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Exploit New Business Opportunities

In this age of technology, it’s time for companies to be willing to exploit new business opportunities. More than ever before, companies are navigating this fast-pace and uncertain terrain. Bankruptcies, mergers, acquisitions, reductions, etc… It’s all changing the business landscape. But if companies do not exploit new business opportunities in fear of failing, then they are sure to fail or fall behind competitors. As financial leaders, how do we enable our leadership to take risks without neglecting the numbers?

Exploit New Business OpportunitiesWhy Exploit New Business Opportunities

The reason why one would exploit new business opportunities is to stay ahead of the ever-competitive marketplace. What needs are not being fulfilled yet? How can you gain more market share? What competencies does your company have that can be expanded into other areas – customers, markets, etc.? Opportunity exploitation is what keeps businesses moving forward. In this day and age, we need to continually reinvent our companies or we will not be around very long. Our competitors are doing this every day.

Have you identified any opportunities yet? If not, then click here to access our External Analysis Whitepaper.

Opportunity Exploitation Definition

According to Wiley Encyclopedia of Management, “opportunity exploitation refers to activities conducted in order to gain economic returns from the discovery of a potential entrepreneurial opportunity“. Typically, entrepreneurs are known to exploit opportunities or identify opportunities because it is in their nature; however, financial leaders know what the numbers say and can identify opportunities that make economical sense for the business while balancing risk and reward.

Example: Planet Fitness and Vacant Malls

E-commerce has been growing significantly while brick-and-mortar stores have been steadily decreasing. Shopping malls are more vacant than ever before. But there is one company that is taking advantage of those vacancies and benefitting from it. In a recent Wall Street Journal article, “Planet Fitness Inc. is the rare mall tenant expanding its share of commercial real estate even as many retailers shrink their physical footprint as more commerce moves online.” This is a great example how to exploit new business opportunities. Furthermore, Planet Fitness is focusing on those that do not already have gym memberships. This combination of target market and location is proving profitable for them as they have reported “revenue increase 31% to $140.6 million compared with the same three-month period last year”.

How Entrepreneurs Identify New Business Opportunities

According to Babson College, “entrepreneurs are often characterized by their ability to recognize opportunities (Bygrave & Hofer, 1991) and the most basic entrepreneurial actions involve the pursuit of opportunity (Stevenson & Jarillo, 1990).”

Steps to Identify Business Opportunities

There are several steps to identify and exploit new business opportunities that Babson has outlined:

  1. Preparation
  2. Incubation
  3. Insight
  4. Evaluation
  5. Elaboration

Preparation

Experience is the prime ground for preparing yourself or your company for opportunities. Identify what experiences your team has and what your company is good at. For example, if your company excels in supply chain and logistics, then an opportunity that needs incredible supply chain and logistics processes will be a good fit.

Incubation

Incubation refers to the brain processing a potential idea or opportunity subconsciously. They are already attempting to solve a problem that they haven’t yet written down. This is an ongoing process.

Insight

Then, in the insight stage, an entrepreneur will have the “eureka” or “ah-ha” moment where it all makes sense. As a financial leader, it’s important to talk with your CEO about their ideas so that you can engage in this insight stage. You may even see how to exploit the opportunity before the CEO does.

Evaluation

This step is where the financial leader truly steps up to the plate. Research and analyze whether this opportunity is worth pursuing. At the end of this stage, it could end up in either one of two ways:

  • The idea is not feasible and they kill it
  • The idea is feasible and you move forward.

Elaboration

Finally, the elaboration stage is where you exploit the new opportunity through business planning and implementation.

Example of Identifying a New Business Opportunity

For example, a steel manufacturer primarily sells to commercial developers who require the steel for building and/or roadways. One day, they realized that they were not using any scraps of steel, and the company was just throwing them away. Instead of continuing to throw away those scraps, they inquired whether there was an opportunity to take advantage of it. One day, the entrepreneur stumbles across a custom scrap metal design company where they create home decor out of scrap metal. The entrepreneur goes back to his CFO to discuss this potential idea. The CFO knows of a team member who actually does this in his spare time. They gather a team and start outlining a business plan. Eventually, they decide that it is a profitable idea, and they go forward with it.

If you are not familiar with the petrochemical sector, they are experts at this. Nothing goes to waste in the petrochemical business. A chemical is made or processed, it generates a bi-product or waste, and there is always another business in the petrochemical space that buys it to make yet another product, and on and on and on… Eventually, very little is true “waste”.

Manage New Business Opportunities

So, how do you go about managing new business opportunities? It is so easy for entrepreneurs to get caught up in their ideas and chase “squirrels“. They lose focus and may not capitalize on the opportunity sitting in front of them. As a financial leader, it is crucial for you to manage those new business ideas as part of your strategy to improve profitability.

Exploit New Business OpportunitiesConduct a SWOT Analysis

First, conduct a SWOT Analysis on your company with your team. A SWOT Analysis stands for Strengths, Weaknesses, Opportunities, and Threats. There are two view points in this analysis: internal focused and external focused. This analysis provides a comprehensive look at what your company does well and what it may be lagging in. This also helps the CEO/entrepreneur figure out what opportunities they need to look for to convert those weaknesses to strengths and those threats to opportunities.

If you want to get started on your SWOT Analysis, then click here to access our External Analysis Whitepaper.

Enable Your CEO to Make Calculated Risks

Then, enable your CEO to make calculated risks. Entrepreneurs need to take risks and make moves – that’s part of their nature and gift. But, they do not need to make uncalculated risks or risks that will cause more harm than good. As the financial leader, help them to mitigate risk and enable them to do what they do best – find opportunities and grow the business.

Do you know the opportunities and threats that your company faces? If not, then the time to figure it out is now. Click here to access our External Analysis to gear your business for change.

Exploit New Business Opportunities

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Exploit New Business Opportunities

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Protect Yourself: A Guide to Non-Compete Agreements

Oftentimes, businesses see their competitors as their biggest threat. But what if your star quality team continues to leave to join your competitor’s team? That is, in my opinion, the bigger threat. You have already invested in hiring, training, coaching, and developing those individuals. Then, they leave and directly compete against you. We see this commonly in consulting practices, but it occurs in every industry. In this week’s blog, we are taking a look at how to protect yourself and your company with non-compete agreements.

Non-Compete Agreements, Guide to Non-Compete AgreementsWhat is a Non-Compete Agreement?

A non-compete agreement is an agreement between the employee and the employer that attempts to prevent the employee from working for a competitor within a specified time period and geographical area. Furthermore, it must adhere to all state and national employment regulations. It is best to hire a labor law attorney to verify conditions and ensure that it will uphold in court.  The laws for non-competes and the effectiveness of non-competes vary greatly from State to State. In addition, ever changing laws and precedent will challenge the effectiveness of your non-compete.

According to the American Bar, a good non-compete agreement should prohibit a former employee from doing the following

  1. “… Working with a competitor
  2. … Soliciting former coworkers to be employed in his or her new company
  3. … Soliciting or disclosing confidential information, such as customer lists and data, learned in the course of their employment.”
If you want to protect your company’s future, then it’s important to know what could potentially destroy value. Identify “destroyers” that can impact your company’s value with our Top 10 Destroyers of Value whitepaper.

Why You Should Use Non-Compete Agreements

Take a look at your sales persons and/or consultants. They have developed a relationship with the client and have goodwill with that customer; however, if they decide to leave for whatever reason, then that positive relationship may be in danger. In addition, if that same sales person works for a competitor, then they may poach that customer with the goodwill they have already built up.

Non-compete agreements discourage employees from leaving the current company and competitors from poaching those employees. This only occurs if the non-compete agreements will hold up in court and if the company (you) will take the employee to court. I have seen non-competes work and prevent stealing customers and employees. I have also seen non-competes not hold up in a case. It all depends on the case law, the State you are in, and your luck with the judge hearing your case. 

Tip: A contract is useless unless you enforce it. You must be prepared to take a broken contract to court.
Discover if there are any “destroyers” in your business with our free Top 10 Destroyers of Value whitepaper.

Who Should Use Non-Compete Agreements

You should consider these agreements for employees, clients, shareholders, suppliers, and partners; however, non-compete agreements are typically reserved for executives, senior management, research and development, and key sales people. Not all companies should use non-compete agreements.

Non-Compete Agreements, Guide to Non-Compete AgreementsA Guide to Non-Compete Agreements

Here is our guide to non-compete agreements. It covers trade secrets, how to protect yourself, and how to protect your company’s future.

Trade Secrets

Trade secrets need to be protected, especially from competitors. A non-compete agreement helps you to protect those trade secrets in the case an employee leaves for a competitor. Also, your company hand book should remind employees that all inventions, ideas, patents, and creative work they develop while at work, is the companies property. Please check your local laws and precedents for more information.

Protect Yourself

The goal for having non-compete agreements with employees is to protect yourself (your company). As said before, non-compete agreements are usually intended for the key management team or anyone with a direct relationship with customers. It’s important that you understand your State law. Certain states, like New York, do not allow for companies to extend non-compete agreements too far down in the organization. The goal of non-competes to protect yourself from growing competitors or new competitors that may pop up as a result of key players building their own organization.

Protect Your Company’s Future

Protect your company’s future by protecting your most valuable assets – your human capital. Don’t let gaping holes in your employee policy leave your open for financial loss. The American Bar says that, “Having a valued employee defect to a competitor and take sensitive proprietary information such as customer lists, pricing information, marketing strategies, or product and service expertise with him or her can be a devastating blow to any business – large or small.”

Protect your company’s future with our Top 10 Destroyers of Value whitepaper.

Example: Consulting Firm

Let’s look at an example of a consulting firm! They are trying to prevent any client from hiring one of their leading sales person or a critical member of the team. In an consulting firm, the top challenge faces is when clients hire your consultants out from under you. For example, you hire Tammy to work 20 hours a week, 50 weeks out of the year. A client will pay $150,000 for a 1,000 hours of her work. As the owner of the consulting firm, you get 40% of the $150/hour. It’s a win-win situation. You fulfill a client’s need and fulfill Tammy’s need for business.

As the relationship further develops, Tammy and the client decide that they don’t need you. Unfortunately, this option only benefits Tammy and the client. It hurts you. If the client offers, $200,000 a year in compensation, then Tammy is pleased. She has consistent work, focuses on one client, and does not have to worry about any gaps in her hours. On the other hand, the client is pleased because they now have a full-time salaried employee that works 50 hours a week for 50 weeks a year.

Let’s calculate the price difference for the client!

Tammy’s previous hourly rate was $150.

With the client, Tammy costs the client $80 per hour. Divide $200,000 salary by 2,500 hours of work to come up with $80 per hour.

Furthermore, you have lost an income stream. Then you have to find, hire, and train a new employee – continuing to cost more and more. If you continue to loose more consultants, you will no longer have a firm. All employees and clients have left.

Non-compete agreements would have protected you from loosing your company.

Don’t Destroy the Value of Your Company

In conclusion, you should use non-compete agreements to protect the value of your company. There are many other ways to make sure you don’t destroy the value of your company. To improve the value of your company, identify and find solutions to those “destroyers” of value. Click here to download your free “Top 10 Destroyers of Value“.

Non-Compete Agreements, Guide to Non-Compete Agreements

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Intangible Assets: Protecting Your Brand And Reputation

“In an economy where 70% to 80% of market value comes from hard-to-assess intangible assets such as brand equity, intellectual capital, and goodwill, organizations are especially vulnerable to anything that damages their reputations” (Harvard Business Review). Last week, I had a conversation with one of my coaching participants, Dory. Dory’s company is trying to make a lot of changes. Changes that as a financial leader just doesn’t make sense. It involves repositioning the business. It requires new marketing, new branding, new value, new culture, new staff… It’s an entirely new brand! However, the leadership fails to see how making this large of a shift will not only change the brand, but it will also risk destroying the firm’s reputation. In this week’s blog, we are discussing about protecting your brand and reputation.

With 70-80% of value stemming from intangible assets – such as your brand and reputation – it’s important to know what your company’s strengths and weaknesses are. Start enhancing those strengths (and resolving those weaknesses) with our Internal Analysis whitepaper.

Protecting Your Brand And Reputation

In today’s world, protecting your brand and reputation should be a priority because it can be destroyed with one social media post. In a WSJ article, Keri Calagna, principal at Deloitte & Touche LLP and leader of Deloitte Advisory’s brand and reputation management services, says that, “brand and reputation are complex, difficult to measure, hard to predict—often a result of strategic and operational decisions—and influenced by factors outside of an organization’s direct control.” But there are things that you can do as an organization not to further diminish value potential.

Protecting Your Brand And Reputation, Protecting Your Intangible AssetsFor example, we have a client that recently experienced an incident near their facility. The client’s concern was reputation and responsiveness to the situation even though they were a third party to the incident. But the perception with regulators and potential customers is very important. So, our client went above and beyond to respond and assist in the situation. This was seen in a very positive manner with regulators, neighbors, and customers. As a result, they were building very positive brand equity.

Brand Definition

Business Dictionary defines brand as a “unique design, sign, symbol, words, or a combination of these, employed in creating an image that identifies a product and differentiates it from its competitors.” Over time, a brand becomes the face of the company, something that customers recognize, and conveys the value of the product/service. It is your Image.  For example, Coca-Cola is historically seen as the #1 soda producer over Pepsi. Coca-Cola’s branding efforts have created a culture and a value among consumers.

Brand equity can go either way – positively or negatively. For example, influencers, bloggers, neighbors, friends, and family have recommended Product A to you. As a result, you are most likely going to buy Product A and any other product you need from that company. Then, you come across Product B. Product B has been known for its poor quality and is generally not as effective as Product A.  Product A has positive brand equity, whereas Product B has negative brand equity. As a result, Product A has a lot more wiggle room to make mistakes than Product B.

Take inventory of your company. What does your company do well at? What weaknesses does it struggle with? Click here to access our Internal Analysis to take a complete inventory of your company. 

Reputation Definition

Cambridge defines reputation as “the opinion that people in general have about someone or something, or how much respect or admiration someone or something receives, based on past behavior or character.” In other words, the reputation is how customers perceive your company versus how they recognize your company.

Protecting Your Brand And Reputation, Protecting Your Intangible AssetsAlign Strategic Decisions With Brand

One method to protect your brand and reputation is to align it with strategic decisions and overall strategy. For example, a company makes a decision without factoring in its brand. Customers and potential customers do not agree with the decision make because it changes X, Y, and Z. We have seen companies destroy themselves because they do not consider all factors before making changes to their brand.

Know Where Breakdowns Occur

Generally speaking, any breakdowns in your company will have to do with your human capital. If there is a misalignment with the actual company culture (not just what you perceive) and the brand, then your team will not be able to successfully deliver what the brand promises. Educate your employees on the brand. Fix issues within your team before it’s vastly different than the brand you are putting out there.

Protecting Your Intangible Assets

In the end, brand and reputation are intangible assets that your company needs to care about. It impacts value potential and the bottom line. Instead of managing crises, let’s look at how to manage risks and consequently, protect your intangible assets.

How does a company protect its intangible assets? Protecting your intangible assets starts with knowing what they are. What is your company known for? Why do customers choose you over a competitor?

Then start to identify what could change those answers. Is it government regulations that will change your product? What about material changes?

Finally, package what your intangible assets are and what influences them. Manage any risk threatening those assets.

How Your Brand And Reputation Impacts the Bottom Line

Before you go about making any changes to your brand, look internally at what is reliant on that intangible asset. In my first example, Dory’s leadership was not looking at how the employees, customers, vendors, investors, etc. were tied and attached to the brand. If her company made the change they wanted to, the company would lose its employees, customers, vendors, and investors. Sometimes, the brand is the thing that has made you so successful. If you are protecting your brand and reputation from potential changes, then take a look at our free Internal Analysis whitepaper. This will help you get a high level view of what impacts what.

Protecting Your Brand And Reputation, Protecting Your Intangible Assets
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Alternative Forms of Financing

Alternative Forms of Financing, Alternative FinancingIt happens all the time. Companies need capital, but they aren’t bankable. Banks or other financial institutions will not touch them because they are either too risky, not able to meet covenants, or it just doesn’t work out for some reason. So, where do those companies go? They need to look at alternative forms of financing. In this week’s blog, we take a look at alternative financing and why there is a need for it.

What is Alternative Finance?

What is alternative finance? The US Small Business Administration defines it as “financing from external sources other than banks or stock and bond markets”. It typically refers to fundraising through online platforms; however there are various sources that could be considered alternative forms of financing. We will look into those a little later in this blog.

Sometimes, the best way to add value in a company is to know where to go for cash. If you want to learn 5 other ways a CFO can add real value, then click here to download our 5 Ways a CFO Adds Value whitepaper.

The Need for Alternative Financing

Why is there a need for alternative financing? Not all entities (banks, stock, bond markets, etc.) are willing to finance certain companies due to a variety of reasons. For example, Company A is a 2 year old company that has a technology that will not be ready for market for another 6 years. A bank most likely will not fund that project because there is no revenue for 8 years and there is no guarantee that the company is ever going to be successful. Alternative forms of financing will help Company A continue to research and develop their product and bring it to market.

In addition, alternative financing often provides benefits like mentorship, customer validation, advice, and buy-in.

Alternative Forms of Financing

There are several alternative forms of financing, but today, we will look at 5 financing options for companies that are not bankable. Those include crowdfunding, grants, mezzanine lending, private equity, and bootstrapping/sweat equity.

Crowdfunding

Crowdfunding is the most public form of alternative financing. It’s simply an online platform where many investors invest small amounts in a company. Popular crowdfunding sites include Kickstarter, Indiegogo, and GoFundMe. This is a great option for companies that have customers who want what they have but the bank does not agree. For example, some indie films have raised capital via crowdfunding platforms as both a marketing effort and capital raising. As a result of investor’s donations, they get perks such as rewards, early access, etc.

Grants

Other alternative forms of financing include grants, competitions, and accelerators. Grants do not have to be paid back, unlike a loan. They are usually disbursed or gifted by one entity. Often, that entity is a government department. It could also be a corporation, trust, or foundation. Most grants require an extensive application process. In addition, most grants are designated for a specific purpose – like research and development.

Grants, competitions, and accelerators often require business plans, financials, projections, etc. A benefit of going this route is to continually improve the business and add value. If you want to learn 5 other ways a CFO can add real value, then click here to download our 5 Ways a CFO Adds Value whitepaper.

Alternative Forms of Financing, Alternative Financing

Mezzanine Lenders

Mezzanine Lenders are organizations that provide loans to businesses; however, they are not required to have all of the guarantees and collateral of a traditional bank. Their loan to you might have some aspects of convertible debt to equity. In addition, it will definitely be more expensive than a traditional commercial loan. It will be about as expensive as using a credit card. But these lenders are great alternative to companies that may not be bankable.

Private Equity

Private Equity firms are funds, and team of individuals manages this fund that provides debt and equity to businesses. Usually, the “hold” period for the investment can be anywhere from 3-7 years. The Private Equity (“P.E”) firms bring best practices and find synergies with other portfolio companies to streamline costs. P.E. firms sometimes specialize in an industry or market to align their interests. Depending on the type of firm, private equity investors may take a managing role in a company.

Bootstrapping/Sweat Equity

While bootstrapping is not necessarily a form of financing, it does free up cash that is needed elsewhere. For example, a company can bootstrap by hiring employees on equity rather than a salary. While this may be a cheap option in the meantime, it can become expensive in the long run (especially if the company takes off).

It’s a CFO’s role to improve profits and cash flow. But to do that, they need to have the financial leadership skills to guide the CEO as they manage the organization. If you are ready to add real value to your company and get the respect you deserve, then click here to download our 5 Ways a CFO Adds Value whitepaper.

Alternative Forms of Financing

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Alternative Forms of Financing

 

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Financial Leadership in the Digital Age

There is more information available today than in another other age before. It’s overwhelming. Instead of having verbal conversations with one another, there is a room of people on their phones or laptops communicating with other people around the world. We are processing thousands (if not millions) of pieces of information a day. And that’s making the role of the financial leader more difficult. There is simply too much information. So, how do you navigate financial leadership in the digital age?

First, take a look around the office. How much of your team’s work in on a device? How does your team look visibly (tired and exhausted or alert and awake)? If you go to any news source (Wall Street Journal, New York Times, etc.), notice how many articles are about technology and anything digital. Almost every article has some tech or digital component to it. This issue impacts financial leaders all around the world.

Financial Leadership in the Digital Age

Too Much Processing of Information

News channels, Facebook, Twitter, Instagram, Youtube, TV shows, financial statements, reports, contracts… Every piece of information we take in from the moment we wake up to the moment our eyes shut is simply overwhelming. There is too much processing of information occurring, and it has the risk of destroying a company’s value. A company’s leadership needs to be on guard of how much information they are processing each day. An article Fast Company published says, “Our brains have the ability to process the information we take in, but at a cost: We can have trouble separating the trivial from the important, and all this information processing makes us tired.” Our brains can only hold so much – much like a bandwidth of Internet. Once we go over that bandwidth, then we start to lose or forget information – even the most important information.

So, what does one do? They focus on a few key metrics rather than all the metrics. Click here to start identifying those key metrics with our KPI Discovery Cheatsheet.

Financial Leadership in the Digital Age

Financial leadership in the digital age is continuing to evolve and involve more areas in business than accounting. Already, financial leaders take a role in operations (productivity, efficiency, etc.), investment decisions, strategic planning, and human resources. I tell any CEO hiring a CFO that the CFO should be good enough or better to take on the role of a CEO.

Have a Team to Process the Information

As the financial leader, you have the opportunity to defer the role of sifting through all the information and data. Have your accounting department analyze all the information and package it into the most important information that you need to make strategic decisions. The CFO sits on a lot of information to begin with. With a team’s support, the CFO can focus on the most important information.

Financial Leadership in the Digital Age

Focus on Key Performance Indicators

Financial leaders in the digital age need to identify the key performance indicators (KPIs) that really matter in the business. If they don’t identify those KPIs, then they risk being overrun by data and may miss something important – result in injury, lawsuit, fines, etc.  With current systems that are properly installed, you can have thousands of bits of information in your monthly report.  But may I ask, what do you really need to make decisions?

Today, a client asked me if I wanted to see the daily reports. I asked what is in the daily report. The client responded with, “everything”. It included man hours, throughput, downtime, what was sold, was was wasted, HR information on who clocked in late and who was on time, literally everything on a daily basis. My response was simply “no” because  I do not need to see everything every day because I am running the company as an Interim-CEO. Instead, I want to see data that is meaningful, weekly, and information that will lead me to make business decisions. If we have over time one day of the week and none the rest of the week, then that will not lead me to make any business decision in this case.

Since so much data is available real time, be sure to gather and analyze that which is relevant and will lead you to make a decision.

Hire the Right Team

CFOs need to reevaluate which positions they are adding to their accounting department. Consider positions like data scientists, data security professionals, statisticians, and IT delivery specialists to add to your team. If the digital age is creeping into every area of business (especially accounting), then you need to have people with more experience in data, security, and analysis.

Adopt and Adapt to Technology

McKinsey recently reported that “the average capital project reaching completion 20 months behind schedule and 80 percent over budget.” Why? Because the stakeholders (project managers and contractors) in these capital projects are resisting technology. This is just one example of how resisting technology is a technology driven world will have an impact on the bottom line. If your company is already utilizing technology, then think of areas that you could be using more technology to reduce costs. If your company is still operating in the proverbial Stone Age, then it’s time to bring in a consultant or a team to implement a digital component. That could be an accounting system, a customer relationship management (CRM) system, an optimized website, etc.

In another example, retailers everywhere are having to change their business models to cater to the buy-now demand that customers have taken up. Retailers are creating e-commerce sites, closing brick and mortar stores, and managing inventory entirely different all because of technology. Recently, even grocery stores have been competing with companies, like Instacart and Favor, who are doing the shopping for customers that do not want to shop by creating their own delivery services.

Automation Plus Analysis

Over the years, the automation has creeped into finance and accounting departments. While at first, many in accounting were terrified that it would make their roles obsolete, we are seeing something different. You can only automate so much. In the end, business is all about humans. You cannot automate humans. What does that mean exactly? That means that now accountants are able to do more with the data than punching the information into spreadsheets, systems, etc. They can now spend their time analyzing the data, and thus, they become more valuable to the firm.

In a Wall Street Journal article, Paul McDonald from Robert Half says that, “companies plan to move the expertise needed to modernize their finance departments in-house, even as the process brings about more automation to routine tasks.”

Stay Focused in the Digital Age

So, how does one stay focused in the digital age? It starts with knowing what information is important enough to earn your attention and what information is simply a distraction. Start measuring your company’s KPIs today with our KPI Discovery Cheatsheet.

Financial Leadership in the Digital Age
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Financial Leadership in the Digital Age

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Planning Your Exit Strategy

When you start a company, you should generally know how you are going to exit the company. It could be a merger or acquisition, leave it to family, an initial public offering (IPO), a management buyout, etc.. Whatever the case, planning your exit strategy is almost as important as running your company because it’s the end goal. If you go into a business without the end in mind, then you may be building your company for the undesired exit. Before we go into planning your exit strategy, what is an exit strategy?

Planning Your Exit Strategy

What is an Exit Strategy?

Investopedia defines an exit strategy as “a contingency plan that is executed by an investor, trader, venture capitalist, or business owner to liquidate a position in a financial asset or dispose of tangible business assets once certain predetermined criteria for either has been met or exceeded.” When an exit strategy is implemented, the valuation process begins. Traditional approaches to valuation require the company to present their financial statements, cash flow models, and competitive analyses comparing companies in a similar field or industry.

Cleaning up your accounting records is just one method to protect your company’s value. Read about ten other “destroyers” that could be taking value away from you in our Top 10 Destroyers of Value whitepaper.

Why is Planning Your Exit Strategy So Important?

Exit strategies are crucial to responding to issues like the following:

  • Divorce of an owner(s)
  • Lawsuits
  • Change in market conditions
  • Retirement
  • Cashing out
  • Death

When you inevitably run into this life events, it’s either going two ways: according to plan OR some way. The second option leaves you open to a lot of unwarranted risk. It could also go really well or it could be a disaster. You would never know though without a plan in the first place. Of course, no plan is going to be perfect; however, it does allow you to think of solutions outside a stressful environment.

Planning Your Exit Strategy

Planning your exit strategy requires you to think from two different angles – business and personal.

Business Exit Strategy

Planning your exit strategy can take a long time. Sometimes, it can take years. It is certainly not something that is done in a month or two. There are many things to take into consideration when planning your exit strategy, including the following:

  1. Where are you personally in life?  Are you young, mid life, or of retirement age?
  2. Where is your company? Is it a mature company with a lot of good historical financial records? Or is it a young startup?
  3. Or are your accounting records less than perfect?
  4. What is the condition of your industry and the general economy?
  5. Is your product or service technology based?
  6. Is your management team ready to take over?

These are just some things to think about as you plan your business exit strategy.

While you are planning your exit strategy, it is a great time to start identifying “destroyers” in your business that are taking away value. Click here to learn about the Top 10 Destroyers of Value.

Planning Your Exit StrategyPersonal Exit Strategy

Personal exit strategies are going to take a little different approach. Life events like death, illness, divorce, relocation, retirement, etc. are going to happen. If you are the owner of the organization, then start listing all of the potential situations that would impact your company. Write those specific plans down, and share them with the people that need to know – other owners, spouse, attorney, etc. The key is to let others know. If you spend your valuable time writing and developing an exit strategy, then the people that are carrying out need to know what the plan is and where to find it.

Valuation

The valuation process helps determine the economic the company. We all have some magic number that we would love to have once we sell our business, but is it realistic? Find out what your company is really worth well before you decide to sell. Listen to advisors and be realistic. I have had many entrepreneurs tell me their company is worth $X, just because that is what they want. After all, they did put their entire life into it. Well, just because you want $X, it does not mean you will ever sell it for $X. Remember, a sale actually takes place between a willing buyer and a willing seller. Understanding what your business is worth is not that difficult to do. Valuations also change considerably with time, markets, and the economy. So, timing your exit is critical.

Read about business valuation methods and purposes here.

Here are a few questions to ask when valuing your company:

Goal of Planning Your Exit Strategy

There is one major goal of planning your exit strategy: don’t leave any value on the table. If you are not ready to get out of the business now, then this is great opportunity to identify and address those destroyers of value that are taking money off the plate. Click here to access our free Top 10 Destroyers of Value whitepaper to prevent leaving any value on the table.

Planning Your Exit Strategy

Strategic CFO Lab Member Extra

Access your Exit Strategy Checklist Execution Plan in SCFO Lab. The step-by-step plan to get the most value out of your company when you sell.

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

Click here to learn more about SCFO Labs

Planning Your Exit Strategy

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Invest in Leadership Development

When you invest in leadership development, you are making an investment. It’s something that you pay good money for and expect a return on your investment. But what many leaders don’t realize is that leadership development should be strategic. We once had a coaching participant (CFO) who worked in a family company. Once the CEO retires, the CFO is set to become the CEO. Instead of going into the job blind or get coaching at the wrong time, this individual sought out coaching before he was set to take over the company. So, why invest in leadership development in the first place?

Invest in Leadership Development

Why Invest in Leadership Development

People will always be a good investment. Why? Because without people, you will not be able to accomplish all  of your goals for your company. There’s a phrase… The tone starts at the top or the fish rots from the head down. Whichever phrase you prefer, it hints at the same thing. Success (or failure) is a result of the leadership of a company. If you want a future for your company, then you need to focus on your leadership and management. You can accomplish this in 2 ways – 1) hire good leaders and 2) invest in leadership development for existing company leaders.

A legal entity should stand on its own no matter what changes are made at the top. There should always be a succession plan whereby management should be able to step up to executive roles. Without investing in your team, this will not happen.

The second option rides on the fact that you have already invested in a current employees with their compensation, benefits, etc. Now, it’s time to get them the coaching they need to further increase their value to your company.

 To learn more financial leadership skills, download the free 7 Habits of Highly Effective CFOs.

Reasons to Invest in Leadership Development

There are several reasons to invest in leadership development including improving profitability, retaining talent, and improving return on investment. Harvard’s research report on The State of Leadership Development discusses how leadership development addresses the “demands for change to address threats from global competition and technology-driven upstarts; the need to engage a multigenerational workforce with a range of work styles; and the imperative to cultivate a new generation of leaders who can meet these needs and thrive.” Simply put, companies need to address competition, culture, work styles, and generational differences to compete on a global scale.

Improve Profitability

If your leaders know how to improve profitability with the tools, resources, and second-hand experience from a leadership development program, then they will become evermore valuable to your firm. Leadership development will coach them how to make strategic decisions, how to lead effectively, and how to find opportunities. All of those benefits have the opportunity to improve profitability.

Day 2 of the Financial Leadership Workshop is all about improve profitability and cash flow. Click here to learn more, then contact us to register for the next series.

Retain Talent

In addition, companies cannot motivate all people by money. In fact, financial gain isn’t the only thing many employees negotiate. The next “gain” many negotiate for is mentorship, training, coaching, and further leadership development. That should tell you something. We all know the cost of turnover is high and can potentially make a dent in profitability. Your company’s goal should be to retain talent for as long as possible.

Improve Return on Investment

Many leadership development programs do not effectively communicate how they are going to improve return on investment. A good CFO or financial leader should be able to increase value 1-2% of sales in profits. For example, if a company has $1mm in sales, then a CFO should be able to increase profitability at least $10-20,000. And it goes up from there! If the investment is greater than 1-2% of sales, then I would advise you to find a different program. How much return can you expect from investing in your leaders? Financial leaders should always be looking at ways of adding value.

Financial Leadership Development

More specifically, your financial leadership needs to be further developed in their leadership skills. In our Financial Leadership Workshop, I enable my students to go beyond the role of CFO/CEO to become the central financial leader in the company. Furthermore, our curriculum empowers you to become both an influence and decision maker in your company.

Any financial leadership development program worth investing in should accomplish a couple things. It should make the shift from numbers cruncher to financial leader. It should also cover how technology changes the role. Obviously, it should address profits and cash flow. There are many other topics that I could list here, but you can read more about what you should be prepared to walk away from a coaching workshop here.

Finding the Right Financial Leadership Development Program

It all starts with who is coaching the program. For example, if a 26-year old with no financial executive experience began coaching financial leadership, then there would be no credibility or experience behind that program. In comparison, if the course is coached by a 28-year financial executive who is seasoned and experienced either in a niche market or a variety of markets, then the only thing you need to look for is the fit. Finding the right financial leadership development program begins with the curriculum. Does it coach on the topics you need to coached up on? If so, then you need to also evaluate the following:

  • Logistics (time, location, schedule, etc.)
  • Cost
  • Benefits
  • The Coach

Right now, registration is open for our Financial Leadership Workshop Gamma Series starting this October. Click here to learn more about our program and contact us to see if it’s the right fit for you.

In the meantime, I also wanted to gift you our 7 Habits of Highly Effective CFOs. This whitepaper is by far our most popular whitepaper and is just a snippet of what to expect in our Financial Leadership Workshop.

Invest in Leadership Development

Strategic CFO Lab Member Extra

Access your Flash Report Execution Plan in SCFO Lab. The step-by-step plan to manage your company before you prepare your financial statements.

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

Click here to learn more about SCFO Labs

Invest in Leadership Development

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