CEO Advisor Newsletter March 2021
The Value of Growth Capital
CEO Advisor, Inc. advises CEOs, Presidents and business owners on securing growth capital. We can provide our own seed capital in the right instances. Most often, we work with you through the entire process of preparation and creating a Virtual Data Room of information required by investors, generating the target list of investors based on our 17 years of connections, contact prospective investors to generate meetings and conference calls with these investors, work with you to negotiate the Term Sheet, manage the entire Due Diligence process for you, and coordinate the legal and tax issues through to the closing.
Then, as your trusted business advisor, we work with you to execute on your Plan to make the optimal use of the growth capital, to improve your business, execute on a successful sales strategy, build your management team, as needed, guide you on product enhancements and focus on all aspects of growth and strategy. We work with you to accelerate growth, increase sales and profits, as well as, increase the value of your business for the optimal future sale.
Early stage capital from Angel Networks such as Keiretsu Forum or Tech Coast Angels, Venture Capital funding or a Private Placement can all be accomplished with a trusted business/funding advisor such as CEO Advisor, Inc. The key is to gain the expertise and hands-on work to successfully accomplish the growth capital funding, and to enable you to remain focused on running your business and meeting your Forecast during this rigorous process.
For a more established company with $5+ million in sales, or even for a much larger company with some reasonable level of profits, growth capital can be very attractive from a Private Equity firm. CEO Advisor, Inc. has relationships with many Private Equity firms and can help you prepare for growth capital through an equity investment at very attractive terms, while substantially increasing your valuation.
Private Equity investments are a minority or a majority investment in your company, and in both cases you have the opportunity to take a larger "Second bite of the apple" when you ultimately sell the company to a large strategic buyer. An added benefit of Private Equity funding is that you can take a sizable amount of money off the table personally at the time the investment is made to further solidify your financial future. Private Equity firms also complete 100% acquisitions in the form of add-on acquisitions to existing portfolio companies.
If you are not yet ready to sell your company now, but you have most of your net worth tied up in the business, we advise you on evaluating your options to better secure your financial future. A serious market downturn or failing economy could be devastating to both you and your business. Bank financing is not always the best method to secure cash for your business given the many stipulations, contingencies and reporting requirements that come with bank loans, including a demand for you to pay off the loan when that time to repay may be very untimely. If your personal or business credit is not great, it will also be extremely challenging to secure a bank loan for any reason in today's business environment.
Accelerating your growth is a key to staying ahead of your competition, increasing sales, gross margins and net profits, increasing the value of your business, and attracting a buyer down the road at a strong valuation. Without this accelerated growth, you are at risk of declining profits and you will certainly compromise your ability to sell and you may be the owner of your company for a very, very long time - in good health or bad, whether you desire to sell the business or not.
Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. at (949) 629-2520 to discuss your growth capital options, valuation and exit strategy in a no cost, no obligation meeting or online conference call, by mobile phone at (714) 697-3370, by email at MHartsell@CEOAdvisor.com or visit www.CEOAdvisor.com for more information.
Maximize the Value of Your Business for a Big Exit
There are many aspects of your business that contribute to maximizing the value of your company and building a sellable, attractive growing business. How you manage your business, your strategy and business model, your growth rate, your pricing, your gross margins, recurring revenue stream, renewal rates, the strength of your management team, size of your market and other critical factors not only play into the growth and profitability of your business, but your ability to sell your business and sell it for a maximum value when someone comes knocking or you proactively put the business up for sale to achieve a competitive sale process.
A successful business is built over time by a CEO who is able to assemble a cohesive, focused management team that produces quality products and services. Then, the business must create a sales and marketing machine coupled with operational processes that generate profits of a magnitude to both compensate the shareholders adequately for their risk, attract buyers and ultimately make for a lucrative exit. This requires astute planning and skilled execution.
Why do most CEOs and business owners fail to create a sellable business or a business that has a value worthy of the risk of ownership? Or better yet a business that is attractive to buyers and yields a large exit?
Here are 10 key components to maximize the value of your business and generate a large and lucrative exit. 1. Planning and Goal-Setting to Grow to the Next LevelPlanning and goals are vital to focus your efforts, measure progress and track achievements. Forecasting, accountability and strong management are the path to success. Creating a path to growth in the form of annual and short-term goals as part of a Business Planning process helps you and your business reach new levels of success. Seek a business advisor with the expertise to formulate, quantify and implement your goals to maximize your company's value.
2. ManagementYour Management team is the number one factor in achieving success and building a business of real value. The CEO or business owner must share in the responsibilities and manage a well-chosen, seasoned team, even if small, to enable the company to grow and prosper. In companies of 5 - 50 employees, the Management team typically comes in the form of a few internal members and a business advisor, along with other professional service firms that round out and provide specialized expertise to facilitate this growth and success so reach out to a professional for the help you need. Companies with over 50 employees will require you and your business advisor to focus on, recruit, screen and building out the Management team to further accelerate sales and scale the business.
3. Recurring Revenue The true test of a solid business model is, a) A "Need to have" product or service and b) A recurring revenue model. CEO Advisor advises on formulating repeat, forecastable revenue to increase sales, profits and value of your business. Not only recurring revenue, but sticky, low churn, renewing customers that enable you to grow profitably and are attractive to a future buyer. This is not only critical in software and other technology companies, but in all types of businesses.
4. Growth RateYour growth rate is a major factor in the value of your business. Many CEOs and Presidents of the companies that I meet feel that a 10% growth rate is typical and acceptable and will suffice when they get to the point of selling their business. The truth is that this lack of strong growth not only costs them tremendously each year in profits, it cripples their business value and in fact inhibits them from being able to sell their company at all 99% of the time. A strong growth rate of 25%+ is needed each year as a small to mid-size business to maximize your value. In order to achieve this growth rate, planning and investment is needed for the proper level of marketing, sales coverage, reseller channel sales and operations to enable such scale of the business.
5. Sound Sales Strategy Without a solid, well thought out sales strategy and plan to focus resources effectively toward goals, there is little to no opportunity to grow sales, increase profits and maximize the value of your business. This is critical and is rarely done consistently in small and mid-size businesses today despite its importance. Strong sales management is the first step to implementing a sales strategy and this is also lacking in most small and mid-size companies. Seek help to nail this aspect of your business to accelerate sales, profits and the valuation of your company.
6. Gross Profit Margins Gross Profit Margin is the profit from creating and providing your products and services before expenses and overhead. This is the most important aspect of achieving strong profits and a high value for your business. Predominantly, businesses valuations are based on a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). If your Gross Profit Margin is low, then your profits after expenses are highly likely to be low (or negative), as well. These depressed earnings will crush the value of your business or exclude you from selling your business at any price.
7. Large MarketSellable businesses have large markets – a lot of greenfield - to sell into and grow. If you simply can't grow your business past a few million dollars in sales, it is highly unlikely that anyone would pay good money for it and expect to grow it further. Your strategy and planning should position your company to sell into a large market, while being focused on the highest and best target markets within your total addressable market.
8. Unique or Proprietary Products and Services"Me too" companies tend to be far less valuable, as well as, have a much harder time achieving sales goals due to extensive competition. Having unique or proprietary products and services sets you apart in the marketplace with sought after, in-demand services. Because this and other factors are so critical to your successful exit, engage a business advisor to assist in sorting out your strategy and formulating your products and services to optimize your business model and sales, as well as, reviewing your current products, pricing, sales channel and gross profit margin to ensure optimal profitability.
9. Addressable, Identifiable Target MarketA critical mistake by many small to mid-size company CEOs and business owners is trying to sell to anyone with a pulse and a dollar in their pocket. This creates tremendous inefficiencies and is the largest waste of time and money in most small to mid-size companies. These small, marginal customers represent high churn - a sales and value killer and a waste of your sales teams’ valuable time. A strong sales strategy includes an identifiable target market that is researched, secured and imported into your CRM software with 90% of your sales focus and efforts selling to these prospects in your target markets. In order to maximize your value for a large exit, you must specialize and provide expertise in one or a few target markets and bring exceptional value to your customers today and to your buyer in the future.
10. Strong Sales, Sales Management and MarketingIn the end, it is a sales and marketing play that makes for a growing, profitable, valuable, sellable business. Sales and marketing execution is not only the most critical aspect of most businesses, it is the hardest to execute on. Faltering or failing in sales, sales management and marketing will cost any business from millions of dollars to hundreds of millions of dollars over the life of the business through to the sales price of the business.
Timing is another critical factor although it is tough to time the market for most privately-held companies. The fact is, valuations are very high now with a tremendous opportunity for nearly all CEOs and business owners, but this cannot continue for long. Business cycles are recurring every 7.9 years since WWII and we are now 12 years into the current business cycle. Selling on the way up is critical. Selling at the peak is challenging and selling on the way down is nearly impossible and may delay your plans for an exit for another 5 to 10 years or more.
CEO Advisor, Inc. provides hands-on advice to grow your business to the next level and help you in realizing the biggest payday of your lifetime. With over 30 years of experience in mergers and acquisitions, we can provide a full service to realize your ultimate goal.
We address your specific needs with hands-on action, expertise and seasoned advice. Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. at (949) 629-2520, by mobile at (714) 697-3370, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.