The real value of your business?

Because business owners have built their company over decades and invested their hearts and souls into it, they’re often tempted to measure value more with their emotions than with a clear logical mind.

To avoid this, calculation methods can help determine the value of a company, with the most applied being:

  • Income approach: Starting point is the gross profit of the next 3 to 5 years, discounted to today’s value. A simple approach often used for small companies.
  • Discounted Cash Flow method: Future cash flows are calculated and discounted to today’s value. This approach is more suitable for medium size enterprises.
  • Comparative data approach: Based on transaction in the past within the same or similar industries the potential sale price is estimated. This requires access to a very large and up-to-date database to get reasonable results (e.g. CoreValueTM).
  • Fixed assets method: Especially if future income is not given or unpredictable the existing assets minus the current long and short-term liabilities are the base for this calculation.
  • Mean Value method: This is a mixed method which considers both, the income and the current assets. Often both a weighted with a different ratio.
  • Strategic method: In some rare cases the value is based on access to patents, markets, etc. There is in principle no generic calculation for this case available.

At the end of the day, it’s important to remember that the value is driven by the market. As Publilius Syrus wrote in 1st Century BC: “Something is only worth what someone is willing to pay for it”.

 

Your role as an owner

There’s a saying amongst business consultants that some business owners aren’t looking for a successor, they’re looking for a monument conserver!

Understandably, leaving behind the business you’ve built up through your hard work is an emotional one. You need to remember however that you’re selling the company, not yourself. When owners are having difficulty letting go, they can send conflicting signals that compromise credibility and create confusion and doubt in the minds of potential buyers.

As the current owner, ensuring your house is in order and that you, your advisers and your team are pulling in the same direction and presenting the business well, is critical.

The first step is changing the way you see yourself – no longer as an operational owner but as a managing director of a strong management team. In many companies the owner wears many hats from General Manager to CFO to Sales Manager. Although this is often for good reasons, it is a big hurdle to overcome in succession planning. The value of a business is enhanced if the owner is not required to run the business. To get your business ‘sale ready’ you need to hand over any unique knowledge, such as customer contacts, special production or product knowledge, to the team that will remain when you leave. Without this, the business is worth far less.

Often it goes ‘against the grain’ to hand over control. But when you are planning to exit your business, you need to find ways to delegate responsibility to streamline the management of the business so that you as the owner are not tied to running every major aspect of the business. For now, you might control of some critical tasks, such as hiring of new staff, sales reviews and cash flow checks, and keep sensitive information such as company profit and employee salaries to yourself. But having a strong management team in place for all day-to-day activities is much better place for a successful succession plan. After all, you will need your employees’ help to prepare the business for the transition and then to make that transition successful. And while you negotiate the sale, you need to know that the on-going management of the company is running smoothly so that no surprises crop up at a critical point in the sales process.

While there is no one-size-fits-all approach to managing the challenge of simultaneously overseeing a successful business and managing a sales process, careful preparation and ensuring you have a strong management team is vital. Employees feel empowered and informed, you are freer to focus on succession planning and the sales process, and the new owner gains a thriving business. In that scenario, everybody wins!

Timing is key

“Retirement timing is always a tricky thing. I think it’s different for everyone. How you say goodbye to the thing you have really focussed on that much is a tough one. I’ve always intended to leave in good shape, to exit on a high note”. – Damian Woetzel

Business owners will inevitably move on from their business, yet the data shows that succession planning is typically last on their list of priorities. Business leaders are usually focused on building the business, and don’t like to think about the day they will leave it behind. But the reality is that planning for the sale or succession of your business is one of the most important decisions you can consider, and that proper succession planning will deliver the optimum results for you, your employees and the new owner.

To understand basis for succession planning, take yourself forward in time and imagine what you want to put on the table for potential buyers. You want to show them:

  • A successful business with a steady sales growth over the last 3 years
  • A stable management team which has demonstrated their management skills over many years
  •  A stable cash flow over the last 3 years, and a strong financial position
  • A predictable future income for the business, ideally supported by long term contracts
  • No legal disputes
  • A stable and engaged work force
  • A very presentable premises with well-maintained assets
  • A managed business that does not rely on the current owner for its success.

When a business can tick all these boxes, a succession plan can be implemented quickly, but unfortunately this is not often the case. This timing can make an enormous difference in what you take away from the closing table.

Succession planning should ideally start more than five years ahead of the business sale, with more detailed planning over the three years before the planned exit. If your circumstances allow you proper time to plan, you will be able to turn your attention to critical issues that need to be addressed before the sale. Depending on the business these types of issues might be:

  • The owner is heavily involved in operations. When they leave, production, sales or other areas will struggle.
  • The product portfolio is at the end of its life cycle or under threat of cheaper Asian imports.
  • Other key members of the management team will also leave once the owner leaves, and the business depends heavily on single individuals because of their knowledge or skills.
  • The company has no sales plan and a very unstable sales history

Within a reasonable timeframe, most issues are fixable – although one of our Gibsons Consultants fondly remembers a client who stated “I am 73 years old and want to get out of the business by the end of the year”.  Succession planning in this environment is obviously challenging and reduces the options on the table. In succession planning, timing is everything!

 

The key to successful succession planning

Whether or not you like to think about it, it’s inevitable that one day you’ll leave your business. It may be that you decide to sell up and enjoy the fruits of your labour in retirement, or you have to exit the business due to health reasons. Whether today or far in the future, the time will come when you, as a business owner, have to answer: Who will continue to run my business?

The key to successful succession planning is to ensure you are not asking this question too late! Leaving it until you have reached an age where you are no longer healthy enough to work, or when the enthusiasm that drove your business to success has disappeared, will devalue your business.

You could decide, or need, to sell at any point in time – but it takes time to have the business in a state to maximise the sale value. The reality is that planning for the sale or succession of your business is one of the most important decisions you can consider, and that proper succession planning will deliver the optimum results for you, your employees and the new owner.

Succession planning has a time horizon for the next ten years and allows you to plan ahead all the necessary changes for an optimal handover. A succession plan answers two basic questions:

  • Who will own the company in the future?
  • Who will run the company in the future?

For many SMEs, the owner is heavily involved in the daily business, so essentially the owner and the managing director are the same person. A Succession Plan might split these two roles, with a potential scenario being that the owner first steps back from operations while remaining the owner, and a certain amount of time, transfers the ownership.

But first, the current owner has to answer some fundamental questions:

 

1. What is my target for the transition?

  • Maximum upfront money
  • Legacy for my family
  • Protection of my brand name
  • Shortest transition period
  • Job security for my staff
  • Monthly income for the retirement

2. How much do I want to be involved after the transition?

  • A day or two per week
  • Consult to the business for some years
  • Bye, gone fishing

3. When do I want to step out?

  • Next 3 to 5 years: Plenty of time to make the company really attractive, optimise the product portfolio, clean up structure, train internally or hire required key positions
  • Next 2 to 3 years: Sleeves up, clean up fast, fix broken processes, prepare accounting
  • Less than 2 years: Doable, but no time to waste. Some transition models might be already gone, avoid a simple fire sale

The answers to these questions will guide your timeframes and approach.  It’s all about having choices. If you have a plan or strategy in place, then you can choose what you really want to do, at the time when you want to do it. And isn’t that what success is all about?

 

Would you wire your own house? Don’t build your own website!

People often ask ‘Why should I pay to get a website developed when I can do it myself?’. Our response is usually something along the lines of ‘You know what, that’s true. I guess it’s sort of like being able wire your own house, instead of using an electrician.’

The reality is that just because you can do something yourself, or do something real cheap, doesn’t mean that you should! This is so true about creating a website for your business. Why would you spend the many many hours and go through the inevitable frustrations to save on something that in today’s world is a vital tool for EVERY business?

To build a proper business website, the following steps (as a minimum) should be thought through:

  • What is the purpose of your website?
  • How do you wish to use it within your business?
  • What message do you want to convey to your visitors?
  • What branding requirements need to be taken into consideration?
  • Develop your site/link map
  • What will your site look like – design each page before you even get close to developing anything
  • Have you included conversion prompters?
  • What will your back end look like? What will you use? How much flexibility does this give you?
  • Create your website to match your site/links map and to look like your design – this is often a  frustrating and time intensive exercise
  • Where are you sourcing images from?
  • How are you going to make the images look professional if they need editing?
  • What tools will you build into your website to: generate efficiencies, help you make more money, better connect with customers?
  • Add the above tools into your website and integrate them with third party products if required
  • If you are creating an e-commerce site: What platform will you use? What payment gateways? How will you integrate these into your site? Have you got your inventory management and your shipping procedures in place and working to your requirements on the website?
  • What about content?? Where is this coming from? Is it well written and legible?
  • Once you have your site created, you need to review, test, change, review, test, change and review once again!
  • Is your site responsive? Have you taken into account SEO requirements?

So as you can see, whilst it is possible for anyone to create a website, if you want it done properly a trained professional with the right team in place (developers, designers and business specialists) will not only be able to get the job done much better than you could, but they can also give you important tips, advice and strategies that will in the end result in a better product and a more professional online image and a structurally sound, secure site.

Top tips to have more productive staff

Despite the fact that staff can make or break a business, many managers and business owners treat their employees with contempt and feigned interest. It is thus no surprise why so many businesses struggle to keep staff for longer periods and why their efficiency and productivity is never going be 100%.

At times, employees can be a handful and can seem to be more of a headache than it’s worth and as business owners sometimes we question why we bothered in the first place. If you want your business to grow however you don’t have choice – you will only be able to go so far on your own.

So what can you do to entice your employees to stay a bit longer, and how can you create a more harmonious and enjoyable work culture?

Our top tips are:

  • Treat your staff how you would like to be treated by your manager
  • Pay a fair wage, at least meeting industry minimum’s
  • Don’t discipline staff in front of other employees – resolve and discipline behind closed doors
  • There is no need to yell at, and verbally abuse staff
  • Celebrate wins and successes, and give praise where deserved
  • Recognise good performers and reward them with random small gifts
  • Coach and guide your poor performers, don’t just criticise or belittle them
  • Don’t micromanage – if you hire someone to do a job then let them do it without your constant interruptions and requests for progress reports
  • Promote a culture of education and continuous development – provide your staff with a means to develop their skills
  • Listen to recommendation from your staff, they tend to see things from a different angle and may have a better understanding of processes and even customer needs than you do
  • Involve your staff in the growth of your business – share your future vision with them and get them actively engaged with this vision
  • You are not running a business to become best friends with your employees – be polite and friendly, but always keep a professional distance and don’t forget you are the boss
  • Lead by example – set the standards and never go below
  • Be decisive – some employees will try to take advantage of you if you come across unsure and indecisive
  • Be prepared to take firm action when needed, but only if it’s justified
  • If you are having business problems keep it to yourself, don’t tell everybody and don’t walk around sombre and depressed
  • Smile, be energetic and your enthusiasm will rub off on your team!

It’s not hard to look after your staff and keep them happy. And if you are ever unsure, ask yourself ‘how would I want to be treated by my manager?’

A Simple “Secret” for Growth – Increase Repeat Business

Have you ever had such a good experience with a business that you have not only used them again and again, but have told other people about their products and services?

I travel quite a bit for business and frequently use taxis to get around. Out of interest I always ask taxi drivers the following question ‘how’s the taxi business treating them?’ The response in almost every case is quite negative, with most indicating that they don’t make enough money and there isn’t much work. Just recently I was in Sydney when I hopped into a cab to head to a meeting. It was about 11am. Along the way I asked my usual question, and the cab driver just looked at me and said ‘it’s very quiet today so I am finishing up and going home after I drop you off.’ After further probing I found out he started his shift at 6am, and that this was normal for him.

I had a second meeting to get to after finishing with the first one, and so I caught a taxi once again. This time however I didn’t need to ask how the taxi business was treating my driver. Within 30 seconds of getting in the cab I realised that I was sitting in the car of a professional driver. Two mobiles were stuck on the dashboard, with a third in the centre console. The driver was wearing a Bluetooth headset in each ear, and he had a thick pad of paper stuck on the right driver’s side door frame with a pen attached. The energy in the cab was amazing!

The phones were ringing every few minutes. The driver was taking bookings, scheduling drivers, rearranging schedules and staying in complete control of the situations that presented themselves. On occasion he would scribble an address or flight details onto the notepad.

In between all of the calls we talked. My driver, Isaac, has been a taxi driver for over 26years. He says for about 20 years he drove for someone else before venturing out on his own and buying his own cab. Over the years he has managed to build up his business so well that he no longer needs to hang around taxi ranks waiting for someone to jump into his car. He has a list of dedicated clientele, including large companies who only use his services to drive their staff around. In fact, he is now more like a private hire car driver than a taxi driver, as his car doesn’t even have one taxi badge on it (how I managed to hop into his car is another story….)! He has several drivers working for him, and he has also got a deal with another company that has over 700 taxis in their fleet. He said to me at one point: ‘Neither me nor my drivers are ever bored or waiting around for work to come in. We are always busy.’

It’s amazing how in the same industry on the exact same day two people with the same jobs have such an incredibly different take of the industry they are in. One is finding it slow, saying that times are tough. The other is so busy that he has had to expand his business to keep up with the demand.

Isaac hasn’t come up with some magical technique. Nor does he spend much money on advertising his business. The secret to his success is very simple and anyone with the right attitude can replicate such success.

From the moment I hopped in the cab to the moment I hopped out, I was made to feel ‘important’ and ‘comfortable’. The car was very clean and smelt nice. My driver was very well dressed, looked clean shaven and professional. No swear words came out of his mouth. His use of words and sentences had an air of courtesy about them and he was friendly and smiling whenever we talked. I used his business services again that evening when I needed to go back to the airport, and although this time I had a different driver, I had the same positive experience.

Whatever business you are in, the following advice is important if you wish to gain repeat business and build a hedge around your business that will enable you to ride through market downturns and fight your competitors:

‘Look after your customers and they will look after you’

Sounds simple and one would think that this is a no brainer? Amazingly though this is hardly the case. So many businesses treat customers like numbers. How many times have you received pathetic service? Not even a hello, a smile, or a nice word? I am not surprised that so many businesses don’t survive the times, just based on the amount of negative experiences I have had over the years. Customers simply take their money elsewhere. Yet if business owners just placed more energy into looking after their customers they would see increased repeat business, increased referrals and a higher chance of blocking competition from taking away their business. It is far more efficient and effective to sell to existing customers than having to rely on continually finding new ones.

Some of my tips for building client relationships:

  • Set yourself apart from the pack. Do things differently and go the extra mile with your service.
  • Take pride in yourself and your business. No matter what industry you are in – whether you own a recruitment agency, are a taxi driver or spend your days covered in dirt, cleaning yards, you can always take measures to take pride in you and your business.
  • Act professionally, always be courteous, polite, greeting your customers with a smile.
  • Communicate regularly and communicate effectively.
  • Deliver what you promise. If you have told your customer that you will do something, then do it promptly. If your products are being sold with the premise that they can do something, make sure that it can deliver on that. Same goes for a services oriented business.
  • Be honest and transparent. Don’t over-promise – if you can’t do something or don’t know something the customer asks, say so and get back to them. It’s better than making it all up and having your customer find out that you lied to them.
  • Be energetic and enthusiastic! This will rub off on your team and your customer will see you in a positive light.

Like many things in life and business, it’s the little, simple things that people often push to the side, opting for complicated solutions when in fact the simple solution is quite often the best.

Quality systems for your business

To produce consistent and predictable quality outcomes you need effective systems in place in your business. Having effective systems in place also streamlines day-to-day operational activities and makes it easier to manage these activities, allowing managers time to deal with exceptions and to work on business development.

What is a system?

A system is basically a set of rules for processing information and facilitating decisions.

Another major benefit of developing and documenting systems and procedures is to help to personality-proof your business. It reduces the level of dependence on particular individuals by downloading their knowledge and documenting it so that the knowledge can be shared with other staff and become corporate knowledge rather than individual knowledge.

What happens when your business systems are lacking or ineffective?

  • Customers are dissatisfied due to unpredictable levels of service and quality.
  • Staff are often frustrated and demotivated because every task becomes a unique challenge rather than an established process with known outcomes.
  • Low productivity: without documented, effective and up-to-date systems, new employees must rely heavily on experienced staff for guidance even for the most basic of tasks resulting in low productivity for both new staff members and for those training and supporting them.

What are the characteristics of effective systems?

  • They are documented.
  • There is some level of automation in data capture and processing information.
  • They are not reliant on individual knowledge.
  • They operate in a predictable and timely manner.
  • They provide guidance in routine decision making.
  • They improve efficiency and reduce costs.
  • They accommodate the ability to measure performance.

If you don’t have systems in place in your business now, where do you start?

First establish a clear picture of the required outcomes, assess the current position, and then develop the logical, step-by-step processes required to consistently achieve the outcomes required. Incorporating input from people at the coal face who work with the processes on a day-to-day basis is essential to develop and refine these systems. They are the ones who are implementing the systems and generally know what works well and what causes frustration.

It is also important that systems adhere to relevant Quality Assurance and Workplace Health & Safety standards.

It is not too late to start developing effective systems for your business and to see predictable and consistent quality results.

7 Tips to Post Valuable, Keyword-Targeted Content to Your Blog

It is obvious that anything you post to your blog should be valuable. Readers simply won’t want to read it otherwise. Here the phrase, “Think before you speak” applies. In other words, “Think before you blog.” Think of important, valuable information you can pass on to your reader, and provide it in a way that will entice them and make them want to return to read what you have to say next.

The second part of this seed is a bit more complicated. You can have the most valuable content on the internet, but if no one ever sees it, it isn’t doing you any good. In order to make sure that they do, you want to use keyword-targeted content in your blog postings.

Businesses have been using keyword-targeted ads for a long time, but many fail to realize how important it can be for blog content. Since search engines pick up on these words and make your blog pop up in searches, they can be a valuable tool to increase traffic to your site. You don’t, however, just litter your content with a few words and hope they get picked up by search engines. There are a few steps you can take to be sure you get the right keywords.

Keyword Research—Research to see how many people are searching for your site. There are tools available from Google and other software developers that can help make the process easier for you.

Target low competition, niche keywords—Google Adwords can be very helpful to see how competitive a keyword is before you decide to use it.

Don’t focus only on your main keywords—Try to think outside the box. Targeting keywords isn’t just about the most popular keywords. For example, if you’re a realtor, just targeting your blog for real estate will get too many hits for you to even be noticed. Target for specific real estate instead, and you’ll get visitors to your site others targeting just real estate won’t get.

Think about what your target market is looking for and put it on your site. Always think of your market first. They want quality content, not keywords. Once you have the quality content, you should write between 200-300 content words for each keyword used. That’s around three to five keyword phrases on each page. Don’t force it. Keywords have to be used naturally, so they flow within the content.

Customize titles and descriptions for each page—Search engines can’t figure out what your subject is or the relevance of each page if you use the same tags for all the pages.

Prepare a site map telling where everything is on your site—Search engines like site maps. Although you’ll get around 1% click through rate, a site map will really help those who know what to do with them.

Build popularity—Just doing the above steps won’t get you on the first few pages of the search pages. To do that, you need to build popularity. One way is having sites that link to yours. You can offer important information so others will want to link to your site. If you don’t spam, and are a well-linked site, you’ll do better in search engines.

5 Reasons Why Networking in Business is Important

Humans thrive on social interaction with one another.  That’s why networking in one form of another has been a necessary tool for the survival of businesses for hundreds of years.

Similarly, relationships are crucial to any business, including relationships with others in your field. Interestingly many people feel that getting to know people in their field should only be done for competitive reasons. Networking with other experts in your field however can be extremely beneficial to you for many reasons.  You never know, one day you might do a joint venture, create a product together, or even share ideas that are worth millions.

Networking can be positive for you and bring about successful results for 5 key reasons:

  1. Opportunity—You have the chance to meet new people every time you leave your house.  You never know what people you might meet, or what that person may have to offer.  Prospects are everywhere if you just take the chance.  Take a positive look around you, see what’s out there, and begin networking with others.  You haven’t lost anything by trying.
  2. Exposure—Getting yourself, your talents, or your business “out there” requires exposure.  You may be a new musician, have just created an awesome new product, or struggling to get your business running.  In any case, the more people you know, the better off you’ll be.  Your customers or fans will talk among themselves.  They may also talk with people outside the circle you’re in.  You may already have some fans or customers, but remember that more is better.
  3. Contacts/Relationships—I’m sure you’ve heard the old adage, “It’s not what you know…it’s who you know.”  That’s what makes networking SO important.  The more contacts you make and the more relationships you build, the more people you’ll know, and the better your chance of knowing the right person.  You never know what “right” person you may need in the future.  In the beginning, just make as many connections as you can.  Stay in contact with them, and it will give you a good group of people to draw from for future needs.
  4. Sharing things in Common—Like-minded people enjoy each other’s company.  When you have something in common with someone, conversation will be easier, and they’ll want to build a relationship with you.  Commonalities draw people together, and can bind them together.
  5. Learning from each other—Networking with others will definitely mean that information and ideas will be shared.  There is a good chance that you will meet someone who has a new idea or vision that you feel will benefit your company.  Knowing who to go to for help when you need it is important. When it comes to knowing the right person…knowledge is power!

In short: Networking goes hand in hand with operating a successful business!

9 ways to improve your sales conversion rate

Most businesses put lots of effort into generating sales leads. We want to get as many leads as we can, but if we don’t turn those leads into sales, we have only done half the job.

The number of times we sell something compared to the number of opportunities we get to sell is called the sales conversion rate. Sales conversion rates are often given little attention, but they can provide very valuable information. If you don’t have accurate figures, you should start collecting the data now.

Often, business owners and sales managers will massively overestimate their sales success rate … many will guess a sales conversion rate as high as 70% when in reality it is more like 30%. The real figure may come as a shock, but it may also reveal a significant opportunity.

Think of the bottom line difference you can make by increasing your sales conversion rate. An increase in your conversion rate from 30% to 40%, will increase your turnover by a third and have an exponential effect on the bottom line.

But how do you improve your sales conversion rate?

It is possible, and here are some ways to make it happen:

 

  1. Set Sales Targets

Give your sales people a clear idea of what you need them to achieve and why, and outline the financial impact it will have. People want to succeed and need to know by what measure they will be judged. Ensure targets and measures of performance are clearly visible for all those involved. Provide incentives for staff to achieve targets. Incentives don’t have to be cash nor do they need to be large. It’s the recognition that provides the reward, so provide plenty of encouragement to your sales staff along the way.

 

  1. Measure Sales Conversion Rates

When you start to measure things you will find ways to improve them. This holds true for sale conversion rates. Test and measure everything you do. And if it’s not working, don’t be afraid to change.

 

  1. Define What is Unique About Your Business

If there’s nothing different about your business, people will only buy from you because of convenience or price, nothing more. Furthermore, it will be difficult to ever raise your prices because if anyone is doing it cheaper, people will buy from them. Work out what is special about your business, and let your customers and prospects know. And don’t just say “price and quality” as everyone will make the same claim. Having an appropriate quality level at an acceptable price is merely a ticket into the game, not a competitive advantage. Be very specific, and meaningful.

Sit down and ask yourself: What is it that we do better than the rest? What sets us apart? If you can’t come up with anything, you need to change or add something.

 

  1. Create a Benefits and Testimonials List

You should have a statement on your website that you can also print out that contains the three or four most important benefits of your product or the five reasons why yours is a better choice. Have a clear and compelling answer to the question “Why should I buy from you?” Remember, it is always more powerful when those reasons are delivered by someone else, so develop testimonials and quotes from your past customers about how good you are. Reprints of (positive) press articles are also valuable.

 

  1. Demonstrations

If you can demonstrate the product first hand, do it. People like to see with their own eyes, and experience the product before they buy. If you can’t demonstrate, think of a way you can do something similar. A case study is a useful alternative to a demonstration and has the extra benefit of providing a third party reference. A video posted on your website is a useful alternative way to provide a physical demonstration for online customers or prospective customers researching online.

 

  1. Written Guarantee

You will improve your conversion rates if you can write a guarantee that addresses the customer’s key perceived risk in buying from you. Buyers see an element of risk in almost every buying decision. Identify what that risk is and guarantee it won’t be a problem. If it is, offer to refund their money, or put things right. Once you’ve decided what the perceived risk is (and the best way to find out is to ask your customers), make sure you tell people and promote your guarantee. Also ensure your staff are empowered to deliver on the guarantee if required.

  1. Offers

To seal the deal or encourage action now, throw in something that adds value (not a reduced price). Ideally, it is something with a high perceived value that doesn’t cost much (we have seen successful offers on $5000 pieces of equipment that offered no more than a polo shirt as a bonus). Availability of the bonus extra should have a time limit on it (to encourage buying action now). Alternatively, if you have confidence in your product, extend the warranty.

 

  1. Display Awards and Certificates

When people see awards or certificates on your wall or your website, they think, “This place or product must be good”. It doesn’t matter what the awards or certificates are, or what they were for; even team awards will give the impression of quality. The only really relevant detail is the year. Displaying an award with 1998 showing prominently may damage rather than help your chances of making the sale.

 

  1. Try Before You Buy

A free sample of the product or service is the best way for a prospective customer to get to know what you do and how you do it. It also provides the psychological element of there being a favour owed back to you in return, once they have had something for nothing. A free trial period to use your product may be more appropriate than an actual giveaway. Ensure the customer or prospect knows exactly how the product works so they can gain the maximum benefit from it.

The old adage that you can manage what you measure is true and certainly applies to sales conversion rates. Focus on lifting your ratio of sales to leads generated, measure it and you will see the benefit on your bottom line.

4 simple steps to put your financials to work in your business

Do you regularly review your business financial figures? And what do you do with this information? In four simple steps, you can learn how to review the financial performance of your business and make your financials work for you and your business.

STEP 1: Decide what you need to know

Financials – Business owners and managers need accurate and timely financial information to empower their decision making.

Answer these questions:

  • How profitable is my business?
  • How much can I borrow?
  • Can I pay my bills as they fall due?

Decide what measures you need to have in place in order to feel comfortable about the performance of the business and put reporting processes in place.

Key Business Measures – Business owners and managers need to know the key numbers that drive the performance of their business. Find out what they are, and MEASURE THEM. They are the heartbeat of your business.

STEP 2: Measure what you need to know

Financials – Produce a Profit/Loss Statement, a Balance Sheet and a Cash Flow Statement regularly.

Key Business Performance Measures – Measure the heartbeat that drives the performance of your business.

STEP 3: Understand what you need to know

Empower yourself with information and understanding about your business. Review your financials and your key business measures regularly.

STEP 4: Act on what you have learnt

Make informed decisions and take action based on the understanding you have gained about your business. Ensure constant improvements to your business.

Outcomes for your business

  • Well informed business owners and managers
  • Good, pro-active decisions based on accurate and timely information
  • A culture of constant improvement
  • A profitable business.

Yes, by following these four simple steps in relation to your key business numbers: decide, measure, understand and act, you can regularly review your business financial performance and put your financials to work for your business.

Online Business Models – The Basics

In this article, we will outline some of the different online business models that exist so that if you are considering setting up an online business, you have some understanding of how you could structure that business.

  1. Direct sales – physical goods: In general, direct sales (particularly of physical products) is usually what people think of when they think of ‘selling’ online. Direct sale of physical products is where you sell a physical widget to customer A via your e-commerce store, and you deliver those goods to the customer’s chosen location. It is important to understand that the online version of the direct sales business model is different to that of an offline physical shop-based business model, and you will need to make adjustments to your procedures in light of the differences should you wish to move online with your physical store. Some of the variations within this online business model include:
    1. You pack and ship – this is self explanatory. You manage the entire process, from inventory management to packing and handling. This is the model I initially used for my online bookshop, and unless you have good processes in place the chance of making an error is very high!
    2. Drop shipping – This is where you sell a product which you physically do not see or stock yourself, with the order being processed by a third party. In this model you don’t see any products, and if you get it right it can be quite lucrative given the effort involved. Expect your margins to be low however, and if your third party supplier stuffs up then you will be the one blamed by the customer. Drop shipping is sometimes combined with white labelling in order to hide the third party involvement from your customer, making it all seamless in the front end
  2. Direct sales – virtual goods: This is a direct sales model where you sell ‘virtual’ goods to your customers on an item by item basis. The virtual goods can be anything from ebooks, to audio files, videos and anything else digital. The beauty of this model is that once you create your virtual products, you can flick the switch and in very general terms ‘make money while you sleep’.
    1. You produce – This involves you producing the goods for download/distribution, or where you provide the services being offered.
    2. White labelled – This is where you use material produced by someone else, but the customer only sees your branding and does not see the third party in the process, nor do they know that you didn’t actually produce the product.
  3. Direct sales – services: Yes, even services can be sold online in single transactions. For example, an accountant could sell personal end of financial year tax returns, with full payment made online in advance of the service being completed. The customer then simply sends the firm all the relevant required information for completion. Why do this? The firm gets immediate payment upfront, no chasing required, no managing accounts etc. There are many many combinations for service based businesses to take advantage of online sales.
    1. You deliver – This is where you sell the service and complete the service in-house.
    2. White labelled – This is where you sell the service, but the order goes to a third party for completion, all under your branding without the customer knowing otherwise.
  4. Subscription – works for both physical and virtual goods and services: I personally love this model and have several subscription based projects of my own in the pipeline. In the subscription model you sell services/products (physical and/or digital) via your website, taking payment electronically, and delivering according to subscription levels and schedules. This model, if well setup, can be very lucrative, especially if you have minimum subscription periods that your customers must adhere to. In addition, adding a subscription model to an existing direct sales model can help smooth out the frequently seen monthly revenue up and downs, making it easier to manage your cashflow and forecast ahead.
  5. Online marketplaces – this model is often used by start ups, those wishing to quickly move stock and those who wish to create and run an online membership based market business.
    1. Existing – example EBay; Gumtree: This business model is built around the use of existing platforms like EBay to sell. I am personally not a fan of this model as it is not the easiest to get right, given the incredibly high competition and the strong focus from the customers on securing the best for the cheapest. Having said this, I have used this model with great success and built a start up from scratch using Ebay for the start, with a transition away from EBay to a direct sales business model once I hit certain internal targets.
    2. In-house – you develop your own market place: This is for anyone wanting to create their own version of ‘EBay’. This is a very rarely used model that is costly and difficult to execute, so if you have this on your mind I strongly recommend you get in touch with me for a chat.
  6. Combos – This is where you deploy more than one business model to run at the same time, or, you transition from one model to another based on various internal criteria, and business or market needs/factors. An example could be to develop a primarily subscription based business, but at the same time offering some items for direct sale as well.

One of the beauties of the digital (online) world is that the possibilities are broad in terms of how you setup your online business. In addition, a digital model is far more flexible than the traditional bricks and mortar version, allowing you to evolve quicker, cheaper and more effectively than your offline counterparts.

If you have an idea for an online business, or have an existing business and want to know more about transitioning online (or at least including an online presence in your existing offline model), then get in touch and let us help you grow and evolve!

The 7 Step to Reviewing Old Website Content to Make Them Thrive Again

Using the right keywords in your blog is an imperative seed to its growth. As search results change over time, and as your business changes, you may find it a valuable exercise to re-evaluate some of your old content.  You will probably find some valuable content that simply needs to be altered using new keywords and used again.  Many of those old blogs that you posted that are like seeds planted on rocky ground, they can be replanted with the right keywords and can thrive.

Doing this is simpler than it may seem.  Here’s all you need to do:

  1. Look at your Google analytics and find your most popular posts.
  2. Read them and think how you could summarize them using only three to four words.
  3. Once you’ve got a blog topic figured out, look for what people are searching on Google—You can use Google’s Keyword Tool, put in your description, and Google will do the rest.  It will give you the results for your phrases and for similar phrases.
  4. Look for keywords that have low/medium competition.  This will help you to rank easier for those words.
  5. Check the phrases to be sure they’re targeting the audience you want to target.
  6. Optimize your blog post—Take the keywords you’ve developed and put them in your blog post.  Make sure to keep the content in readable format.
  7. Work the best keyword or phrase into your title and republish that post!

Going Digital in 4 easy steps!

If you are like the majority of business owners we talk with, then you would have heard the ‘you need to go digital with your business’ matter of fact statement from someone in your inner circle at some stage or another. While it’s well and good to say this, the following question usually remains unanswered: ‘ok, but where do I begin?’

In this snapshot I would like to answer this last question by presenting you with a 4 step guide to going digital.

Step 1. Register your business name as a web address (also known as a url or domain name). You can use a place such as crazydomains.com.au or godaddy.com.au

Step 2. Get an email address if you don’t have one. If you already have one then great! In that case get rid of your [email protected] or [email protected] generic email addresses and setup new email accounts under the domain name you just registered. Example: [email protected] or [email protected]

Step 3. Whether you like it or not, EVERY business needs a website. Even a simple one page website is better than having no presence at all. Why? Today’s consumers use search engines (such as Google) to find out information about a business or to look for business services, so if you don’t have a website you reduce your chances of being found, and you may as well not exist as a business.

Step 4. List your business on Google – this is FREE! Google has a neat process which allows your business to be listed in it’s maps, and gives your Google search listing a boost with information including images, phone numbers and more. To know more on this, simply type this into Google and follow the links: ‘Google my business’. Doing this boosts your digital presence and helps people find you using not just search results but via GPS units and smart phone maps.

That’s it! Now of course there is a lot more you can do within the digital space to boost your presence, but by at least doing the above you will have truly entered the digital space and made your mark on the www.

Do you have any questions? Feel free to contact Gibsons. Our Digital Specialist is ready to advise.

Is it time to exit your business?

In the challenging economic climate since the GFC, many SME business owners have asked: Is now the time to exit my business?

According to the Australian Bureau of Statistics (ABS), from 2009 to 2013, increasing numbers of business owners answered yes to that question and did exit their business. And despite a drop in the exit rate in 2013–2014, many business owners are still considering their options.

Fin year Entry rate % Exit rate % Variance %
2009–2010 16.7 13.1 3.6
2010–2011 13.9 13.5 0.4
2011–2012 13.5 13.1 0.4
2012–2013 11.2 14.1 -2.9
2013–2014 13.7 12.7 1.0

Entry rates versus exit rates of Australian businesses 2009–2014
But you don’t need to wait for desperate circumstances before you develop an exit strategy for your business. In fact, developing an exit strategy can help both to prepare your business for sale and/or to make your business more competitive.

If you want to continue to operate your business, how can you safeguard your business into the future and avoid being one of those exit statistics?

To be competitive, SME business owners must be outwardly focused. In addition, you need to know what is driving the value within your business, and what is not driving value. This means capturing not only financial information and tangible sources of value but also intangible drivers such as market share, brand, point of differentiation, margin and customer satisfaction.

Alternatively, if you want to sell your business, you will need to provide the buyer with proof of the value of your business and reasonable assurances of future profitability. The intangible assets mentioned above are crucial to the competitive advantage and future earning capabilities of an SME business.

But how do you identify and measure those intangible assets and drivers? In many SMEs an information gap exists in this area, which consequently can impact the value of the business and make a business more difficult to sell.

Whether you eventually decide to stay and forge ahead or to exit your business, an important starting point is to know the value of your business.

Do you know the value of your business?

You might be surprised, as a US-based survey found that 95% of business owners thought that their company was worth more than it is in reality.

Dr Ralph Bradburd, Professor David Wells and Chuck Richards, CEO of CoreValue, in their white paper ‘Transferrable Enterprise Value – The importance of quantifying intangible value drivers in SMEs’, stated that enterprise value (EV) tries to measure the ‘true worth’ of a business. It is often referred to as the takeover value.

For publicly traded companies, EV can be derived from shareholder reports, financial statements and other metrics, but for smaller businesses most of this information is not available and the information gap can make it very difficult to acquire. This information gap includes personal relationships with suppliers and customers, often poorly documented operational information and processes, and the fact that smaller businesses tend to operate in narrow markets with specialised products and/or in specific geographical areas which limits comparisons with like businesses.

Gibsons can now help you to develop a comprehensive assessment of the value of your business using CoreValue. CoreValue is a software application that analyses where the value is being driven from within your organisation and then provides you with practical and achievable action plans to address the issues that impact on the value of your business.

By using the CoreValue valuation tool, we can help you find out what are the value drivers within your business. From there we can help you to build on that existing value.

For more information on how to create a business exit plan or specifically how CoreValue can assist your business, contact Gibsons and speak to one of our experienced business consultants.

Thanks to Steve Bryant from QMI Solutions for providing information about the CoreValue database and software that is included in this article.

What is the true value of your business?

If someone were to ask you today, what is the value of your business, then what would your answer be? And how would you come up with your valuation?

The reasons why you may need to know the value of your business include to develop an exit strategy or sell your business or perhaps to seek out additional finance to expand your business via new products or into new markets. There is no doubt that potential buyers, investors or lenders will require you to justify your valuation of your business.

Yes, almost anyone with an understanding of figures can quantify tangible assets minus liabilities and create projections for future business income, but you know that your business is worth more than simply the tangible assets.

You have built a business brand and product brands and have forged valuable relationships with customers and suppliers. You know your business, your products and your market inside out. And how much is the intellectual property in your business worth?

How can you quantify those intangible business drivers to include them in the final valuation of your business?

By looking at your business in isolation, it is very difficult to put a value on those intangible value drivers and almost impossible to justify your final valuation to other parties, who in their own interests will most likely be trying to minimise the valuation.

This is where Gibsons can you help you via a tool called CoreValue which can provide a value estimate of your business. The CoreValue database contains data from tens of thousands of private business sales and the software will compare the specific details of your business against its comprehensive dataset to create a value estimate.

There are 18 value drivers that the CoreValue software use to quantify the value of your business: Growth, Market Size, Market Share, Revenue, Barrier to Entry, Differentiation, Brand, Margin, Customer Base, Company (e.g. Mission, Culture, Practices), Financial, Marketing, Operations, Customer Satisfaction, Management, HR, Legal and Innovation.

How does CoreValue work?

First, you simply fill in a questionnaire which requests some business details and then asks you via multiple choice questions about the 18 value drivers in your business. Then we will provide you with a report that shows where your business fits, and therefore its value, relative to the thousands of business in the CoreValue database.

But not only will this CoreValue report estimate the value of your business, it will also highlight areas for improvement in your business to further boost the value of your business.

Contact Gibsons and speak to one of our experienced business consultants today about estimating and boosting the value of your business.

Thanks to Steve Bryant from QMI Solutions for providing information about the CoreValue database and software that is included in this article.

Conducting a Feasibility Study

What is a Feasibility Study?

A feasibility study is used to analyse a project or idea in order to assess what the likely outcomes will be, or to test alternative options. Within a business context it usually weighs up the cost of the project against the expected benefits (i.e. cost / benefit analysis) and is undertaken as the first step in the development process.

Feasibility studies may be undertaken for a wide range of reasons including:

  • Evaluating a new business concept
  • Deciding whether to expand or amalgamate operating facilities
  • New capital projects
  • Business mergers and acquisitions
  • Entering new markets
  • Developing new products

Estimates about the number of business ideas that are generated and the number that are successful range from one in fifty to one in a hundred – either way, there are a lot more failures than successes. This suggests that undertaking a feasibility study in the pre-planning stage is a good idea before investing a lot of money.

In most instances, the feasibility of an idea will rest on the projected financial outcomes relative to the cost, however, there may be other strategic and operational issues in play, for example, a project may be aimed at disrupting a competitor or changing a company’s image.

The key requirement is to clearly define what the project is and what the target outcomes are and to ensure that it fits with your business vision, mission and goals.

You can then analyse the issues involved including:

  • Market research
  • Operational issues
  • Human resource requirements
  • Supply chain impacts
  • Technology requirements
  • Regulatory requirements
  • Financial analysis
  • Risk assessment

The outcomes of the analysis can then be tested against the required outcomes from the project and a go / no go decision made.

It should be remembered that, while feasibility studies are often launched on solid enthusiasm for a project to proceed, a recommendation to not go ahead should not necessarily be viewed as a negative. In such cases, what it has done is proved the worth of undertaking the study in the first place and saved what would have otherwise been wasted resources.

When the outcome of a feasibility study is that the project should go ahead, the next step in the planning process is to create a business case.

 

What is the Difference between a Feasibility Study and a Business Case?

The feasibility study and the business case are similar, however, one does logically follow the other. When the feasibility study shows that a project should proceed, a business case is developed to define the resources required compared with the outcomes that will be achieved and to demonstrate its viability.

What is a Business Case?

Depending on exactly what the business case is for, it will draw on information from the feasibility study and present a proposal based on an analysis of all the relevant factors.

The structure of a typical business case for a new business venture would include:

  • Summary / overview
  • Description of product / service
  • Compatibility with business vision and mission
  • Overview of technology
  • Market environment
  • Competition
  • Industry dynamics
  • Business model
    • Marketing and sales strategy
    • Production / operating strategy
    • Management capability and structure
  • Intellectual property
  • Regulation / environmental issues
  • Financial plan
    • Operating statement projections (will need bills of material)
    • Cash flow projections
    • Break even analysis
    • Balance sheet projections
    • Capital requirements and financing strategy
  • Risk assessment
  • Critical success factors

The most important thing to consider in preparing a business case is to write it with the target audience in mind. If the objective is to secure external funding for a project, it should be remembered that the person holding the purse strings is likely to be much more interested in the quality of the management, the strength of the business and the potential profitability of the venture, than the technical wizardry of the new concept.

 

Improving Profitability

One of the major concerns that shows up in surveys of business owners is how to improve and maintain profitability levels. Competition levels always seem to be on the increase and margins are continually being squeezed. The end result is that we work harder for less profit.

Here are a few thoughts on how to protect your profit margins:

  1. Know your numbers. Regularly measure how your business is travelling financially. Too often we find business owners who think that they are not capable of reading and understanding financial reports and use this as an excuse not to regularly review their financial position. Sorry, if you are responsible for a business, then knowing how it is performing is in your job description and it is not difficult to learn how.
  2. Use your financial reports. There is a goldmine of information in a Profit and Loss (P&L) report if it is structured to provide management reports rather than just as a means of providing input for a BAS or an income tax return. Your balance sheet can also help you manage your cash.
  3. Manage your gross margin. Your gross margin is the difference between what you sell something for and what it costs you to buy it or get it out of the factory ready for despatch. It will mean that you are managing your selling prices and input costs.
  4. Manage your selling expenses. Summarise your expenses into meaningful groups such as communications, vehicles, property, employment costs etc., so that you are looking at a manageable P&L statement. Set targets for each group relative to your revenue.
  5. Eliminate waste. The average amount of time spent value adding to a piece of raw material from the time it enters a factory until it is a finished item ready for sale is less than 10%. The rest of the time is one of the seven categories of waste identified in Lean Manufacturing theory. They all add to your cost and reduce profit margins, but none of them show up on your P&L. The concepts are equally valid for office environments. Understand what they are and work to reduce them.
  6. Hold your staff accountable. Develop a culture where people care about what they do so that they provide great customer service but are conscious of costs. Provide them with targets/budgets and outcome reports. Have a performance management system and a recognition and reward process that is linked to your values.
  7. Aim for continuous improvement. Implement formal systems to continually be looking to improve how you do things. The first time that you analyse a process for improvement you may be able to halve its cost, which may significantly improve profitability. The tenth time you may only be able to reduce it by a few cents per unit. Even though the slope of the improvement curve diminishes, we can always look to improve with a view to maintaining and increasing profit margins.

Improving profitability is one of the key tasks of the business owner or manager and will require time spent working on the business, not just in it.