“You need these guys…to increase cash flow, provide valuable guidance, contacts, and credibility.

Companies committed to going through significant business change (restart, turnaround, transition, generational ownership transfer), anticipating a major liquidity event, need guidance.

Why Add Outsiders to Your Board of Directors or Advisors?

• Outside directors often increase cash flow and business growth.  According to a Forbes/Lodestone Global survey; 97% of companies reported increased revenues and EBITDA, since adding a board with outside directors.
• Outside directors can be a low-risk, low-cost resource.  They bring a new set of skills and ideas to produce benefits, while you maintain control.
• Outside directors provide an external source of accountability.
• Outside directors are on your side.  These advisors answer only to you.
• Outside directors add credibility.  When it comes time for a liquidity seeking event, outside directors send the message that you are an organization with leadership and guidance.
• Outside directors bring an independent perspective, develop strategic thinking and planning, utilize their experience and objectivity, provide their contacts Rolodex, find capital to finance the company, and guide transaction activity.  Many of these benefits are absent in companies, so the outside influence should be used to your benefit.  Remember, the key is for the CEO and management team to listen to the advice given and factor these inputs into their thinking, then make decisions.

By: Randy Garn
Entrepreneur Leadership Network

An in-depth conversation with Jess Toolson, founder and CEO of Mixhers, about how being a parent has shaped her skillsets.

Motherhood arms women with several important skills that serve them well as CEOs, such as quick, efficient prioritization and the ability to nurture employees toward better performance, says Jess Toolson, founder and CEO of the Mixhers supplements company.  A mother’s inherent three-dimensional interpretation of situations comes in handy too:  “Problems come, sometimes quickly and urgently, and I need to provide solutions that are not only well thought out, but timely, because sometimes non-decisions are more damaging than incorrect ones,” Toolson says.

I wanted to have a chat with her, in part to find out how budding entrepreneurs can successfully step into a CEO position.  But early in the course of the conversation, she offered something that surprised me, and which changed the nature of the discussion.

“I feel like motherhood, above everything else I’ve done in my life, prepared me for being a CEO,” she said.

I found this fascinating, so we dug more into the concept, and what resulted took my breath away – key things that motherhood taught her about being a CEO.

1. Quick Problem Solving and a Three-Dimensional Perspective
Being a CEO requires a knack for quick-witted problem solving.  Most of the time, you must think through problems at a high level, looking at them three-dimensionally in order to arrive at a solution that you and your company can work towards and stand behind.

It is that key executive’s deciding vote which carries the most weight in determining company trajectory, and Jess said she was surprised how comfortable she felt when pushed into such situations, then detailed how being a mother prepared her to think through decisions calmly and from multiple perspectives.

“The power to problem solve is a life skill that’s just as important in motherhood as it is in the life of a CEO,” she explained.  “As a mother, I would try to look at challenges three-dimensionally: How can I see all sides of the issue?  What different approaches could I utilize?  What are the possible outcomes?  As a CEO, I try to take the same approach.  Problems come, sometimes quickly and urgently, and I need to provide solutions that are not only well thought out, but timely, because sometimes non-decisions are more damaging than incorrect ones.  Once I feel I have sufficiently thought out an issue, I try to act with a combination of confidence and flexibility.”

2. Prioritizing Quickly and Efficiently
The sky is not always falling.  Not every fire must be put out immediately, and there are (almost) no mistakes that cannot be reversed or fixed.  However, there is a mode that must be employed when dealing with the day-to-day demands of running a company.  Jess quickly realized that prioritizing would be an enormous part of her job description.  Luckily, as she explained, she felt prepared pretty much from the start.

“Being a parent taught me how to prioritize.  There are always one million things that need to be done, but there’s inevitably something that needs to be done first,” she said.  “At Mixhers, I’ve been able to look at what needs to be handled today, what can wait for tomorrow, and what’s a problem for next week.  This allows my team to chew off bits and pieces of a task, rather than take on the entire thing all at once.  Prioritizing intelligently has helped productivity, increased morale, and simplified our processes.  It’s also allowed us to celebrate wins and push through losses.”

3. Nurturing Employees Lead to Better Performance
A dramatic shift has taken place in the way employees are viewed, particularly over the last few years.  Rather than just warm bodies in seats from 9:00 to 5:00, employees are more often now regarded as individuals, whose performance is the sum of a number of different parts and circumstances – all of which an employer should understand and support.

Jess already felt a natural inclination to treat people like this, motivated in part by her experience as a mother.

“Good mothers have the ability to see their kids for who they can become with proper nurturing,” she observed.  “They also understand, on a circumstantial level, what’s driving behavior.  They always want their kids to know that even if they’re experiencing something hard, and even if there’s discipline or timeouts involved, they are there to be a child’s champion.  That’s what I’ve tried to implement at Mixhers.  I want my team to feel that I believe in them.  They need to know I can look past growing pains and well-intentioned mistakes, because potential is only realized when we work through those things together.

“I think I may take more time than the typical CEO in getting to know employees – their personal lives, their challenges, triumphs and skillsets.  Though this takes time, the payoff is immense.  Potential is reached more often, productivity increases and risks typically turn into rewards.”

Author: Brendan Nussbaum
Transaction Support Analyst
Benchmark International

In the world of small to mid-market mergers and acquisitions, a number that is very important is a company’s adjusted EBITDA.  The adjusted EBITDA is meant to find a company’s true normalized earnings by taking away any outside influences or ownership influences on the company’s bottom line.  Some companies do not have to make many adjustments in order to find adjusted EBITDA, while some companies may need many adjustments to arrive at adjusted EBITDA.

EBITDA
The EBITDA of a company can be found relatively simply by taking the net income and adding back interest payments, income taxes, depreciation, and amortization.  The reason for these being included in the bottom line varies.  Interest expense is added back as this is an expense that could be reduced or eliminated depending on how ownership has financed the growth of the company.  Income taxes are added back as they are deductible from a company’s tax returns.  Depreciation and amortization are both added back as they are both non-cash expenses that a company incurs.  A company does not pay any physical cash for its depreciation and amortization expenses, meaning that they do not affect the company’s bottom line.  These expenses are all then added back to the company’s net income to compute EBITDA.

Forbes Business Council
Council Post – June 16, 2022

Explosive growth is exciting for any business, and watching your brand become a success feels rewarding.  While you and your team should definitely celebrate that win, you should also be prepared for the side effects of explosive growth.  Your team may need to expand to keep up with demand, as well as increase production and marketing efforts.

These are all decisions that can be made strategically in advance in the event of unexpected growth to help your team more seamlessly adjust to the changes.  To help you do this, a panel of Forbes Business Council expert shared their recommendations for scaling operations to handle an influx of new customers.

1. Hire For Where You Want To Be
I received some of the best advice from a mastermind member: Don’t hire for where you are; hire for where you want to be.  I have always manifested the growth of my businesses and always use that advice.  Having the right staff that fits your culture and lives by your core values will step up when needed to serve all your customers.

By: jimmue

I wish I could tell you that Half-Retirement was as simple as flipping a switch…poof, you are Half-Retired.  However, Half-Retirement is more of a journey than a decision.  We observe many business owners begin down the path towards Half-Retirement and have seen that there are definitely some “phases” along this path.

Here are the phases towards Half-Retirement we have seen.

Phase 1:  Half-Retired in name only
Business owner says something like, “Wow, that sounds great.  I’m going to do that.”  They come into work the next day and tell their staff they are Half-Retired, but nothing really changes.  The owner still comes to work, still has stress, and the business is still dependent upon them.  This isn’t Half-Retired; it’s Half-Delusional.
If the business owner does not get out of this phase, they run the risk that precious years will go by and they may lose the opportunity to enjoy Half-Retirement because they did not get to work on the process.

Author: Ari Marin, SVP, Family Wealth Strategist

August 2022 – The Inflation Reduction Act, “the Act,” amounts to the largest investment encountering climate change in U.S. history and allows Medicare to negotiate drug prices.  The Act also increases IRS funding and changes some tax policy and tax credits.

Select Key Updates of New Legislation

Consumer Incentives:  The Act provides some incentives for households and businesses in the form of tax breaks and rebates.

• For new cars, a $7,500 tax credit for purchase of “clean” vehicles through 2032.  However, limits apply, and available tax credits depend on where the cars are assembled, what they cost and the buyer’s modified adjusted gross income.
• For used cars, the lesser of 30% of the sales price or $4,000 tax credit for some used electric vehicles.  The availability of this credit also depends on the buyer’s income, the sales price of the vehicle and other sales qualifications (the car must be at least 2 years old, it must be the first sale of the used vehicle, and buyers can only receive the credit once every three years).
• 30% tax credit for solar panels through 2032.  The credit would fall to 26% in 2033 and 22% in 2034.
• Rebates for the purchase of new electric appliances.  Funds will be allocated to the states and each state will determine use of those funds.  Income limitations and caps may apply on availability of rebates for individual consumers.
• Rebates may also be available for non-appliance upgrades such as ventilation, insulation, air sealing, electric load service upgrades and wiring.

• Corporate alternative minimum tax that imposes a 15% minimum tax on “adjusted financial statement income” for corporations with profits more than $1 billion.
• A 1% excise tax on the fair market value of any stock repurchased by “covered corporations” as defined, upon repurchase of stock from their shareholders.
• Extension of Limitation on Excess Business Losses on pass-through businesses for two more years.  The law which disallows pass-through owners from using business losses attributable to trades or business exceeding amounts ($250,000 single $500,000 married filing jointly adjusted for inflation) will be extended by 2 years until 2029.

Courtesy of:
Benchmark International

If you are considering selling your business, you will need to have a clear understanding of its type of customer revenue because it can significantly impact the value of your business.  Sometimes people confuse recurring revenue with repeat revenue, but it is essential to understand how they are not the same thing.

Recurring Revenue
Recurring revenue stems from a contractually bound legal agreement for a solution delivered over time.  It is usually contractual over one or multiple years, and because it may carry penalties or fees if the customer leaves, it an be counted on into the future.  This makes it highly valued by prospective acquirers because of its predictability and lower risk. 

However, recurring revenue does not have to be contractual to be valuable.  Depending on the business and the services offered, it can be too costly or too much of a hassle for a customer to leave or switch providers.  An excellent example of this is customer relationship marketing companies that collect large amounts of valued data over time, making it more beneficial for clients to stick with their services.  Below is a list of the different types of recurring revenue.

Memberships & Subscriptions:  This is a no-brainer.  Customers have to continue to pay for a product or service regularly if they have to become a member or subscribe.

Consumables:  These are products that people use and regularly need, such as toilet paper, toothpaste, and soap.  These items need to be replenished, and customers often tend to stick with their favorite brands.

Warranties:  Warranties can also keep a customer for an extended period of time and they usually yield high profits because they are paying for something that may not ever be needed or used.

Contracts:  Contracts are another way to lock the customers into an extended relationship with your company.

Service Fees:  Offering maintenance or training on a product is a great way to get recurring customers and maintain a steady revenue stream.

Multiple Streams of Income:  Try branching out into various revenue streams through vertical integration or buying other segments of the production line.  Selling different yet similar products can grow revenue.

Repeat Revenue
Repeat revenue typically happens regularly but is not contractually bound on a yearly or longer-term basis.  However, there can be an invisible contract that occurs in some cases because replacing the service is either too expensive or time-consuming.

Recurring revenue is always more valuable than repeat revenue, but they can still be beneficial.  You can increase the value of repeat revenue for a buyer by carefully tracking your customers, their satisfaction, and how long they have been with you.  An acquirer can be more confident in the reliability of your repeat revenue if you can show them tangible proof that they are happy with your services, such as through customer satisfaction surveys and case studies.  You should keep track of this regularly and look for trends that could be helpful indicators of how you can continually improve your level of service.  This level of dedication will also prove to the buyer that you are serious about the quality of your company.

In either case, customer loyalty is a valuable commodity for any business.  Did you know that loyal customers are worth 10 times as much as their initial purchase?  And it can cost five times more to get new customers that it does to retain existing ones.  A 5% increase in customer retention can boost a company’s profitability by 75%.  This is why your customer base is so crucial to your company valuation.

Metrics for Measuring Recurring Revenue
So, we know that recurring revenue is more valuable than repeat revenue.  But how do you measure it?  CFOs commonly use the following metric formulas to measure recurring revenue.

Customer Lifetime Value (CLV)
Formula:  ((MT x AOA) AGM) ACR
MT = Number of Monthly Transactions
AOA = Average Order Amount
AGM = Average Gross Margin
ACR = Average Customer Retention (in Months)

Average Revenue Per User (ARPU)
Formula:  Total Revenue/Total Subscribers

Churn and Retention Rates
Retention Rate:  % of Customers retained from Period to Period
Churn Rate:  % of Customers Lost from Period to Period

Customer Lifetime Value to Customer Acquisition Cost (CLV-to-CAC) Ratio
Formula:  CLV/CAC
CLV = See above
CAC = Total Sales & Marketing Costs/Total New Subscribers Added

Annual Recurring Billings (ARB)
Formula:  The Sum of All Customers’ Annual Subscriptions & Usage

Recurring Revenue Can Increase Value
When getting ready to enter into a merger or acquisition, one way to increase its value is to create a recurring customer base.  While both repeat and regular customers are always better to have than one-time customers, it’s the frequent customers that will be the most beneficial for your bottom line.  This is because this source of revenue is the most stable and predictable, which buyers prefer, and gives you a competitive edge.  If you can find ways to create a recurring customer base, your company will stand out, attract more buyers, drive up the value of the business, and cause it to be sold faster.

Before making any decision or taking any action, you should consult a professional financial or legal advisor who you have provided with all pertinent facts relevant to your particular situation.

Courtesy of:
Entrepreneur Magazine
By:  Ken Gosnell

Business owners have many styles that help them lead an organization effectively.  Here’s how to use that knowledge to your advantage.

Team members who wish to become valuable to their organization will need to understand how its leader thinks.  Business owners can be complicated to understand because they often look at decisions and choices through multiple lenses.  It is essential to understand the following five faces of leadership to understand better which face an employee may need to speak to when addressing an issue or discussing an idea.

1. The seer

A leader who knows where they are going and why they want to get there.

Good leaders know where they want to go, but they never want to go alone.  Team members who can understand where a leader is working to take the organization can often influence the leader when they can speak about the ultimate vision.  Many leaders reject good ideas because they don’t know how to align that decision with where they are leading the organization.

2. The steward

A leader who knows where they are going and what they need to get there.

The best leaders see themselves as stewards of the organization.  When a leader has this face, they realize that they have resources under their care, and they must utilize those resources to help the company grow.  A team member who seeks to influence their leader will understand how decisions will impact the overall resources of a company and think thoroughly about how to maximize those resources for their best potential.

3. The strategist

A leader who knows where they are going and who they want to go with them.

Good leadership is always about people.  This face of the leader thinks deeply about how to put people in the organization in the right seat in order to bring about the best results for the team member and the organization.  When team members address the leader about a decision, it is always wise to consider who is involved and impacted by the decision.  Most leaders have a vision for next-level leaders in the organization and know what they desire to help the next-level leader take the next step in their personal or professional development.

4. The sage

A leader who knows where they are going and knows what to do to get there.

The sage leader understands the processes and systems that will help the team member and organization to function at the highest level.  Good leaders build good strategies and know-how to get better results.  Team members who wish to help the leader should seek to help them develop better processes.  The best next-level leaders in an organization work to make better decisions and work to create better processes and systems to ensure that everyone in the organization performs better.

5. The scientist

A leader who knows where they are going and is willing to find new ways to get there. 

The scientist leader is curious to find new and better ways to do old things.  This face of a leader leads to innovation and change.  Many leaders seem like they are not willing to change, but leaders are always willing to change if they can see and understand a better way to do things.  Team members can become very valuable to leaders when they know where and why they’re trying something new.

Leaders are often like diamonds – they have many sides that help them to take charge of an organization effectively.  Next-level leaders who wish to help their leadership succeed will understand different sides or faces that they have and will work to engage through that lens.

Before making any decision or taking any action, you should consult a professional financial or legal advisor who you have provided with all pertinent facts relevant to your particular situation.