Increasing the Increasing the Enterprise Value Enterprise Value of Your Businessof Your Business

Bob Dawson, FounderBob Dawson, FounderThe Business GroupThe Business Group

Program ObjectivesProgram Objectives

Identify key indicators that can add value to your Identify key indicators that can add value to your businessbusiness

Develop tools to measure your key indicatorsDevelop tools to measure your key indicators

Create strategies to optimize your key indicatorsCreate strategies to optimize your key indicators

Key IndicatorsKey Indicators

ProfitProfit Gross MarginGross Margin Operating ProfitOperating Profit Profit Before Profit Before

TaxesTaxes Net ProfitNet Profit Return on Return on

AssetsAssets Return on Return on

EquityEquity EBITDAEBITDA

ProcessProcess Quality RatioQuality Ratio Time to MarketTime to Market Sales Per Sales Per

EmployeeEmployee Inventory TurnsInventory Turns A/R Collection DaysA/R Collection Days Output RatioOutput Ratio Shipment LinearityShipment Linearity

PeoplePeople TurnoverTurnover ProductivityProductivity LoyaltyLoyalty ROIROI CapabilitiesCapabilities

The FinancialsThe Financials

Cash Flow StatementCash Flow Statement Income StatementIncome Statement

Balance SheetBalance Sheet

RevenueRevenue

- Expenses- Expenses

Profit/LossProfit/Loss

Cash InCash In

- Cash Out- Cash Out

Change in CashChange in Cash

Assets = Liabilities + EquityAssets = Liabilities + Equity

Creating More ProfitsCreating More Profits

Sales StrategiesSales Strategies Sell more to existing Sell more to existing

customerscustomers Sell to new customersSell to new customers Offer discounts or rebatesOffer discounts or rebates Relax credit policiesRelax credit policies

Expense StrategiesExpense Strategies Reduce workforceReduce workforce Reduce advertising Reduce advertising

expensesexpenses Reduce T & E expensesReduce T & E expenses Reduce training costsReduce training costs

Sales – Expenses = ProfitSales – Expenses = Profit

Income StatementIncome Statement($000’s)($000’s)

Baseline YearBaseline Year Example 1Example 1 Example 2Example 2 Example 3Example 3

Total SalesTotal Sales $25,000$25,000 $26,250$26,250 $26,250$26,250 $26,250$26,250

Cost of Goods SoldCost of Goods Sold $17,250$17,250 $18,113$18,113 $18,113$18,113 $17,588$17,588

Gross ProfitGross Profit $7,750$7,750 $8,137$8,137 $8,137$8,137 $8,662$8,662

Operating ExpensesOperating Expenses $6,775$6,775 $7,114$7,114 $6,403$6,403 $7,514$7,514

Operating ProfitOperating Profit $975$975 $1,023$1,023 $1,734$1,734 $1,148$1,148

All Other ExpensesAll Other Expenses $400$400 $420$420 $420$420 $420$420

Net ProfitNet Profit $575$575 $603$603 $1,314$1,314 $728$728

Example 1 – 5% sales increase over baseline year Example 2 – 5% sales increase over baseline year & 10% operating expense reduction Example 3 – 5% sales increase over baseline year, COGS reduced by 2% & operating expenses increased by $400K

Balance SheetBalance Sheet($000’s)($000’s)

AssetsAssets Baseline YearBaseline Year Example 1Example 1 Example 2Example 2 Example 3Example 3

Cash & EquivalentsCash & Equivalents $1,000$1,000 $1,050$1,050 $1,050$1,050 $2,469$2,469

Trade Receivables-NetTrade Receivables-Net $4,100$4,100 $5,250$5,250 $5,250$5,250 $3,621$3,621

InventoryInventory $4,300$4,300 $4,830$4,830 $4,830$4,830 $3,518$3,518

Other Current AssetsOther Current Assets $300$300 $315$315 $315$315 $315$315

Non-Current AssetsNon-Current Assets $11,200$11,200 $11,359$11,359 $11,359$11,359 $11,359$11,359

Total AssetsTotal Assets $20,900$20,900 $22,804$22,804 $22,804$22,804 $21,282$21,282

LiabilitiesLiabilities

Notes Payable-Short TermNotes Payable-Short Term $1,475$1,475 $3,490$3,490 $3,490$3,490 $1,475$1,475

Trade PayablesTrade Payables $1,045$1,045 $1,097$1,097 $1,097$1,097 $1,065$1,065

Other Current LiabilitiesOther Current Liabilities $2,255$2,255 $2,299$2,299 $2,299$2,299 $2,299$2,299

Non-Current LiabilitiesNon-Current Liabilities $6,675$6,675 $5,392$5,392 $5,392$5,392 $5,392$5,392

Net WorthNet Worth $9,450$9,450 $10,526$10,526 $10,526$10,526 $11,051$11,051

Total Liabilities & Net WorthTotal Liabilities & Net Worth $20,900$20,900 $22,804$22,804 $22,804$22,804 $21,282$21,282

Example 1 – 5% sales increase over baseline year

Example 2 – 5% sales increase over baseline year & 10% operating expense reduction

Example 3 – 5% sales increase over baseline year, COGS reduced by 2% & operating expenses increased by $400K

Cash Flow StatementCash Flow Statement($000’s)($000’s)

Example 1Example 1 Example 2Example 2 Example 3Example 3

Net SalesNet Sales $26,250$26,250 $26,250$26,250 $26,250$26,250

Cash from SalesCash from Sales $25,100$25,100 $25,100$25,100 $26,729$26,729

Cash Production CostsCash Production Costs -$18,547-$18,547 -$18,547-$18,547 -$16,742-$16,742

Cash from TradingCash from Trading $6,553$6,553 $6,553$6,553 $9,987$9,987

Cash Operating CostsCash Operating Costs -$7,129-$7,129 -$6,418-$6,418 -$7,529-$7,529

Cash After OperationsCash After Operations -$576-$576 $135$135 $2,458$2,458

Net Cash After OperationsNet Cash After Operations -$904-$904 -$521-$521 $1,802$1,802

Example 1 – 5% sales increase over baseline year Example 2 – 5% sales increase over baseline year & 10% operating expense reduction Example 3 – 5% sales increase over baseline year, COGS reduced by 2% & operating expenses increased by $400K

Calculating the Value Calculating the Value of Improved Key Indicatorsof Improved Key Indicators

Accounts ReceivableAccounts Receivable

$25,000,000 in Sales $25,000,000 in Sales / 365 days = $68,500/ 365 days = $68,500

Baseline Collection Days = 58 DaysBaseline Collection Days = 58 Days

Revised Collection Days = 51 DaysRevised Collection Days = 51 Days

Increase in Cash Flow of $479,500Increase in Cash Flow of $479,500

Calculating the Value Calculating the Value of Improved Key Indicatorsof Improved Key Indicators

InventoryInventory

$17,250,000 in Materials $17,250,000 in Materials / 4.01 Turns per Year = / 4.01 Turns per Year =

$4,302,000$4,302,000

Baseline Inventory Turns per Year = 4.01Baseline Inventory Turns per Year = 4.01

Revised Inventory Turns per Year = 4.99Revised Inventory Turns per Year = 4.99

$17,588,000 / 4.99 = $3,525,000$17,588,000 / 4.99 = $3,525,000

Increase in Cash Flow of $777,000Increase in Cash Flow of $777,000

Calculating the Value Calculating the Value of Improved Key Indicatorsof Improved Key Indicators

Cost of Goods SoldCost of Goods Sold

Baseline COGS: $17,250 / $25,000 = 69% COGSBaseline COGS: $17,250 / $25,000 = 69% COGS

Revised COGS: $17,588 / $26,250 = 67% COGSRevised COGS: $17,588 / $26,250 = 67% COGS

Baseline Gross Profit = 31%Baseline Gross Profit = 31%

Revised Gross Profit = 33%Revised Gross Profit = 33%

Incremental Profit Gain on Sales increase of 5% = Incremental Profit Gain on Sales increase of 5% = $125,000$125,000

What resources are available in your business?What resources are available in your business? Sales/Marketshare GrowthSales/Marketshare Growth Multiple Product/Service OfferingsMultiple Product/Service Offerings Accounts Receivable Collection PeriodAccounts Receivable Collection Period Inventory Carrying CostsInventory Carrying Costs Cost of Goods SoldCost of Goods Sold Operating ExpensesOperating Expenses Time to MarketTime to Market Quality ControlQuality Control Employee RetentionEmployee Retention Customer RetentionCustomer Retention

Calculating the Value Calculating the Value of Improved Key Indicatorsof Improved Key Indicators

Identifying Your Untapped Identifying Your Untapped Key IndicatorsKey Indicators

Create a flow chart of your business cycleCreate a flow chart of your business cycle

Identify areas that require change/improvementIdentify areas that require change/improvement

Determine long- and short-term objectivesDetermine long- and short-term objectives

Determine hard or soft objectivesDetermine hard or soft objectives

Rate each objective as it relates to your business Rate each objective as it relates to your business strategy, operating environment, and measurement strategy, operating environment, and measurement capabilitycapability

Forecasting the Impact of ChangeForecasting the Impact of Change

Identify the environment of your businessIdentify the environment of your business

Identify the potential impact of achievement of Identify the potential impact of achievement of your objectives on your Internal and External your objectives on your Internal and External environmentsenvironments

Identify the target audience that will be Identify the target audience that will be responsible for completing the objectivesresponsible for completing the objectives

Determining Your Investment Determining Your Investment PosturePosture

Establish a baselineEstablish a baseline

Calculate incremental revenues and expensesCalculate incremental revenues and expenses

Measure your investment ROI against other Measure your investment ROI against other historical investmentshistorical investments

Making It HappenMaking It Happen

Create the right environment for changeCreate the right environment for change

Track your investment on a monthly basisTrack your investment on a monthly basis

Remain flexible – Respond to changes in your Remain flexible – Respond to changes in your environmentenvironment

Focus on the returns, not the awardsFocus on the returns, not the awards

Will it Work for My Business?Will it Work for My Business?

It is NOT a question of WILL it work It is NOT a question of WILL it work in your businessin your business

But rather a question of HOW WELL But rather a question of HOW WELL it WILL WORK!!it WILL WORK!!