Sep 3, 2019 | INSIGHT
Over the years I’ve had many similar conversations with business owners who were struggling with having no one to confide in about the risk, the pressure and the options available for the business. So much so that it’s now become a key part of how we support growing businesses.
Here’s how we help founder CEOs sleep at night
The key reason for sleepless nights is the fear of running out of cash. We work with you to get visibility of your cashflow forecast. We then work with you to mitigate shortfalls, initially short term to get you balanced again and then longer term so you can avoid those unexpected pinch points altogether.
- Quick visibility of financial results
So many businesses we encounter, have only been used to seeing their financial results as part of ATO compliance cycles ie. When their BAS or corporate tax is due. This just isn’t good enough, especially when systems like Xero give you near to live information. We’ll help you review and analyse your financial information quickly so that you can make decisions with confidence.
- Visibility of financial and non financial metrics
What is it that really makes your business tick? When you are IN the business it can be hard to know if you are concentrating on the right thing. We help you work ON the business. Which clients are making you money and which ones might you need to let go? Which products or offerings are high margin? Where should you focus your energy to get most bang for your buck
- Scenario analysis and business casing
Sometimes choice can be overwhelming, with multiple options available and lack of confidence in how to go forward. We’ll help you get clarity around the options available to you and show you the financial impact of those choices on your current financial trajectory. We’ll help you step forward with less fear.
- Building and mentoring in house finance teams
Often we help recruit, train and mentor the first in house finance staff. It can be hard to know what the right scope is for the first in house finance person if that isn’t your personal area of expertise and also what constitutes “great” for your business at this stage. We can help you pick that person and then ensure they stay with the business and continue to grow by training and mentoring them.
In short we’ll give you
- Clarity
- Confidence
- Reassurance
- Accountability
And most importantly we’ll help getting that good night’s sleep, much more attainable.
Aug 23, 2019 | INSIGHT
I speak to many Founder CEOs who can’t sleep at night. In fact, one CEO, after the successful divestment of his company, confided to me that this was the first Christmas he’d be able to take a real break without wondering if he would have to do some last minute fancy footwork in order to make payroll. Two thoughts struck me 1) I love how concerned he was that no staff member would be caught short over the festive period and 2) Wow. By any measure the business was really successful and yes cashflow had been tight in the past, but we’d done a lot of work in getting it to a place where it was well managed and there was really no need for that type of stress. But still that feeling stayed with him until he was no longer the owner of the business.
Over the years I’ve had many similar conversations with business owners who were struggling with having no one to confide in about the risk, the pressure and the options available for the business.
There are a few ways business owners can tackle this.
Co-founders
When starting a business having a co-founder can be invaluable. You’re in this together, you have a sounding board and someone to stress test ideas with. There can be draw backs however, make sure that you have a clear shareholder agreement that sets out, amongst other things, how equity will be split, how decisions will be made and what happens if one founder wants out. A business pre nup if you will. But a business marriage, like any other, really rests on the ongoing communication. Differences can be great, and I’d argue essential for co-founders as bringing different skill sets to the table is key, however ensure that any disputes or issues are aired quickly so they can be resolved and move on. If disputes get contentious an objective third party can be helpful to mediate the issue.
Advisory board
An advisory board, whether informal or a formal non exec board can be extremely useful in providing sound counsel whilst remaining one step removed from the day to day weeds of the business.
Often minority shareholders in the business, they have an interest in the long term success of the business. The key is selecting an advisory board with skills different or complementary to yours and ideally with deeper experience in business. The old adage of not wanting to be the smartest person in the room is definitely applicable here.
Mutual trust with your advisory board is vital, however it can sometimes be nerve wracking to be too open with concerns and uncertainty with your board which can in turn decrease the value you get from them.
Independent business advisors
Virtual C-suites are growing in popularity for smaller businesses. Whilst a business is too small for a permanent CFO, CTO or legal counsel they can benefit hugely from having these roles “on tap”.
The fact that these roles are not employees of the CEO also makes it easier to have more frank conversations about the risks inherent in business options being considered and any uncertainty being felt.
A virtual CFO in particular can help you sleep at night knowing that your financials are under control.
And once you outgrow the virtual support a good advisor will help transition you to permanent onsite support which fits your growing business.
In my next article I’ll explain how Lantern Partners are helping business owners sleep at night…
Jun 15, 2019 | INSIGHT
Most people hate going to the doctor. You know something doesn’t feel quite right, you’re not sure if it’s in your head but you keep putting off the appointment. Usually that’s because a) you’ve managed to convince yourself it’s a brain tumour (thanks Dr Google) or b) you’re worried that it really is nothing and you’re going to sound silly.
I find the reluctance for business owners to get a health check on their business runs along pretty similar lines.
They are worried that there is something seriously wrong with the business and are scared to confront the issue. The reality is that 38% of small businesses in Australia fail within the first four years* so it’s not an unreasonable concern. However, this doesn’t have to be you.
And the likelihood is, that if you are focused on this as a concern you may already be avoiding some of the pitfalls. Nevertheless, you are chewing up a lot of energy on worrying about it. Wouldn’t it be better to know if there is something wrong so you can fix it or better yet get confirmation you are on the right track so you can redirect that energy to more productive areas.
Business health checks are quick and painless. The aim is to evaluate your business and specifically
- its strengths and weaknesses
- understand your key drivers, what really makes your business tick
- understanding the key risks to your business, macro and micro
- identifying new growth opportunities
- its financial health
- Cashflow (still the number one business killer)
- Cost structure (opportunities to fight the flab)
- Revenue pipeline and opportunities (are you getting the right nutrition)
Wouldn’t you like to know if you’re fighting fit?
*ABS review of businesses started in 2011 which were still in existence in 2015
May 28, 2019 | INSIGHT
Well it’s both and where it sits on the scale depends on the approach and the approach depends on the kind of company being valued….
DCF valuation….
This is the “science” part and in an ideal world how you would value all companies. The Discounted Cash Flow (DCF) method relies on forecasting the cash inflows and outflows over a period of time and then discounts these amounts over that period depending on how much more valuable $1 is today compared to in x years’ time.
The problem with this method is that “scientific” as it is its accuracy relies on how well these cashflows can be estimated. For an established company in a mature industry this is somewhat easier but for a lot of media and digital companies, particularly those at an early growth stage or innovating heavily these inputs can be hard to forecast accurately 12 months out let alone the 10-15 years that a traditional DCF valuation requires.
Revenue multiple…..
The methodology here is based on valuing a company by taking its revenue and applying a multiple based on what the market has paid for comparable businesses. In theory if you know that a company has recently raised financing based on a valuation of say 10x revenue. However there are a few obstacles. Firstly it can be very difficult to find comparable data in the market – actual valuation numbers are rarely disclosed publicly following funding rounds and the PE multiples of associated with publicly listed companies in the same industry can be extremely broad. Bill Gurley of Benchmark Capital wrote a great article “All Revenue is not created equal” analysing the inherent issues in simply applying an industry revenue multiple without properly analysing the underlying qualities of the revenue.
The Venture Capital Method….
This methodology effectively reverse engineers the valuation based on the required Return on Investment (ROI) for angel investors or VCs. If you know the ROI you want to make (say 15% to 20% – angel investing is a risky business) and you can estimate the value of the company when the investor exits in say 5 years’ time you can work out the valuation from there.
But whilst this method is useful if you’re the investor you may find that as a company this valuation this produces will be at the lower end.
It’s worth what the market will pay…..
Because a valuation is only one factor in getting a deal done. Five different valuation methods will produce at least five different valuations. There are other important factors to consider…
How many parties are interested in what you are selling? – the more investors that are interested the more negotiating power you have. After all how much more interesting does something look when you know others want it too….
How well do you tell your story? – how robust is your pitch and do you present your company and the opportunity in the best possible light. Does your presentation have all the information an investor needs to make a decision and more importantly to believe in your business…..
How easy are you to buy? – think carefully about who your likely investors are and make it easy for them. Make sure your corporate structure, financial records and legal documentation is tidied up. Yes it’s housekeeping and not razzle dazzle but by taking care of it upfront you’ll make the process much smoother and there’s value in that.
So it’s art, it’s science….and it helps to have a poker face….
May 14, 2019 | INSIGHT
They say the road to ruin is paved with good intentions so how do you stop your goals falling by the wayside?
Don’t you just love that moment of finishing a plan? You’re energised, got some great moments of clarity and really focused on what you need to achieve – but what then? All too often those goals remain front of mind for days, even weeks, then life tends to get in the way…it throws you a few curve balls or you get busy on a project and before you know it your goals feel very far away and you’re not quite sure how to get back on track. So how do you stop this happening to you? Here are four top tips to keep you on the straight and narrow
1) Be realistic
You know those new year’s resolutions that involve going to the gym six times a week when the closest you’ve been to a gym in the last year is to pick up the free paper? You need to be honest with yourself. Where are you today? What resources do you have? What resources do you need? It doesn’t mean aim low but goals that are unrealistically high will discourage you and risk you giving up before you’ve really got started. Continue to aim high but maybe it’s more realistic to get there in 12 months rather than six or two years rather than one.
2) Break it down
It’s important to know not only where you want to go but also how you’re going to get there. Say you have a revenue goal of 15% for the next financial year. How are you going to get there? How does that translate into new customers? Does it mean raising prices? Don’t wait until you’re nine months in to realise there’s no way you’ll make up lost ground in the final quarter. Know where you need to be at the end of each month or quarter so that you can adjust your activities, tweak your plan and go hard if you need to catch up.
3) Keep yourself honest
I’ve always found that the best way of making goals real and ensuring that I stick with them is to talk about them. Pick someone to share your goals with and to discuss your progress as you go. It can be a trusted friend, business advisor or mentor. But pick carefully, there should be mutual respect and someone who will encourage you as well as keep you on track. If you’ve shared your goals you can’t hide from them.
Another way of keeping yourself honest is to keep your plan visible. A plan in the drawer in your office doesn’t leave you any closer to your goals. Keep key goals where you can see them whether that’s up on a whiteboard on your office or pinned up on your noticeboard keep it where you can see it.
4) Celebrate success!
Last but definitely not least make sure that sure you take a moment to celebrate the wins along the way. Pick a reward for yourself as you start hitting your milestones and it will encourage you to keep going. You need some carrot with your stick.
So how do you best keep yourself on track with your goals?
Apr 30, 2019 | INSIGHT
It’s challenging out there at the moment. And as the attention turns towards costs it’s important to think strategically about the types of costs you occur.
There are three basic types of business costs and it’s important to understand them before you can become more efficient and more critically start to smart source. Take this as an opportunity to review how you source your supplies so that you are picking the optimum solution for your business, making sure that it stays agile and flexible.
Overheads
The costs of “keeping the lights on” (eg. rent, insurance, office supplies and support staff). These don’t change with fluctuations in revenue or only change with significant movements in business activity. They can be the hardest to rationalise because they can be contractual or fixed, but here are some ideas to consider.
1. Take advantage of virtual office support services
Outsource your front desk or reception to a virtual office service which is shared between a few companies
Outsource support functions such as IT support, data entry or basic book keeping.
Make best use of your office space by working on a hot desk model and supporting staff working remotely where practical. With cloud based crm, finance and data storage systems this has become more effective than ever
It is important to note that the decision to outsource functions or move to a cloud supported solution is one that shouldn’t be undertaken lightly. The objective in reviewing your cost and support requirements has to take into account efficiency, value and risk. However recent developments in both outsource and cloud providers and the maturity of the market have meant that SME’s can benefit from the scale of these operations which they would be unable to resource in house.
2. Consider bringing some support functions in house if volume makes this more effective. Paying an hourly or daily rate to a third party is expensive if you are using it in a full time capacity.
3. Sublet part of your office space if you are not using it at capacity. There is an increasing need for co-working space by solo entrepreneurs or micro businesses.
4. Offer meeting room space for rent or for evening industry events. There is the added benefit of publicising your business as well as generating extra revenue.
5. Negotiate volume discounts on stationery supplies or telephony costs
6. Downsize your mobile phone plans or the number of phones in the business if you have excess capacity.
7. Renegotiate the terms of your loan with the bank
8. Renegotiate other supplier contracts. Even if you are only part way through a contract it may be worth raising with suppliers particularly if you have a good relationship with them and are a regular customer.
Revenue generating costs
The costs have an impact (directly or indirectly) on the revenue that you bring into the business so proceed with caution here….. The tricky thing is correctly identifying revenue generating costs. Direct costs, for example staff working on specific projects, are relatively easy to identify. Indirect costs can be trickier. For some companies their first “go to” for cost cutting is marketing which can be dangerous or at least a missed opportunity. Continuing to spend effective marketing dollars can benefit the business in the medium and long term. The key is making sure that your marketing is highly targeted and you have a clear strategy.
So how can you streamline without hurting the business?
1. Staff costs
Extend the virtual team concept to these team members. Think about maintaining a core permanent team supplemented by a virtual team based in Australia or overseas depending on your business needs. Your workforce costs can then flex in line with your business activity. There are other smart sourcing benefits too. One of my clients uses this model very effectively. Despite being a small business they can offer 24/7 responsiveness by having team members based in Australia, the UK, South Africa and India. That’s smart!
2. Variable material or consumables costs
Renegotiate existing contracts or put them out to tender
Look for new entrants into the market who may be willing to be more competitive on pricing
3. Marketing
Review your SEM (Search Engine Marketing) Spend. Can you use SEO (Search Engine Optimisation) more effectively to replace some of these costs?
Are you targeting your spend where the results are most measurable?
Discretionary costs
These costs are the easiest to cut but in today’s bootstrapped environment they are usually few and far between.
1. Cut non essential travel. Use videoconferencing or Skype instead where possible
2. Save money by booking flights direct rather than through an agency
3. Save money by booking accommodation through hotel deal aggregators like wotif.com, expedia.com.au or lateroom
4. If your business requires substantial travel to one location negotiate for preferential rates with a particular hotel in return for using them exclusively, the same can be done with car hire firm
5. Scale down staff entertaining costs to make them less regular or less extravagant. It’s important to keep having these events particularly if staff are working extra hard but small savings still add up.
6. Review your newspaper and magazine subscriptions. Do you need all of them?
Finally, these smart sourcing reviews should be a regular part of your business operations and not just something to be done in tough times. Keep an open mind on new ways to operate, regularly review existing contracts and stay agile.
