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Empirical research indicates that public companies are often valued as much as 5 times higher than "comparable" private companies. Much of that value disparity is available to private companies if they simply know how to capture it. Best of all, the methods are easier, more impactful, and more sustainable than purely trying to grow sales or margins alone.
By being proactive with a road-mapping process, business owners have better opportunities for long-term sustainable, profitable, growth through more manageable methods with greater margins, reduced cost of capital, and greater appeal to outside investors. By beginning this process 2-5 years before a contemplated sale of the business, owners can realize increased profits along the way and an enormously larger valuation on closing day when they do sell their business.
Unfortunately, most private business owners never come close to maximizing the value of their businesses purely because they aren't aware of the many factors that drive business value in the eyes of potential investors or acquirers. Emerge Dynamics can recognize why many business owners never realize their business's full potential and can guide them through this process.
Our primary tool, the Value Opportunity Profile, provides a cost-effective way to identify, prioritize, and implement initiatives that can increase business value by 80-100%, independent of revenue and earnings growth, over a 2-5 year period.
Through a comprehensive assessment covering 50 categories and linking results to a calculation of value, our firm, along with your senior management team, can customize an implementation plan with advanced visibility of impact on total value.
The start up phase is an exciting time for a business and its founders. Not many things are more satisfying in life than seeing a dream come to fruition.
Unfortunately 80% of new companies fail in the first 2 years. And 80% of the survivors fail within the first 5 years. Ugh! Terrible odds. Is this a reason to put away your dreams and work for someone else your entire life? No!
It turns out that most of the businesses that fail in the beginning were failures on day one. The founders just didn't know it. They hadn't taken the time to formalize their strategy, core competencies, competitive advantage, or unique place in the market. They also hadn't worked through forecast financials and pricing models in order to make sure that their very good idea was also a very good business opportunity. If these founders had only taken the time in the beginning to properly plan their venture, they could have tweaked (or overhauled if needed) their model and greatly improved their chances of achieving their dreams instead of burning through large amounts of their and their family's savings.
We differentiate ourselves from other strategic and financial advisors by developing a deep understanding of your company's purpose from the very beginning of our relationship. Clarity of purpose illuminates best paths for our services to solve your challenges. We can then align your core competencies to create a powerful, competitive market advantage. Our unique approach to what others might see as mundane calculation or analysis tasks allows us to help you unlock value far beyond your competition.
While the owners of companies in decline with whom we work often readily agree that cash flow forecasts and metrics need to be monitored on a regular basis, those who have rapidly growing companies often abhor sitting still long enough to watch their numbers. These same people are also often baffled when they face a cash crisis even though the company sales are improving. One of our favorite Harvard Business Review articles, "A Small Business is Not a Little Big Business," helps explain what is happening. Even for an owner/operator who isn't a numbers person, an understanding of working capital is critical to running any business. Profits are not the same as cash flow, and often for a small growing business these two items move in opposite directions.
A regular review of key metrics is pivotal for correcting parts of the business that have gone awry before they lead to a cash crisis. Standard financial items, such as days sales, days payable, days inventory, fixed asset turnover, inventory turnover, gross margins per line of business, revenue per employee, and EBITDA margin should all be monitored closely by every company. Monitoring operating metrics on a regular basis is also important. They are often leading indicators of financial metrics, which are often leading indicators of a cash crisis. Operating metrics are custom to each particular business and industry. For example, if your business is affected by the weather, a "revenue per good weather day" metric can be key to understanding if the weather is the culprit behind reduced sales as opposed to an internal problem. Or, if your key sales people conduct introductory meetings with potential clients, a conversion rate for each sales person along with mutually agreed upon goals should constantly be at your fingertips.
What is the lower-middle market? Although ranges vary by source, many define the lower-middle market as those companies with revenues between $5 million and $50 million. These companies represent more than 95% of the companies in the middle market and a large percentage of the businesses in the United States. We at Emerge Dynamics believe that, because of their unique place in the market, these companies represent the largest opportunity in the economy for growth and prosperity.
Most of the companies Emerge Dynamics works with are between $2 million and $20 million in revenue. Some have been a little smaller, and some a little larger. A common theme among the companies we work with is the passion of the entrepreneurs and founders. Often, however, these companies either have hit a plateau or are growing themselves out of cash because of a lack of working capital. Their founders have not yet put into place the formal operating procedures, financial reporting systems, team-member goals, and strategy maturation to transform their companies from moderately successful small businesses to rising stars.
We often see that the market has already accepted the company's product or service, and with adjustments to the company's operations and systems, numerous inefficiencies can be wrung out. This translates to increased growth potential, numerous created or saved jobs, and more cash for the company's owners.
Business decline happens, but is often avoidable. Decline can occur because of both Internal Factors and External Factors (and a detailed assessment of each should constantly be on management's radar). Most experts agree, however, that somewhere between 65% and 100% of failures are attributable to internal problems.
Business failures are often multiple years in the making, and the ability to recognize early warning signs of decline is critical to preventing decline from turning into distress.
1. Leading indicators can be identified by a careful trend analysis of several Key Performance Indicators (KPIs) of the company's health.
2. Lagging indicators, such as financial statements, are excellent sources to help managers understand what problems have already begun to occur in a business. While financial statements tell the story of the past instead of the future, they still hold value as they can alert management to small problems before they become big problems. A review of financial statements on an annual or even a quarterly basis is too infrequent. Weekly reviews toward monthly milestones are appropriate for most small- and medium-sized businesses, while those in distress may need to pursue daily goals.
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Emerge Dynamics, LLC
Mailing Address: P.O. Box 24667, New Orleans, LA 70184