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When You Know It’s the Right Hire

Hiring is an important aspect in a company’s development. When you know it’s the right hire, it can benefit the company in countless number of ways, such as saving money, increasing productivity, and improving employee morale. However, when done incorrectly, it can damage the company significantly. A company should always be able to determine whether the person they hired is truly beneficial to their organization. Below you can find some tips that can help you know whether your new hire is a correct fit for your company or not.

Is it time to hire?

Is it time to hire? Do you feel theres a need for an extra hand in the workplace? Or maybe you need a fresh mind to help your creativity? If the answer is yes, then it is time to hire. If you are constantly feeling burnt out and frequently running out of creative ideas, then extra help is crucial. Without extra help, the quality of your work may hinder and that could essentially lead to lower company performance.

Adding a new member to your team can have a significant impact. Hiring a new employee can help increase efficiency, performance, and creativity. By hiring a new employee, you decrease project work time, bring in new ideas, and get a brand-new perspective.

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When You Know It’s the Right Hire

A new hire should be an asset to the company. They should provide value and bring in more than they cost. Finding the right hire might be difficult, but once you find the right hire, it will be all worth it.

A new hire should always have the correct skillset, be reliable, and produce quality work. A new employee should be comfortable in the job and everyone in the office should be comfortable with him. A recent hire should be able to provide quality work and should be adaptable to various circumstances and scenarios. He should be easy to train as well as being comfortable to learning new things at a constant pace.

According to Forbes Magazine, the following 15 traits indicate an ideal employee:

When You Know It's the Right Hire

  1. Action oriented
  2. Intelligent
  3. Ambitious
  4. Autonomous
  5. Leader
  6. Fits with Culture
  7. Upbeat
  8. Confident
  9. Successful
  10. Honest
  11. Detail-Oriented
  12. Modest
  13. Hard-Working
  14. Marketable
  15. Passionate

When you know it’s the right hire, you should feel at peace. There shouldn’t be any conflict in your mind. The hiring text books will tell you that there’s a science to hiring. But you have to realize that you are a human dealing with humans. At some point, you have to trust your gut feeling.

Signs It’s NOT the Right Hire

You can tell in the first few weeks of employment whether the new hire is a good fit. Even if they have a superb skillset or amazing abilities, sometimes it could be their mindset that could be unsuitable for the company. Their approach to the job and their character can be a huge predictor whether someone is fit for the company or not.

Here are some signs that he is not the correct candidate:

  • Work for their own benefit and not for the company’s.
  • Show Minimum Effort
  • Unreliable when needed
  • “High Maintenance”
  • Arrogant
  • Do only “good enough”
  • Unambitious
  • Stagnant

When You Know It's the Right HireTips for Hiring the Correct Person

Here are some tips for hiring the correct person.

Define what you’re looking for  Think of what the ideal candidate would look like. Completely define what duties and responsibilities you are looking for and add these to the job descriptions.

Attract a large pool of applicants Attract the maximum number of applicants that your time and budget allow. Research what type of job posting resources would work best for your company and use those.

Compare Applicants Rank the qualified candidates in order from most to least suitable. Implement various levels of screening in order to waste less time with under-qualified applicants. After you narrow down your list of applicants, create an assessment test that measures how they would perform in an actual job situation

Sell your ideal candidate. Once you have your ideal candidate, sell him the job. Remember that hiring someone is a two-way street. Communicate your strong vision and mission for your business with enthusiasm and sincerity. The strongest candidates will always have more opportunities, so make sure you convince the candidate that this job is the one he should be taking.

[box] Learn about the 5 Guiding Principles to Recruiting a Star Quality Team here. [/box]

Hiring the Right Person

Start your hiring process with Short|LYST. Short|LYST offers candidates that we would hire ourselves for various accounting and financial positions. Each candidate is screened, interviewed, vetted, and recommended for hire. Interested? Learn more about Short|LYST here. When You Know It's the Right Hire


When You Know It's the Right Hire

When You Know It's the Right Hire

When to Outsource or Why Outsource at All?

As a financial leader of your organization, it’s important that you understand how your time works and what you are spending your time on. In today’s blog, we’re taking a look at when to outsource accounting or specific tasks and services and why outsource at all. Before we go into when, first, let’s understand, what is outsourcing? Many of you have heard the term, but don’t really know what it means.

Outsourcing is simply delegating and paying someone outside of your organization to do a service for you that you cannot do or do not have time to do.

Examining Your Daily Routines

For example, think about your daily routines. Think about what you currently do. The list may add up quickly if you’re like me and wear many hats.

Put a star next to the things that you struggle to find time to do in the first place.

In your personal lives, it could be mowing the lawn or changing your car’s oil or cooking yourself.

For example, I find myself as a business owner operating a franchise struggling to find time to really prep and cook dinner each night. So what we do often is go out and pick up food – essentially paying someone to cook our food for us. We could either dine there or take it home.

Time Value

It’s all about time value. Are you spending your time on what you or your company values most?

When examining your daily routines, do you catch yourself saying “I don’t have time…”?

“I don’t have time to mow the lawn.”

“There’s no time to clean my house.”

“I don’t have time to close the books because I’m out there running my business.”

Whatever those time consuming tasks are, it may be worth outsourcing to another person or agency. 

[box] By freeing up your time as a CFO, you can reallocate that time to more important tasks – such as being your CEO’s trusted advisor. Learn how to become the trusted advisor your CEO needs. [/box]

When to Outsource Accounting

For example, you might have to hire a bookkeeper in your organization for them to come out and enter the transactions on a daily basis. For me, that’s important to outsource because I need to be thinking at a higher level as a Controller/CFO – not entering transactions. There will always be someone less expensive to do that. 

So really when we say we don’t have time, it is because of one of several reasons. We don’t want to spend our time on something else if someone else can do it for cheaper (and if it energizes them more). Plus, it may be time to start outsourcing accounting when you want to:

  • Make more money for you
  • Bring you more value
  • Do what you enjoy doing more

For example, entering transactions for month close is dry work and it wears on me. But I love coaching leaders how to be more effective in their roles and make their decisions more impactful. If I’m bombarded with transactions, I cannot coach leaders – which is more valuable to me and the bottom line.

On a personal note, when I do not have to cook dinner, I have an opportunity to spend more time with my kids. It also frees up my time to help my kids with homework and build memories with them. I can also read a book for personal growth or enjoyment. There’s so many opportunities out there for you to actually do things that you actually enjoy. 

[box] Outsourcing accounting is just one area where you may add value to your company. Continue to do things that add value or free up your time so that you may add value. Click here to download our guide on how to be a trusted advisor to your CEO to help them improve your company’s value.[/box]

When to Outsource, When to Outsource Accounting, Why Outsource

Why Outsource At All

One of the top reasons why companies outsource at all is that they may be more efficient. When I outsource, I am hiring someone that might be more knowledgeable. If I am a business owner who does not know how to record certain transactions, then consider the time it will take to learn that skill (and the time you are not spending on improving profits and cash flow). Even if you wanted to implement Quickbooks so that you can start recording transactions (a one-time set up), it may be worth handing that off to someone more knowledgeable in Quickbooks so that you can focus on other things you are more knowledgeable in. 

Those are things you consider when to start outsourcing.

The goal is to create more time, more energy, and free you up to do something that can potentially make you more money.

Examples When Considering Outsourcing

To further explain the need to outsource, it’s important to consider roles outside of the accounting and finance departments.

If you are a good sales person for your organization, then you don’t want to spend your time behind a desk all day trying to enter your transactions. If you don’t have a lot of transactions, then that’s a perfect sign that you need to get out there and start making those sales for increased transactions for your business to actually record.

Outsourcing is a Key to Growing

I think that outsourcing is a key to growing. It is no different from a leader wanting to delegate the tasks that…

  • You just don’t have any time to do
  • You need others to do so that you can focus on what you are great at doing from a very high level

Now, at The Strategic CFO, we have several ways for you to tap into or start outsourcing individuals so that you can actually build on your business.

Consulting

We have accounting managers, controllers, and CFOs that are ready to deploy and add real value where it’s not currently being optimized. In our consulting practice, we work in several capacities, whether it be an Interim CFO role, financial and operational reporting, mergers and acquisitions, pre-audit preparation, etc. Click here to learn more about our consulting practice.

For example, your accounting manager, controller, or CFO may

  • Not exist yet (brand new hire)
  • Be on maternity leave
  • Take 3 months off to travel through Europe (I wish!)
  • Need extra help because your company is going through an audit for the very first time

Life happens regardless of what you plan for. That’s why we’re here to step in when you need it. We will come in and help you with getting the helping hand you need to be more efficient with your current team. Need hiring and training? We do that too. These are all different reasons why you may need to outsource. We are here as a boutique firm to help you.

When to Outsource, When to Outsource Accounting, Why Outsource

Coaching Workshops

There are also opportunities for you to come in and take workshops at our office, in an online setting, or at your office. For example, you can learn about what your leadership style is. Are you a Type A person that can’t just let go of doing the little tasks? By learning about yourself, you start to outsource or delegate what you are not strong at and focus on what you are great at. As a result, you can continue to grow the business.

We offer a variety of workshops to…

Your CEO needs an advisor they can trust. Learn what they expect from their CFO and how to become the trusted advisor your CEO needs in this whitepaper.

When to Outsource, When to Outsource Accounting, Why Outsource

When to Outsource, When to Outsource Accounting, Why Outsource

Margin vs Markup

See Also:
Gross Profit Margin Analysis
Retail Markup
Chart of Accounts (COA)
Margin Percentage Calculation
Markup Percentage Calculation

Margin vs Markup Differences

Is there a difference between margin vs markup? Absolutely. More and more in today’s environment, these two terms are being used interchangeably to mean gross margin, but that misunderstanding may be the menace of the bottom line. Markup and profit are not the same! Also, the accounting for margin vs markup are different! A clear understanding and application of the two within a pricing model can have a drastic impact on the bottom line. Terminology speaking, markup is the gross profit percentage on cost prices or cost of goods sold, while margin is the gross profit percentage on selling price or sales.

Effective Ways to Optimize Profitability

So, who rules when seeking effective ways to optimize profitability?. Many mistakenly believe that if a product or service is marked up, say 25%, the result will be a 25% gross margin on the income statement. However, a 25% markup rate produces a gross margin percentage of only 20%.


NOTE: Want the Pricing for Profit Inspection Guide? It walks you through a step-by-step process to maximizing your profits on each sale. Get it here!

Download The Pricing for Profit Inspection Guide


Markup vs Gross Margin: Which is Preferable?

Though markup is often used by operations or sales departments to set prices it often overstates the profitability of the transaction. Mathematically, markup is always a larger number when compared to the gross margin. Consequently, non-financial individuals think they are obtaining a larger profit than is often the case. By calculating sales prices in gross margin terms they can compare the profitability of that transaction to the economics of the financial statements.

(Try the calculators at the bottom of the page to discover for yourself which is better!)

Steps to Minimize Markup vs Margin Mistakes

Terminology and calculations aside, it is very important to remember that there are more factors that affect the selling price than merely cost. What the market will bear, or what the customer is willing to pay, will ultimately impact the selling price. The key is to find the price that optimizes profits while maintaining a competitive advantage. Below are steps you can take to avoid confusion when working with markup rates vs margin rates:

Establish a Price

Still deciding whether to use margin or markup to establish a price? Easily discover if your company has a pricing problem and fix it with either margin or markup. Download the free Pricing for Profit Inspection Guide to learn how to price profitably.

margin vs markup, Effective Ways to Optimize Profitability

[box]Strategic CFO Lab Member Extra

Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs[/box]

Effective Ways to Optimize Profitability, margin vs markup

Margin vs Markup Chart

15% Markup = 13.0% Gross Profit
20% Markup = 16.7% Gross Profit
25% Markup = 20.0% Gross Profit
30% Markup = 23.0% Gross Profit
33.3% Markup = 25.0% Gross Profit
40% Markup = 28.6% Gross Profit
43% Markup = 30.0% Gross Profit
50% Markup = 33.0% Gross Profit
75% Markup = 42.9% Gross Profit
100% Markup = 50.0% Gross Profit

Margin Calculator

Markup Calculator

(Originally published by Jim Wilkinson on July 24, 2013)

Markup Percentage Calculation

See Also:
Margin vs Markup
Margin Percentage Calculation
Retail Markup
Gross Profit Margin Ratio Analysis
Operating Profit Margin Ratio Analysis

Markup Percentage Definition

Define the markup percentage as the increase on the cost price. The markup sales are expressed as a percentage increase as to try and ensure that a company can receive the proper amount of gross profit. Furthermore, markups are normally used in retail or wholesale business as it is an easy way to price items when a store contains several different goods. Now, look at the markup percentage calculation.

[box] Markup is great. But if you aren’t intentionally pricing for profit, then you’re missing out on some opportunities for big improvements. Click here to download your free Pricing for Profit Inspection Guide now. [/box]

How to Calculate Markup Percentage

By definition, the markup percentage calculation is cost X markup percentage. Then add that to the original unit cost to arrive at the sales price. The markup equation or markup formula is given below in several different formats. For example, if a product costs $100, then the selling price with a 25% markup would be $125.

Gross Profit = Sales Price – Unit Cost = $125 – $100 = $25

Now that you have found the gross profit, let’s look at the markup percentage calculation:

Markup Percentage = Gross Profit/Unit Cost = $25/$100 = 25%

The purpose of markup percentage is to find the ideal sales price for your products and/or services. Use the following formula to calculate sales price:

Sales Price = Cost X Markup Percentage + Cost = $100 X 25% + $100 = $125

As with most things, there are good and bad things about using markup percentage. One of the pitfalls in using the markup percentage to calculate your prices is that it is difficult to ensure that you have taken into consideration all of your costs. By using a simple rule of thumb calculation, you often miss out on indirect costs.

[box](NOTE: Want the Pricing for Profit Inspection Guide? It walks you through a step-by-step process to maximizing your profits on each sale. Get it here!)[/box]

Markup Percentage Calculation Example

For example, Glen started a company that specializes in the setup of office computers and software. He decided that he would like to earn a markup percentage of 20% over the cost of the computers to ensure that he makes the proper amount of profit. Furthermore, Glen has recently received a job to set up a large office space. He estimates that he will need 25 computers at a cost of $600 a piece. In addition, Glen will need to set up the company software in the building. The cost of the software to run all the computers is around $2,000. If Glen wants to earn the desired 20% markup percentage for the job, then what will he need to charge the company?

(Looking for more examples of markup? If so, then click here to access a retail markup example.)

Step 1

First, Glen must calculate the total cost of the project which is equal to the cost of software plus the cost of the computers. Find the markup percentage calculation example below.

$2,000 + ($600*25) = $17,000

Step 2

Then, Glen must find his selling price by using his desired markup of 20% and the cost calculated for the project. The formula to find the sales price is as follows:

Sales Price = (Cost * Markup Percentage) + Cost
or
Sales Price = ($17,000 * 20%) + $17,000 = $20,400

In conclusion, Glen must charge the company $20,400 to earn the return desired on cost. This is the equivalent of a profit margin of 16.7%. For a list of markup percentages and their profit margin equivalents scroll down to the bottom of the Margin vs Markup page, or you can find them using the above markup formula. Using what you’ve learned the markup percentage calculation, the next step is to download the free Pricing for Profit Inspection Guide. Easily discover if your company has a pricing problem and fix it.

markup percentage calculation, Markup Percentage

[box]Strategic CFO Lab Member Extra

Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs[/box]

markup percentage calculation, Markup Percentage

(Originally published by Jim Wilkinson on July 24, 2013.)

Pitfalls to Avoid When Growing Your Business

A strong economy drives business growth. I think most of us can agree on that. Growth is usually good…

But if it is not controlled growth, it simply will not be sustainable.

In this blog, I outline several pitfalls to avoid when growing your business (especially in a high growth scenario). It’s all about managing the growth properly.

We have two current clients that are experiencing high growth, and they can barely make payroll.

With a pipeline of huge sales, how can this be possible…?

Their lack of planning on systems and procedures has also caused the management to not sleep well at night.

[box] SCFO Lab Members: The reason most income statement projections fail is because of a lack of ability to accurately project sales! Start the Sales Genie EP now.[/box]

What Happens in a High Growth Scenario?

So, what happens in a high growth scenario? It should be all good news… The problem is that many times the decision maker(s) of a high growth company have never experienced high growth. Sometimes, these can be startups or a business that developed a new product.

If you have not experienced it, then it really is hard to imagine all the things that can take place.

Example of a High Growth Scenario

Let’s look at an example of a high growth scenario in a made-up company…

You are a manufacturer of widgets and you own a manufacturing facility. You have 50 employees before the company is about to explode in growth.

Your VP of Business Development or VP of Sales brings you new contracts that will significantly change the size of your company.  These contracts will double, triple, or even quadruple your business in the next 18-24 months.

So no worry about generating sales….

But there are several questions that need to be asked and pitfalls to avoid in this company.

Pitfalls to Avoid When Growing Your Business

Inventory: How are you going to fill all those orders?

You need to purchase a lot of inventory of raw material. In addition, your purchasing transactions just tripled in dollars and quantity. Finally, you have enough machines to manufacture items for the next 12 months… But next year, you will need to acquire more machines to keep up with demand.

Labor: What about labor?

The purchasing person is working already 50 hour weeks, and you know you will need to hire another purchasing person. Your plant labor needs to increase to compensate with the increased workload.

Right now, your 3 person accounting team includes 2 bookkeepers and a controller. You realize you need a cost accountant.

Systems, Process and Procedures

You have used a basic accounting system for 10 years, but you realize that you have outgrown the accounting system. It is not the right system because it does not handle cost accounting or standard costs. You want to integrate purchasing and inventory modules.

For years, you kept inventory and work-in-process on spreadsheets. Now, the dozens of spreadsheets are not reconciling. It’s time to automate inventory.

The once per year physical count of inventory is no longer enough. You need to have cycle counts and maybe at least a full physical count quarterly.

For years, you have operated informally, but you now you realize you need to have written policies and procedures.

Accounting

You have run your business on a hybrid cash/accrual system, never really got to full accrual accounting, and never really worried about GAAP financial statements. Maybe you should…

You never considered having your financial statements audited; however, with all this growth, you might sell one day. Having your financial statements audited would add value to your business.

Your company is growing so much, you need more than financial statements that tell you what happened in the past. Now, you need projections, budgets, and dashboards.

It’s time for a strategic financial partner. It’s time for a CFO.

[box] Click here to access our Goldilocks Sales Method, and learn how to build your sales pipeline and project accurately. [/box]

Human Resources

Your admin person that did a great job all these years is now dealing with 3 or 4 times as many employees. It’s time to hire someone that has a good understanding of labor laws.

Payroll was done in house. Now with so many hourly people and manual time sheets, it’s time to upgrade and integrate payroll to the accounting system or have it outsourced.

Consider automated time keeping and get away from the multiple spreadsheets.

Legal and Tax

Your new sales take you out of State. Now, you are selling in 5 different States.

Have you created nexus in these other States? They have State taxes… Oops!

You had to hire a few people on the ground in the other States; your labor laws just got really complicated.

Sales and Use tax… Are you paying the correct taxes, not paying them, or over paying them?

You developed a new process or Intellectual Property (“I.P.”). Did you register this? Did your attorney suggest maybe creating a new legal entity that has the I.P.?

By creating the new legal entity or new legal entities, did you realize you just created a lot of complex accounting work by having all those legal entities?

Note: We recently had a client that created 19 legal entities because their attorney wanted to “protect” them from everything. Now, they had to consolidate all those entities with hundreds of intercompany transactions.

What is your Exit Strategy?

You will be quadrupling the size of your business in the next 2-3 years. You thought to yourself one day… I might want to sell this business.

What does it take to sell your larger company?

It takes time to set a strategy for an exit. It takes time to “professionalize” management and your back office.

Do you have a succession plan so that the business does not look like a one man show?

Do you have a 3-year budget with projections?

[box] SCFO Lab Members: If you want to build your exit strategy and/or access your readiness for market, check out the Exit Strategy EP. [/box]

How to Have Sustainable High Growth

I have hit on some of the basic topics that come up in a high growth scenario. There are many more things to consider.

The first thing that comes to mind is how are you going to pay for all this?

Do you have sufficient working capital?

Sometimes, you can manage working capital and have sustainable growth.

Many times, you need some sort of financing because of the timing differences in working capital. You cannot afford to sustain this high growth with out the financing.

Cash and working capital are key to the sustainable growth.

But just as important is having the right people. Not just having the right people on the bus… But having them in the right seat on the bus is critical. Not everyone is meant to sit in the same seat in a larger company. This applies to the management team as well as employees.

I have actually seen situations in high growth companies where the person that really needed to be fired was the owner or CEO.  Because the CEO of a $5 million dollar company is not necessarily the same CEO of a $50 million dollar company.

Don’t get me wrong… The ownership does not have to change. You can still own the business. But that does not mean you need to be an employee running the business.

Summary

In order to have sustainable high growth that will allow you to sleep well at night consider the above items but you must have the following…

  • Enough working capital
  • The right people in the right seats “on the bus”
  • More and different systems, process, and procedures
  • A strategic plan that will allow you to have a sustainable bigger company

Projections are a helpful way to grow sustainably and avoid an uncontrollable high growth scenario. Download our free Goldilocks Sales Method to start building your pipeline and projecting accurately.

Pitfalls to Avoid When Growing Your Business

Pitfalls to Avoid When Growing Your Business

Selling Your Business to a Private Equity Group

Private Equity companies are companies that have raised capital from investors and they have created funds. Each fund may have its own legal mandate. These are common examples of mandates:

  • Invests only in oil and gas companies
  • Is agnostic to what industry it invests in
  • Invests only in companies it controls

Private Equity companies come in many different colors and flavors.

They can be a very good resource for capital when an owner is looking to exit, or partially exit (“take some money off of the table”).

Oftentimes, entrepreneurs or founders (the seller) never thought of or did not know that Private Equity was an alternative; thus, I wanted to cover how selling your business to a private equity group may be a good option for you in this Blog.

Private Equity as a Buyer

Private Equity firms (“PE”) can be a very good alternative and buyer for your business.

They have liquidity…

They have talented financial and operational professionals on staff…

And they can usually get a deal/transaction completed in a very reasonable period of time.

Most PE will not waste your time.

They will tell you up front after one or two meetings if they are a “real” buyer.

In the past year, I saw some statistics that quoted that there is nearly one trillion dollars in PE dollars on the sidelines ready to invest. That is an incredible amount of money ready to invest.

But this is what you need to know if you are thinking about selling your business to a private equity group. This is critical and can make your life pleasant or miserable.

Once you find the PE firm that is purchasing your company, most likely they are purchasing the majority of the equity in the business and they are purchasing a controlling interest.

As an entrepreneur, founder, and business owner, you have lived in your company for many years.

You have enjoyed a comfortable life style…

You have the management reports that you need and you felt were enough…

And you have set your own agenda.

Most importantly, you do not answer to anyone!

LIFE IS GOOD.

[box] If you are selling your business to a private equity group, then consider getting rid of any destroyers in your business that may be destroying value. Download the Top 10 Destroyers of Value to learn what those destroyers are and how to get rid of them. [/box]

Stages of a Private Equity Relationship

In my 30 plus years of experience, these are the stages of a private equity relationship that I have observed for some entrepreneurs. It’s a lot like marriage!

Dating Stage

The private equity firm approaches you and your business. There are some really nice dinners, great friendly meetings. There are multiple tours of your business. People understand each other. Everything looks like this is a great fit!

Engagement Stage

After many visits, conference calls, and review of some basic company and financial information, you sign the Letter of Intent “LOI”. You find your self engaged to the PE firm.

It’s all good.

There is a big prize on the horizon, and you can’t wait for the deal to close.

This stage might last between 60 days to 6 months.

Married Stage

The deal has closed! Yeah, it’s all good…

The cash has hit your bank account for your 70% of the business, and you still maintain 30% of the business. The PE group has promised a great relationship and lots of capital if you ever need it for growth.

Wow!

From now on, you can only double your money. Life is still good!

But now… You get the first request to deliver a monthly reporting package on a timely basis.

That means that you – the CEO of a company you own 30% of – must deliver on the 10th day of the following month a report to the PE group. You better have good numbers, and you better explain any variances to the penny.

Remember, you are dealing with very smart, analytical professionals that can smell BS a mile away.

So, BS will not cut it.

Month 3, 4, and 5 have now passed…

You have had many Board meetings where you are now the subject of interrogation. You have to come up with answers to variance from budget, but you sometimes cannot explain them because for the last 20 years, you have run the business based on a gut feeling and it has worked.

Now, you have a room of MBAs in their 30s asking you questions.

Stress starts to build.

Month 6, 7, and 8…

Yikes! You hate the thought of the next Board meeting.

You are starting to question the relationship you have with the PE firm. Those great expensive dinners during the dating stage are meaningless.

What have you done?

You are not enjoying going to work every day.

As a matter of fact, you now have to take calls on weekends and get permission to take a vacation!

Divorce

Finally, we reach the last stage…

One or two years have passed since the close of the transaction. You have had countless Board meetings, and you have suffered though all the interrogation. They have treated you like a kid and someone thirty years younger than you who is new to the business is telling you how to run “your business”.

The company you built.

You now only own 30%.

And you want out…

Reality

Selling to a PE firm is still a great option. In the U.S., PE firms have a lot of liquidity and can get a deal done. They can afford to pay you a reasonable price for your business, or part of your business.

There is nothing wrong with any of that.

What is wrong is that the business owner, founder, and/or seller does not understand what the requirements are after the sale process.

Requirements After Selling Your Business to a Private Equity Group

So, what is required after selling your business to a private equity group?

  • Professional environment
  • Detailed, reliable, timely financial statements
  • Board meetings where you (the seller) provide answers to questions and any variances
  • You as the CEO with now only 30% will be held accountable to respond to the PE group that as the majority owner
  • The CEO will be questioned and interrogated by the controlling owners of the business
  • You can not take off and head to the ranch on Thursday… You need to behave as a responsible EMPLOYEE of the business
  • Be humble
  • Your _ _ _ is on the line to respond to the owners that now control your business.
  • You sold your business. You are an employee.  Most likely, you have never been an employee.
  • If you can honestly accept this new role, you will be fine. If you think you still call the shots after the closing of the transaction, you will be hating life.

Selling to PE Firms can be a wonderful experience if you know what is on the other side and if you are willing to take on a new role, one as an employee.

If you are not open to being the employee that answers questions and will be held accountable, then pause and consider what it takes to sell to a PE Group.

If you are considering selling your business to a private equity group, then first see if there are any “destroyers” in your business that may be taking value away. Read through our free Top 10 Destroyers of Value whitepaper to learn more.

Selling Your Business to a Private Equity Group

Selling Your Business to a Private Equity Group

 

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