Questions? Call us now at 609-688-0428

Maximize your Business Value

by Trilogy Partners on Oct 31, 2018 11:54:56 AM

I enjoy working with Trilogy clients, helping them to better understand their financials to set strategy and drive growth. But what happens when owners want to exit the business? How can they ensure that they get the highest value for the business they’ve dedicated their life to build?

As you may know, the industry standard valuation method is a multiple of a organization’s Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). The objective of a company in the short-term is to maximize EBITDA any way possible, to improve its value. However, depending on your industry or business model, one may have to decide if EBITDA is the best strategy to value your business as demonstrated by these two examples:

First, let’s look at MakeStuff, LLC, a manufacturing company that has been operating for 25 years and is positioning itself for exit. With a multiplier of 5X, any addition to EBITDA has considerable impact. While there are alternate ways to add to EBITDA from cutting overhead expenses to increasing sales, MakeStuff chooses to discount products heavily to incentivize purchasing and top-line growth. The gross profit margin will decrease, a strategy that may not be sustainable in the long-run, but every extra dollar of gross profit margin would improve the EBITDA. Ultimately, if the company raises the total EBITDA from $1,000,000 to $1,200,000 for the year, with a 5X multiplier, this would yield $1,000,000 more at time of sale.

Now consider Govt Software, LLC, a software company positioning for exit in the government space. Monthly Recurring Revenue (MRR) or Annual Recurring Revenue (ARR) are major factors for this type of entity and can be more critical than solely an EBITDA multiplier. Therefore, this company could have a completely different strategy than MakeStuff.

Govt Software’s value lies in its targeted niche, licensing specifically for government agencies and multi-year contracts. There are many larger companies that have better economies of scale with more dollars to invest in infrastructure, so Govt Software becomes very attractive as an added revenue line for a larger company.

In this instance, with the goal of exiting soon, Govt Software would be wise to reinvest all profits in sales and marketing initiatives that would help the company improve the overall MRR. With a revenue multiple of 3X, they would add $300K in company value for every $100K of annual contracts added, regardless of a positive or neutral effect to the EBITDA.

Preparing for exit is not something that should be left to chance or done without professional guidance. Each specific case needs to take into consideration the specifics of the business involved in the M&A transaction. If you’d like to have a conversation to learn more, contact Trilogy Partners at results@gettrilogypartners.com or 609-688-0428.

Navigating your Family Business from Conflict to Accomplishment

by Trilogy Partners on Jul 09, 2018 9:50:47 AM

When working with family members in business with one another, something reveals itself over and over – the ties that bind also serve as stress points for potential unraveling.  With expertise in group and family dynamics, conflict management, and behavioral science, I am often asked to provide consultation and coaching to Trilogy clients with family-owned businesses who recognize that “things could be better” from both business and personal perspectives.  Does your family experience any of these issues causing conflict and misunderstanding?

  • Decisions about the future direction of the business.
  • Differences in leadership styles, practices, and core business values.
  • Permitting undesirable and potentially destructive workplace behaviors to (erroneously) maintain harmony.
  • Differences in performance and time commitment.
  • Compensation of those actively vs. passively involved in the business.
  • Fairness, equity and expectations around time off/time away from the business with maintenance of core business activities.
  • Agreement about reinvestment of profits and the payment of dividends.
  • Clarification on how family shareholders exit the business and agreement on the basis valuation of shares in the business.
  • Identifying the next generation of leadership.
  • And, quite possibly the hardest to do but most important to address: the inability to have radically candid conversations to address ‘past hurts’ and ensure communication free from anger, spite, and/or indifference.

If not addressed in a timely fashion, any of the above concerns can accelerate loss of reputation, structure, and wealth.  However, with a thoughtful and comprehensive evaluation including collective business goals and individual hopes and dreams, there are options to increase success, satisfaction, and engagement for your family.  Below, are four approaches proven to minimize conflicts and misunderstandings:

  1. Establishing formal and informal rules for family member engagement. Creation of a family council or shareholders’ group allows establishment of a set of rules based on shared values to address key ownership issues. When seeking guidance around particularly thorny issues, this formal structure is invaluable. These values are often referred to as the family constitution.  Equally important are the informal rules that speak to the ways family members want to behave with one another. These behaviors are often referred to as the family working agreement.
  2. ‘Baking-in’ the concept of fairness and the practice of conflict resolution into all family business activities. A highly emotional response by a member feeling that others are benefitting at the expense of the family business can easily create an inhospitable environment for success. Commitment to fairness assumes that family members both appreciate how perception of inequality – of time, effort, resources, etc. – can undermine progress, and, requires a method to resolve these differences. Through the adoption of conflict resolution techniques, your family will be able to deal with business matters in a fair and equitable manner.
  3. Investing in leadership and board coaching for those actively engaged in the business. Running a family business can feel like an interminable walk about a tightrope. Competition, increased product and labor costs, shifting regulatory environment, changes in technology, problem du jour, you name it…all serve as challenges, as well as, opportunities for savvy family business leaders.  Coaching, whether it is at the level of the individual, executive team, or family board, provides high level thought partnership, creative problem-solving solutions, and can re-energize your view on yourself and others in the work.
  4. Evaluating the next generation using a thoughtful and disciplined approach. As tempting as it may be to believe that your son, daughter, niece, nephew, son-in-law, daughter-in-law, is the “perfect fit” to propel forward the interests of the family business, research and experience suggests there is much more nuance in making a good decision. While experience working in the business, ideally that which is both broad and deep, is desirable, there exist several other factors that relate to successful succession. Assessment by a competent evaluator can provide deep information about interest in taking on expanded responsibilities, possession of necessary skills sets, aptitude for requirements of the role, and, prediction about long-term success.

If you would like to learn more about how you can minimize conflict to increase growth and success in your family business, please contact Trilogy Alliance Partner Marc Celentana at (609) 688-0428 or mcelentana@gettrilogypartners.com.

 

An Alternative to Ownership Transition – How to be a Successful Absentee Owner

by Trilogy Partners on Apr 02, 2018 1:57:26 PM

At Trilogy Partners, we often talk with business owners about the key considerations they need to make when they transition ownership of their company to one or more people, or to another company.  However, there is an alternative to selling your ownership interest: You can systematize its operation so that employees can run it “on autopilot,” meaning that you will no longer need to steer it on a daily basis.

Putting your company “on autopilot” allows you to put off selling if you’re not yet ready to fully retire, and it expands your options for selling your company on better terms.  For example, perhaps none of your employees stand out today as the obvious choice to become the new owner. However, in 3-5 years, personal growth and increased self-confidence can change that picture.

A few decades ago, Michael Gerber wrote “The E-Myth,” a book about systematizing businesses to make the owner’s life a lot easier, while increasing both profit and sales.  The concept was popular with owners who wished to get top dollar when selling their business because turnkey businesses, where the buyer doesn’t need the seller to stay on an employee, are worth more.

The most difficult part of being an absentee business owner is that you must work yourself out of your job as the “face of the company” and allow others to step up and take over.  You may need to hire a new leader if you can’t cultivate one of your employees to do it, because not everyone wants to be the leader, and most people aren’t wired for it.  If you’re going to step all the way out of your business, you may have to develop or hire two leaders: one who is a visionary who can grow the business and develop new markets and large customers, and another who is the integrator who manages the daily operations.

Get Professional, Experienced Help

Trilogy Partners helps business owners to sustainably maximize their cash flow while they back out of their business, either to sell or enjoy owning from a distance.  The main thing you’ll need to do is to allow us to help you step away in a planned fashion.  That’s easier said than done for most owners, so that’s where we enter the picture: unlike other consulting firms, Trilogy Partners doesn’t prescribe recommendations and then leave you to make it all happen.  Instead, we partner with you long enough to ensure that the implementation is sustained.

If you are considering a future ownership transition or if you would like to explore how to become an absentee owner, please contact us at results@gettrilogypartners.com.

 

Ownership Transition – Key Things to Consider

by Trilogy Partners on Apr 02, 2017 8:50:33 AM

All of our clients own businesses, and a recent Washington Post article claimed that sales of small businesses hit a record high in 2016.  From time to time, business owners get to a point in their lives when they want to map out an effective exit strategy for at least two reasons: 1) they would like to enjoy themselves while they’re still in good health; and, 2) they want to ensure their company’s legacy for the sake of their employees (and customers).

Trilogy Partners is currently working with a number of clients to transition business ownership either to internal hands (remaining owners, employees and/or relatives) or external hands (other companies or entrepreneurs).  In both instances, the owner is usually interested in maximizing the sales price, while also ensuring that the business can afford to survive.  In my experience, what’s not obvious to most business owners is that they must work themselves out of a job in order to maximize sales price and let others take over their legacy where they left off.

The idea of working themselves out of a job – even to maximize the sales price – is a tough pill to swallow for most business owners, especially for founders.  It’s not that the founder’s talent, skill and knowledge go unrecognized; it’s just that the new owners want to run the business, and they really can’t have anyone standing in the way.  Your mere presence may cause confusion to employees and customers.

Your business has to be sustainable without you in it if you want to achieve the best sales price and the best contractual terms as well as to ensure that your legacy will live on.  The business buyers you desire will view your business as a stream of cash flow, so the more confident they are that the stream won’t dry up, the more your business is worth to them.  Obviously, remaining successful will require that your best employees stay on to operate the business.  Smart buyers will provide incentives to those employees to entice them to stay on, and they won’t micromanage them.  If you value your legacy and your employees as much as you value protecting your net worth, keep this in mind when selecting a buyer.

Is Your Company Ready for Your Departure?

Here’s a simple test to discover how ready your business is to sustain itself without you in it: If you died today, what would become of your business?  Be honest with yourself (and write it down).  List what you must do to achieve a better outcome.  Don’t be surprised if it looks daunting.  With good professional help, and plenty of willpower on your part, you can create a sustainable business that runs without you in it.

Get Professional, Experienced Help

If you want to ensure that your legacy lives on and take a vital step towards maximizing the sales price of your business, get experienced help to prepare your business for sale.  At Trilogy Partners, we work with clients to ensure they have a sustainable business strategy, an organizational structure designed to implement that strategy, and the right people in the right seats.  We also help our clients clarify personal motivations and goals which in turn helps them to make better decisions when navigating the complexities of selling their ownership interest.

If you are considering a future transition and want to know how Trilogy Partners can help, please contact Peter Lachance at 609-688-0428 or at plachance@gettrilogypartners.com.

The Latest

What’s the “Real” Business Challenge?
What holds a business back? Unfortunately, it’s not uncommon to see even successful companies struggle to grow. When working with Trilogy clients, challenges typically surface in the following categories: Fundamental business issues... read more
Maximize your Business Value
I enjoy working with Trilogy clients, helping them to better understand their financials to set strategy and drive growth. But what happens when owners want to exit the business? How can they ensure that they get the highest value for the business... read more
School Smarts + Street Smarts = Success
When working with Trilogy clients, I often tell them the story of Mitch and Jack, two high school friends with contrasting personalities.  Mitch was a loner, a straight-A student who always completed the extra credit homework and was essentially... read more