Welcome to the August 8th, 2007 issue of BOSSMENTOR® Business.
· Feature Article: So you’d be happy with $1Million? What most business owners fail to consider…
· BOSSMENTOR® Update: New website, new product, new info coming
· BOSSMENTOR® Best Info: Have a look at this if you’re suffering from a hangover, a hostile takeover, of if the flour in your kitchen has exploded, or if the onions have made you cry, or if you have no business ideas left….really!
“Executives owe it to the organization and to their fellow workers not to tolerate nonperforming individuals in important jobs.” Peter Drucker, Management Guru.
BOSSMENTOR® Update
For those of you who didn’t fare very well in last issue’s ‘people management’ test, you may like to have a look at our new ’12-Step People Management Blueprint’, and buy a copy for you and your team to use. It really makes recruitment and management of your people so much easier, and it’s so simple to use.
When one of my clients saw it last week his comments were, “This is fantastic! I wish I had this three years ago….”. Click on this link to get your own copy of our new 12-Step People Management Blueprint.
We have updated our website in preparation for new products and services coming on board for all our subscribers and members – www.bossgroup.com.au
Over the next couple of weeks we’ll be adding new sections including ‘Best Info’ and ‘Interviews With Experts’, to provide you with a wider, deeper selection of business tools and resources. Stay tuned!
Feature Article
So, You’d Be Happy With $1 Million? What Most Business Owners Fail To Consider
A client of mine said to me not long ago that he wanted to sell his business in the not-too-distant future, make as much money as he could, and then move on to something else.
“What’s your walk-away figure?” I asked him. I wanted to know if he’d given any consideration to how much he would need or want for himself, his family, their needs and their lifestyle.
“$1,000,000”, he said.
“That won’t go far!” I replied. I don’t know why, but $1million seems to be the ‘automatic’ number that many people say they’d sell their business for. For some, it’s an appropriate number; for others it would grossly undervalue the asset they’ve built.
We worked on this over a couple of sessions and he eventually came up with the figure he would be happy to settle on for his business, if he were to sell it.
The number was $5,000,000. He wanted to do that within 2 years.
Now, here’s what he hadn’t considered.
- His profit was about $150,000 at the time, which was 10% of his turnover of $1.5M. When you sell your business, one method to assess potential value is a multiple of EBIT (earnings, or profit, before interest and tax). You could typically command a multiple of around 3-4 times EBIT as a going rate. This is based on a really rough estimate and rule of thumb only and varies between businesses (because acquirers pay much higher multiples when the acquisition offers something they really want – a bit like paying over the market value for a property you just have to have...).
In order to sell his business, in the future, for around $5million, he would need to grow the profit about 10 times to around $1.5million. At that point, his business may be valued to be worth a multiple of 3-4 times the profit – around $5million.
- In order for the profit to be around $1.5million, based on profit being 10% of revenue, the revenue would need to be $15million, roughly. That being said, he would need to grow the business ten times from $1.5million to $15million. It had taken him 6 years to go from startup to $1.5million. Could he grow his business by another $13.5million in 2 years? Not likely. The timeframe and the rate of growth were both completely unrealistic for his business.
The outcome of this discussion was that we adjusted the timeframe out to 5 years, and worked backward to set clear revenue goals, and profit improvement targets. Our ultimate goal was to grow the profit ratio from 10-20% during the next 5 years, and grow his revenue during that time to a target of $8million.
Since he’s only 35, these goals represent a more achievable and realistic target for him, and one he can now focus on with clarity and certainty.
So, the first thing he didn’t consider was the reality of the numbers and the timeframe involved. He also hadn’t considered what would actually make his business valuable to a potential acquirer, and to himself in the meantime! By working through the key things he needed to focus on to build value and growth in the company, he was able to identify and better understand where the intellectual property was in the business, how he could best get leverage for growth, and how he could restructure the business to ultimately improve his profit ratio.
This happens all the time, in my experience as both a business advisor, working with clients to increase the value and growth in their businesses, and as a person who has had considerable corporate experience at a CEO level in assessing potential acquisition targets.
Building a business is hard work, and we all want to maximize our returns while we have the business, and if or when we decide to sell all or part of our share in it.
Why not start the way you plan to finish? Focus on the way to best get the most value into your business now, and out of your business in the future.
BOSSMENTOR® Best Info
This is one of those strange but intriguing sites that could keep you occupied for far too long, but it’s got some really interesting info along the lines of ‘how stuff works’.
It covers all sorts of categories from gardening to cooking to love and business, as well as some amazing topics you have probably never even considered, such as ‘how business ideas work’, ‘how hostile takeovers work’, ‘how hangovers work’ (don’t need a website to answer that question….), ‘can flour explode?’, and ‘why do onions make you cry?’
Have a look if you’re suffering from a hangover, a hostile takeover, of if the flour in your kitchen has exploded, or if the onions have made you cry, or if you have no business ideas left. If you’ve been assailed by any of those things, you need this website!
About BOSSMENTOR®
Business consultant and mentor, Jenny Stilwell, is the creator of BOSSMENTOR® Business and the Director of BOSS Management Group.
Jenny helps her clients take control of their business growth, so they can focus on what’s important in their lives. She helps her clients get really clear on strategy, structure and business growth, as well as provide proven strategies, tips and resources to help business owners achieve success. Learn more now at www.bossgroup.com.au.
BOSS Management Group, Suite 3, 8A St Andrews Street, Brighton, VIC 3186, Australia. Phone: +613 9592 3844, info@bossgroup.com.au.
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