email auto-responder

Tim Ferriss, the author of The 4 Hour Work Week among other books, made the email auto-responder famous, and it can serve you well. Set up an automatic response to anyone sending you an email explaining that you are unable to answer their questions immediately. Instead, train customers to direct questions to the person best suited to answer them quickly.

A word of caution using this strategy: if you continue to answer customer emails after setting up an auto-responder, it's going to become transparent that you're just trying to hide behind your autoresponder, which could diminish your credibility. If you set one up, you need to be ready to let others step in.

5. Play hookey

If you have the kind of business that customers visit in person, set up a home office so you can spend more time away from your location.

For a hard-charging A-Type entrepreneur, the steps above can be complicated and feel counterintuitive. They may even have a short-term negative impact on your company's sales, but once you get your customers trained to go to your team, you'll be able to scale up further and ultimately maximize the value of your business.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

Creating Attractive Business Value with Operational Excellence

It’s estimated that there are around 9 million Baby Boomer business owners. Each of them will eventually be exiting their business. For the large percentage of those owner-operators who define a “successful” exit as getting top dollar for their business, how do they actually realize that goal?

Potential buyers look at a number of indicators when searching for a business, in order to get the assurance that their investment is a good one - especially in an industry that has a large field of competitors in the same market.

So, what about you and your business? What differentiates you from your competitors in the same market? What do you have that your competitors don’t have, that makes you attractive to potential buyers now or in the future?

Having attractive EBITA is important and a good start, but this may not be enough to secure top dollar. For most potential buyers, there has to be more substance to your business to make it stand out from others. Buyers want to see the overall value of your business and whether it’s sustainable after you leave. This is especially true when they need to rely on the existing leadership team. So how do you stand out from other potential buyout targets? How do you build value in your company now?

The answer is simple, and easier to achieve than you may think. You achieve it by implementing a proven and practical operating system, one that incrementally strengthens your business in every aspect of your organization. EOS®, the Entrepreneurial Operating System, does exactly that for your business. When faithfully implemented and sustained by the leadership team, operational excellence is obtained and is self-sustaining. Healthy year-after-year growth is achieved. 

EOS® addresses an organization’s key aspects, called The Six Key Components™. They are Vision, People, Data, Issues, Process, and Traction. Combined with the EOS time-tested tools, guiding principles, and disciplines, this EOS Model™ becomes the means of achieving operational excellence. EOS is used by thousands of businesses to obtain better control, better balance, better focus, more company-wide excitement, and more profitability.

When a potential buyer of your company clearly sees these things in your business, you have excellent leverage and are in a better position to have a successful exit after taking all the other steps in your exit plan. To learn more, contact us at ENNIS Legacy Partners today.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations. ———————————————————————

Robert "Bo" Lotinsky has decades of combined leadership, management and results-oriented experience in a variety of sectors including manufacturing, non-profits, telecommunications, publishing, internet start-ups, and construction. Bo developed a passion for operational excellence in his first job with FMC Corporation’s Material Handling Division. Bo transitioned into start-up and mid-sized organizations for the excitement and challenge of seeing them grow more quickly and successfully.

Starting Vs. Growing a Business

Most company founders are good at the first stages of entrepreneurship. But in the phases that follow, they may only be average. Just because you have a knack for starting companies, doesn’t necessarily mean that those skills translate well into growing one.

There are celebrated cases of founders who have successfully started and grown a business – Elon Musk and Bill Gates come to mind. There are, however, many more examples of entrepreneurs who perform well initially and then hold back their company as it ages. But, as a business owner, you can avoid this.

How One Founder Unlocked the True Value of His Company

Damian James grew up in Melbourne and learned a lot about the aging population in Australia. Realizing that healthcare could be a lucrative field, he discovered a sector ripe for disruption, podiatry. This is a branch of medicine devoted to the diagnosis, medical and surgical treatment of foot and ankle disorders.

At the time, most podiatrists in Melbourne worked from a retail location where the doctor owned and operated a private practice. The podiatrist would rent space, hire some staff, and charge patients per visit. At night, some enterprising doctors would also visit old age homes to offer care. Reasoning that many old people nodded off shortly after dinner, James saw an opportunity for a podiatrist to visit old age homes during the day when it was more convenient for patients.

The Million Dollar Idea

James, who had earned a bachelor’s degree in Podiatry in 1996, started Aged Foot Care. He approached old age homes with a compelling offer of removing the traditional overhead of an office.

Aged Foot Care went through a variety of growing pains over the years, including an expensive rebranding to the name Dimple. By 2015, Dimple was generating roughly $200,000 of profit on $2.5M in revenue.

Time to Grow

Despite his success, James was frustrated. The company’s growth had stalled. His management team seemed perpetually incapable of hitting its targets.

Quarter after quarter, he would set goals with his team, but they would fall short. James decided it was time to bring in outside help, so he hired a Chief Operating Officer.

To recruit the new COO, James knew he would need to give up some equity, so he commissioned a valuation for Dimple which came in at $2.5 million. He offered a salary, plus 5% of the company. James also offered another 3% of the business (up to a maximum of 20%) for every $1 million the COO would grow Dimple’s revenue past $5 million.

The new role was a success. James quickly promoted him to Chief Executive Officer and stepped back from the day-to-day operations. He decided to let the company thrive under the new CEO’s leadership.

Down to just one day a week, James limited his involvement to providing a vision and protecting the company’s core values. The CEO, on the other hand, ran the day-to-day business – pursuing James’ core strategy of contracting with aged care facilities.

The company hit $11 million in revenue by 2017.

The Big Bonus

Zenitas had a similar strategy of bringing healthcare to patients in homes or care centers rather than having them languish in hospital beds. The company was keen to add podiatry to its stable of services. The decision-makers realized that acquiring Dimple would allow it to become an overnight market leader.

In July 2017, Zenitas announced they had acquired Dimple for $13.4 million. Under different leadership, the company had grown in value by over 500% in less than three years.

Starting and growing a company requires different skills which are rarely found in the same individual. This begs the question, ‘is it time to find someone else to run your business?’

Contact us and ask how our Strategy Advisor engagement can help with growing the value of your business: email@ennislp.com or 301-859-0860.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

The Hidden Downside Of This Common Management Idea

Cross selling new products and services to your existing customers may be a great marketing strategy, but if your goal is to increase the value of your business, the added revenue may do nothing for your company’s value – and may even lower it.

In order to be acquired for a premium, consider committing to a product, service, or a bundle that does one thing well. Your aim should be to make that offering so irresistible, that an acquirer will stop at nothing to get their hands on it. This focus will help you build a team around your product or service and ultimately make your company a whole lot more attractive when it comes time to sell.

However, most companies do the opposite. They take their initial success and water it down by cross-selling additional products, leveraging their relationship with their customers to sell them merely good offerings on the back of their great product or service. The problem with wandering too far a field is that while add on products may increase your revenue, they decrease your attractiveness to a strategic acquirer. Like being asked to buy a cable package of hundreds of channels when all you want is a few, acquirers don’t like buying things they will not use and therefore often walk away from a deal where a great product has been watered down with dozens of less attractive products or service lines.

How Stelligent Lost Its Focus (and found it again)

For example, take a look at Stelligent, a company in the business of helping help large enterprises automate their software delivery process. There was a time when big companies used to install their software deep, deep into operations – but the emergence of ‘The Cloud’ changed that. Employees across the globe now get access to the software they use anywhere they have access to a web browser.

Just as you might rent an apartment in a building, software developers pick one of the big cloud service providers like Microsoft Azure, Google Cloud, or Amazon Web Services (AWS) to rent compute, storage, database, and networking resources to run their software systems. Since Azure, Google, and AWS all take a different approach to hosting, an entire industry has been created to help developers configure their software for the cloud service provider they pick.

Paul Duvall, co-founder of Stelligent, is one of the pioneers of this industry called DevOps – which is a set of organizational, culture, process, and tooling practices that accelerate effective feedback between end users to improve the value of the software that's being delivered . Duvall started Stelligent in 2007 with his then silent partner Rob Daly. The goal was to help developers accelerate how quickly they could bring their software to market.

Stelligent was a typical consulting company, selling the time of the engineers Duvall hired on contract as his business required them.

By 2012, Stelligent had a half dozen contract workers and a few employees hovered around one million in annual revenue, as project demand ebbed and flowed. Duvall felt he was running on a treadmill. Each new project Duvall won required him to build a whole new team. Around this time, Rob Daly – who had enjoyed success starting and growing other companies - encouraged Duvall to read the book Built To Sell, where Duvall especially found tips around specialization to be most valuable.

With a focus on shifting toward even more specialization, Duvall decided to go all in on AWS.

About a year later, in 2014, Daly then joined the team as its 5th employee and would transition to CEO throughout the course of the year becoming very influential in building a team of specialists focused on helping enterprise customers.

As time went by, Stelligent began earning a name for itself as the AWS specialists. As Amazon’s cloud provider service grew in popularity, so did demand for Stelligent’s services. Over the next three years, Stelligent blossomed into a multi-million-dollar business with 30 full-time employees.

By early 2017, Denver-based HOSTING Inc. saw how quickly AWS was growing and concluded that by acquiring Stelligent, they could leapfrog their competition and become a market leader in AWS almost overnight. Later that year, HOSTING acquired Stelligent for about double what a typical consulting company would hope to command for a similar-sized business (when comparing multiples around high-growth companies in the technology sector).

The story of Stelligent is a reminder why you should focus your limited resources on becoming so good in your niche that an acquirer reasons it would take too long – or cost too much – to compete.

Most small businesses with limited cash, can only afford to get that good at solving one problem for their customers. That kind of focus is the opposite of what most sales and marketing pundits preach but it may be the one thing that will make your company irresistible to an acquirer.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

Why You Should Exit While You're Ahead - A Cautionary Tale

The very best time to sell your business is when someone wants to buy it. While it can be tempting to continue to grow your business forever – particularly when things are going well -- that decision comes with a significant downside. 

Take a look at the story of Rand Fishkin who started his entrepreneurial journey when he joined his mother’s marketing agency as a partner:

When Fishkin realized how much his Mom’s customers were struggling to get Google to display their company in a search, he immersed himself in the emerging field of Search Engine Optimization (SEO).

He began writing a blog called SEO Moz, which led to an SEO consulting and software company. By 2007, Moz was generating revenue of $850,000 a year when Fishkin decided to drop consulting to become solely a software business.

The company began to grow 100% per year and by 2010, Moz was generating around $650,000 in revenue each month, attracting the attention of Brian Halligan, co-founder of marketing software giant HubSpot.

HubSpot wanted to buy Moz and was offering $25 million of cash and HubSpot stock – an offer almost five times Moz’s $5.7 million of revenue in its last complete financial year.

But Fishkin wasn’t satisfied. He believed a fast growth Software-as-a-Service (SaaS) company was worth four times future revenue and was confident Moz would hit $10 million by the end of that year.

Fishkin counter offered, saying he would be willing to accept $40 million. HubSpot declined.

New Plans Ahead

Instead of selling Moz, Fishkin raised a round of venture capital and started to diversify away from SEO tools into a broader set of marketing offerings. The further Moz veered away from its core in SEO, the more money his business began to lose.

By 2014, Moz was in full crisis mode, and Fishkin had begun suffering from a bout of depression. He decided to step down as CEO, describing his resignation as a “lot of sadness, a heap of regrets and a smattering of resentment.”

Fishkin became a minority shareholder in a company he no longer controlled where the venture capitalists had preferred rights in a liquidity event.

A Lesson Learned

In the ensuing years since turning down Halligan’s offer, HubSpot went public on the New York Stock Exchange and had been worth nearly 20 times as much.

Fishkin revealed that today, his liquid net worth is $800,000 – much of which he was about to spend on elder care for his grandparents. The Moz stock he holds may or may not have value after the venture capitalist get their preferred return. At the same time, Fishkin estimated HubSpot’s offer of $25 million in cash and HubSpot stock would now be worth more than $100 million (based on the increased value of HubSpot’s stock).

Fishkin’s tale is a cautionary reminder why the best time to sell your company is when someone wants to buy it – a story that is shared in his book Lost and Founder: A Painfully Honest Field Guide to the Startup World.

What if an offer was made for your business today? Would you be ready to sell? Would you regret if you said no?

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

Run Your Private Company Like It’s Public

Small businesses often operate as if their sole purpose is to fund the owner’s lifestyle, but the most valuable companies are run with financial rigor. You may be years from wanting to sell, but starting to formalize your operations now will help you predict the future of your business. Then, when it does come time to sell, you’ll fetch more for what you’ve built because acquirers pay the most for companies when they are less risky. There’s nothing that gives a buyer more confidence than clean books and proper record keeping. 

Jay Steinfeld is a great example of how to run a business like a public company. Steinfeld studied Accounting at the University of Texas and joined KPMG after college. His wife owned a small retail store selling blinds and window treatments. The store was successful, but by 1994, Steinfeld had noticed a little Seattle-based outfit that was trying to hawk books online.  This company with the peculiar name “Amazon.com” started to succeed in selling books online and Steinfeld wondered if he could get consumers to buy blinds online.

Soon after, Blinds.com was born.

Unlike many of the first-generation online companies that were run with little financial controls, Steinfeld grew Blinds.com like an accountant. He was determined to run his business with the same rigor as a publicly listed company. He built an experienced management team and took the unusual step of assembling an outside board of directors even though Blinds.com was private and Steinfeld owned all of the stock.

The board met quarterly and each of Steinfeld’s senior managers were asked to prepare and deliver formal presentations to his board. Steinfeld hired a big four firm to complete a full audit of his financials each year even though all he needed to satisfy Uncle Sam was a simple tax return.

By 2014, Blinds.com had grown to 175 employees and, at more than $100 million in revenue, was the largest online retailer of blinds in America. Even though Home Depot had close to $90 billion in sales at the time, Blinds.com was outperforming them in its tiny niche, which – coupled with their fastidious bookkeeping -- made Blinds.com absolutely irresistible to Home Depot. On January 23, 2014, Home Depot announced its acquisition of Blinds.com.

Running your business like it’s public will make it more predictable as you grow and ultimately a whole lot more attractive when it comes time to sell.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

"Why Should A Business Owner Build To Sell?": Interview with Author and Founder of The Value Builder System™ John Warrillow

A new client to our firm will first go through the essential first step in our process of clarifying their financial and values-based goals. As the owner’s goals are clearly established, it also becomes more apparent as to which exit route will best achieve their goals.

We recently had a client successfully sell their business to a key employee and one of their children, and another client sold to a third-party strategic buyer. A primary reason they were both able to leave successfully was that their businesses were sellable. The businesses had value apart from the owner, they were profitable with strong prospects for growth, and had other drivers of business value that were attractive and strong.

If you want to be in control with a number of options for your eventual exit, then right at the heart of your exit plan will be an emphasis on building the business the right way today. We very much enjoyed a conversation with John Warrillow, the Founder of The Value Builder System™ recently on the ExitReadiness® PODCAST discussing the importance of “building to sell”. You will be well served if you invest 50 minutes to listen in and learn from John’s personal experience as a successful entrepreneur and his analysis of over 40,000 businesses.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

3 Ways To Make Your Company More Valuable Than Your Industry Peers

Have you ever wondered what determines the value of your business?

Perhaps you’ve heard an industry rule of thumb and assumed that your company will be worth about the same as a similar size company in your industry. However, when we take a look at the data provided by The Value Builder System™, we’ve found there are eight factors that drive the value of your business, and they are all potentially more important than the industry you’re in.

Not convinced? Let’s look at Jill Nelson, who recently sold a majority interest in her $11 million telephone answering service, Ruby Receptionists, for $38.8 million.

That’s a lot of money for answering the phone on behalf of independent lawyers, contractors and plumbers across America.

To give you a sense of how high that valuation is, let’s look at some comparison data. At Value Builder, we’ve worked with more than 30,000 businesses in the last five years. Our clients start by completing their Value Builder questionnaire, which covers 35 questions that allow us to place an estimate of value on a company. The average value for companies starting with us is 3.6 times pre-tax profit and those who graduate our program with a Value Builder Score of 80+ (out of a possible 100) are getting an average of 6.3 times pre-tax profit.

When we isolate the administrative support industry that Ruby Receptionists operates in, the average multiple offered for these companies over the last five years is just 1.8 times pre-tax profit. 

Nelson, by contrast, sold the majority interest in Ruby Receptionists for more than 3 times revenue.

There were three factors that made Nelson’s business much more valuable than her industry peers, and they are the same things you can focus on to drive up the value of your company:

1.     Cultivate Your Point Of Differentiation

Acquirers do not buy what they could easily build themselves. If your main competitive advantage is price, an acquirer will rightly conclude they can simply set up shop as a competitor and win most of your price sensitive customers away by offering a temporary discount.

In the case of Ruby Receptionists, Nelson invested heavily in a technology that ensured that no matter when a client received a phone call, her technology would route that call to an available receptionist. Nelson’s competitors were mostly low-tech mom and pop businesses who often missed calls when there was a sudden surge of callers. Nelson’s technology could handle client surges because of the unique routing technology she had built that transferred calls efficiently across her network of receptionists.

Nelson’s acquirer, a private equity company called Updata Partners, saw the potential of applying Nelson’s call-routing technology to other businesses they owned and were considering investing in.

2.     Recurring Revenue

Acquirers want to know how your business will perform after they buy it. Nothing gives them more confidence that your business will continue to thrive post sale than recurring revenue from subscriptions or service contracts.

In Nelson’s case, Ruby Receptionists billed its customers through recurring contracts—perfect for making a buyer confident that her company has staying power.

3.     Customer Diversification

 In addition to having customers pay on recurring contracts, the most valuable businesses have lots of little customers rather than one or two biggies. Most acquirers will balk if any one of your customers represents more than 15% of your revenue.

At the time of the acquisition, Ruby Receptionists had 6,000 customers paying an average of just a few hundred dollars per month. Nelson could lose a client or two each month without skipping a beat, which is ideal for reassuring a hesitant buyer that your company’s revenue stream is bulletproof.

Nelson built a valuable company in a relatively unexciting, low-tech industry, proving that how you run your business is more important than the industry you’re in.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

Did Microsoft Pay Too Much For LinkedIn?

Microsoft’s $26.2 billion acquisition of LinkedIn provides an illustrative example of a strategic acquisition – the type of sale that usually garners the most gain for the acquired company’s shareholders.

You may be wondering what a billion-dollar acquisition has to do with your business, but the very same reasons a strategic acquirer buys a $26 billion business holds true for the acquisition of a $2 million company.

The financial vs. strategic buyer

A financial buyer is buying the future stream of profits coming from your business, whereas the strategic buyer is buying your business for what it is worth in their hands. To simplify, a financial acquirer buys your business because they think they can sell more of your stuff, whereas a strategic buyer acquires your business because they think it will help them sell more of their stuff.

One might argue that Microsoft overpaid for LinkedIn given that LinkedIn only generated a few hundred million dollars in EBITDA last year, meaning the good folks in Redmond paid an astronomical multiple of LinkedIn’s earnings.

But earnings are not the only thing strategic acquirers care about when they go to make an acquisition.

 Microsoft‘s acquisition of LinkedIn is a classic example of a strategic acquisition. The Redmond-based technology giant has been undergoing a major transformation from being a software company focused on operating systems to a business concentrating on cloud-based software applications. Microsoft enjoys a dominant market share in the basic tools white-collar business people use to get their job done, but other software packages have begun to nip at the heels of their dominance in many product lines.

Take Microsoft Office for example. Many businesses use competitive offerings from Google and Apple. Even more companies cling to older versions of Microsoft Office software, even though Microsoft is keen to move everyone over to the cloud-based Office.

In purchasing LinkedIn, Microsoft saw an opportunity to suck data from LinkedIn into Microsoft’s cloud-based software applications, making them irresistible. Imagine you’re a sales person and you just landed a big meeting with a new prospect. You enter the appointment as a Microsoft Outlook event and suddenly the details of the event feature everything LinkedIn knows about your prospect.

 Now you can make small talk about where they went to school, the previous jobs they have held and know the scope of their current role – all without ever leaving Outlook.

Microsoft is betting this kind of integration across its platforms will compel more people to upgrade to the latest software applications. While your company is likely smaller than LinkedIn, the same thing that makes a giant buy another giant holds true for smaller businesses. To get the highest possible price for your business, remember that companies make strategic acquisitions because they want to sell more of their stuff.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

5 Ways To Package Your Service

If you’re a service provider, it can be difficult to separate the service from the provider. Your customers might demand you, which means you can’t scale your business beyond the number of hours you’re willing to work.

In the absence of a point of differentiation, offering generic services leads consumers to evaluate the people doing the work. Referring to your service in a generic way e.g. “graphic design services”, or “lawn care services”, means you’re lumping yourself in with the other providers of the same service.  A quick scan of your LinkedIn profile will reveal that you are likely an expert in your industry which means prospective customers will often demand you, rather than your underlings.

The secret to overcoming this dilemma is to “productize” your service. This involves marketing your service as is if it were a thing. When people start buying the thing, rather than the people providing it, you can grow well beyond the hours in your day. 

Proctor & Gamble is the granddaddy of product marketing, so grab a tube of Crest toothpaste and follow their process for productizing your service:

1.     Name it

Crest is the brand name and it is always written in the same font. Having a consistent name avoids the generic, commoditized category label of "toothpaste." Do you have a catchy name for your service?

2.    Write instructions for use

Crest gives customers instructions for best teeth cleaning results. If you want your service to feel more like a product, include instructions for getting the most out of your service.

3.    Provide a caution

The Crest bottle tells you that the product is “harmful if swallowed." Provide a caution label or a set of "terms and conditions" to explain things to avoid when using your service.

4.    Barcode it

The barcode includes pricing information. Publishing a price and being consistent will make your service seem more like a product.

5.    Copyright it

P&G includes a very small symbol on its bottle to make it clear the company is protecting its ideas. Do you Trademark the terms you use to describe your service?

 Productizing your service is the first step to separating your service from its provider and the key to getting your service company to run without you.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

Why Companies are Adopting Subscription Billing Models

Volvo recently announced they will make their cars available on a subscription model where consumers will pay one fixed fee per month for access to a car which includes insurance and maintenance.

Everything from tooth brushes to flowers are now available with subscription billing.

Could you offer some sort of recurring plan to your customers? Here are six reasons to consider offering your customers a subscription:

1.     Predictability: When you have subscribers, you can plan what your business needs in the future. For example, the average flower store in America throws out more than half of its inventory each month because it’s too rotten to sell. At H.Bloom, a subscription-based flower company that sells flowers to hotels and spas, say they throw out less than 2% of their flowers because they can perfectly predict how many flowers are needed to fulfill their orders.

 2.    Eliminate Seasonality:  Many businesses suffer through seasonal highs and lows. In fact, a whopping thirty percent of a typical flower store’s revenue comes on Mother’s Day and Valentine’s Day – ultimately leaving them to scramble and make a sale in November. By contrast, H.Bloom has a steady stream of subscribers that pay each month. At Mister Car Wash – where they offer a subscription for unlimited car washes – they receive revenue from customers in November and April even though very few people in the Northern east wash their cars in rainy months.

3.    Improved Valuation:  Recurring revenue boosts the value of your business. Whereas most small companies trade on a multiple of profit, subscription-based businesses often trade on a similar multiple of revenue.

4.    The Trojan Horse Effect:  Once you subscribe to a service, you become much more likely to buy other things from the same company. That’s one reason Amazon is so keen to get you to buy subscriptions to things like Prime or Subscribe & Save. Amazon knows that once you become a subscriber, you are much more likely to buy additional products.

5.    The Sale That Keeps On Giving:  Unlike the transaction business model where you have to stimulate demand through advertising to get customers to buy, with a subscription based model, you sell one subscription and it keeps giving month after month.

6. Data & Market Research:  When you get a customer to subscribe, you can start to see their spending and consumption habits. This data is the ultimate in market research. It’s how Netflix knows which new shows to produce and which to kibosh.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

A Surprising Secret for a Big Exit

The vast majority of situations where a founder is getting a seven-or eight-figure offer, it is not their first rodeo. In fact, most owners have had multiple failures and modest successes before their first big exit.

One of the most compelling reasons to consider selling your business is to give yourself a clean canvass for designing your next business. You can take all of the lessons you’ve learned building your current company and apply them to a new idea.

What would you do with a clean slate?

Michelle Romanow partnered with two friends from her engineering class and together they founded Evandale Caviar in their early 20s. The trio’s idea was to sell caviar to high-end restaurants around the world.

The partners built a fishery and had just started to get the business off the ground by the summer of 2008 when the luxury restaurant industry started to wobble. By fall of that year, high-end restaurants around the world were suffering, and by the end of 2008, the industry was on its knees.

Evandale Caviar failed.

The partners licked their wounds and came together to start a new business, a deal-of-the-day website called Buytopia. They had learned from their Evandale experience and were building a good little business—call it a single, to use a baseball analogy—when the partners started to tinker with a third idea.

From nothing to $25 million in 12 months

Romanow saw big companies wasting millions of dollars printing paper coupons and reasoned that there must be a more efficient way to distribute them. They dreamt up a mobile app that would notify the shoppers in a grocery store of special offers and let them snap a picture of their grocery receipt and receive money back on the products being promoted. The SnapSaves business model was to charge the company advertising its offers through the app.

Romanow and her partners poured more than $100,000 a month of Buytopia cash into SnapSaves, and within six months they had a product they could take to market. They launched SnapSaves in August 2013 and the company was a quick hit with consumers and advertisers. Within a year, the founders were entertaining venture capital investment offers with an implied valuation of around $25 million for their young company.

That’s when Groupon called and said they wanted to buy SnapSaves outright. The partners haggled with Groupon and got them to double their offer in the process. Less than a year after launching SnapSaves, they agreed to be acquired by Groupon.

Third time’s a charm

A casual observer of the SnapSaves story would likely chalk it up to luck: a couple of friends leave school, start a business and become an overnight success. That’s a convenient story, but it’s not true.

SnapSaves would never have happened without the lessons the partners learned from Evandale. And therein lies the secret to many successful entrepreneurs: they got their first few businesses out of the way early in their working lives to make the time, room and capital for a true success.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

How Much Goodwill Do You Have In Your Business?

The term “goodwill” is often thrown around in conversation as though it is a subjective description of how much your customers like your business.

In fact, when it comes to valuing your business, there is nothing subjective about the definition of goodwill. It is defined as the difference between what someone is willing to pay for your company minus the value of your hard assets.

Let’s imagine you own a plumbing company and the main physical assets in your company are the five vans you own and some tools with a total value of around $100,000. If you sold your plumbing company for $1,000,000, the acquirer would have paid $900,000 in goodwill ($1,000,000 - $100,000).

When a company sells for the value of its fixed assets, it is often a distressed business one step away from closing down. One way to think about your job description as an owner is to maximize the difference between what your business is worth to a buyer and the value of your fixed assets.

Marriott buys more than bricks and mortar

For an example of the difference between valuing a business for its hard assets vs. its goodwill, take a look at the acquisition of Starwood Hotels & Resorts Worldwide by Marriott. Neither Starwood nor Marriott own many of the hotels that bear their name. Instead, they license the name to operators, franchisees and the owners of the bricks and mortar.

So why would Marriott cough up $13 billion for Starwood if they don’t even own the hotels they run? In part, Marriott wanted to get its hands on the Starwood Preferred Guest program, a loyalty scheme which has proven more popular than Marriott’s program for frequent travelers.

Similarly, Uber is worth something north of $50 billion because more than one million people per day hail a ride using Uber, not because they own a whole bunch of cars. 

Chasing hard assets at the expense of goodwill

Many owners focus on building their stockpile of hard assets, not understanding the concept of goodwill. Accumulating hard assets like land and machines and equipment is fine, but the savvy owner, looking to maximize value, focuses less on the tangible assets and more on what those assets allow her to create for customers. There is nothing wrong with owning hard assets unless they take away from capital you could be investing in creating goodwill. Then the opportunity cost may exceed the value of owning the stuff.

Arguably both Uber and Starwood would be a shadow of the companies they are today had they pursued a strategy of accumulating hard assets. Would Uber ever have made it out of San Francisco if they had to buy a Lincoln Town Car every time they wanted to add a driver to their network?

In your case, focus on what creates value for customers and you will maximize the value of your business far beyond the value of your hard assets.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

Creating Sticky Customers

Repeat customers are the lifeblood of your business, but customers can be fickle. Here's how to make them sticky.

In a traditional business, the customer buys your product or service once, and it is up to you to try to convince them to buy again in the future. However, in a subscription business, you have what is called an "automatic customer" who agrees to purchase from you in the future, as long as you keep providing your service or product.

Feeding Rover Automatically

One of the reasons subscribers are such attractive customers is that, once they subscribe, they become less price-sensitive. To illustrate, imagine you live in England and own a 100-pound Pyrenean Mountain Dog that eats two hearty bowls of dog food a day. Feeding the love of your life is an expensive proposition, so you're always on the lookout for a deal on dog food. Once every two weeks, you trudge down to the local pet supply store and cart a case of kibble home. In the meantime, if you see dog food on sale at your local grocery store, you'll buy it. If you get a coupon for a buy-one-get-one-free offer from another store, you'll take advantage of it.

Eventually, you get tired of last-minute trips to the store, so you subscribe to Warwickshire, UK-based petshop.co.uk, which offers a "Bottomless Bowl" subscription service. Now you know you're going to get a shipment of dog food every fortnight, and the part of your brain that scans the flyers for dog food starts to shut down, knowing that the convenience of having dog food shipped automatically far outweighs saving a few dollars on kibble.

Integration Drives Stickiness

Beyond the simple convenience of automatic service, subscribers become even more loyal when they start to integrate their subscriptions into their daily lives. Subscribers knowingly enter into an agreement in which the convenience of uninterrupted, automatic service is exchanged for their future loyalty. Rather than buying once without returning, subscribers stick around—hopefully for years, which is why subscribers drive up the value of your company so dramatically.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.