How will your company recover after COVID-19?
What steps can finance take to help the business survive COVID-19? I shared my thoughts with FM Magazine
https://www.fm-magazine.com/news/2020/may/how-to-stabilize-and-recover-after-coronavirus.html
Having trouble sleeping? Part 2
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
- Cashflow management
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.
Having trouble sleeping? Part 1
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…
Does your business need a health check?
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
Valuation – Art or Science?
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….
It’s all about the execution
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?