FTG Financial

Customers and Competitive Advantage

wpadmin — Wed, 11 Jan 2012 21:11:45 +0000

Today’s Value blog is about why your customers buy from you. Can knowing why they buy from you add value to your business? Knowing why our customers buy from us is the first step in developing our competitive advantage. Investopedia says that “Competitive advantages give a company an edge over its rivals and an ability to generate greater value for the firm and its shareholders.” While the statement is true on its face, shareholder returns is not the place to search for competitive advantage. Developing a deep understanding of why customers buy our product or service is the foundation for developing and maintaining a competitive advantage. One of my customers said that there competitive advantage was the quality of their service. Their marketing materials focused on service and their sales people often referred to how quickly and efficiently they were able to process orders. When we sent out a detailed survey, and visited their largest clients we got a very different picture. The most important things to their customers were extended hours, and secondly, having a real person answer the phone and make sure they were handed off to a real person and not someone’s voice mail. Order processing time was relatively unimportant. The company quickly revamped their marketing materials, web site and advertising to capitalize on this new knowledge. Furthermore, they extended their hours by two additional hours each day and made sure they had back-up so no one would go to voicemail. In the past 18 months their growth rate has accelerated from 15% to over 25% and continues to improve. This certainly has added value by increasing sales and profits. It has also raised the bar for their competitors by increasing the cost to compete. This is also attractive to potential investors, partners and buyers as the company is better able to defend its base and take share aware from other competitors. The additional costs have been more than overcome by the additional sales and profits. To learn more about competitive advantages please call us at 203.298.4137, or email questions to info@ftgfinancial.com

Buyers Value People

wpadmin — Wed, 11 Jan 2012 21:09:52 +0000

Today’s Value blog is about how people affect a buyers perspective on value. People often ask me what the most important aspect of a company is to a potential buyer. The answer, regardless of the type of buyer-financial, strategic, or person buying a job, is the same. The most important issue to all buyers is the people. A financial buyer wants to know if the people in place have the skill, talent, and capability of increasing their success, particularly if more resources are made available. They do not want to make substantial people changes and will only buy if they believe in the people. So for a financial buyer not having good people means the company is worth nothing to them. A strategic buyer, while often looking to improve efficiency, is looking for talent to fill their own gaps, as well as a culture and spirit that will fit in and be successful in their environment. For a strategic buyer leadership, a few key players and a spirit of flexibility and teamwork can result in value that is more than twice what a financial buyer might pay. For a smaller situation where someone is looking to purchase a job, they want to know if the people will stay, support the customers in transition, and help the new owner adapt to the change of leadership. The value is in the people, and until the people issues make sense, money is not even discussed. If you would like to know more about how outsiders view the value of people, please call us at 203.298.4137 or email questions to info@ftgfinancial.com

Decision-making and Value

wpadmin — Wed, 11 Jan 2012 21:07:53 +0000

Today’s Value Blog is about how Lenders, investors and buyers view the decision making systems in a company. Each have a different perspective on decision making in companies they are looking at. Lenders are generally risk averse people, and are quite happy with owner control. If things have been going reasonably well, they are very satisfied with the owner ruling with an iron fist. Their perspective is that if past cash flow has been adequate to pay the requested loan, and the owner has achieved that cash flow with a dictatorial style, then it should be easy to maintain the same level of operations. They do not need to see creativity, new products or services, innovation, or substantial growth. In fact, they are happier if things are nice and steady. Investors want to see that owners have command of their company and industry, but are also looking for management back-up and creativity. Generally, an investor wants growth to accelerate and is looking for a management team that compliments each other making the “whole” greater than the “sum of its parts.” They are looking for a decisive team that considers issues broadly rather than just a single mover whose sudden departure or absence could lead to real problems. Buyers want to see an effective, sustainable system that responds quickly to day-to-day needs, but also can react to emergencies and opportunities. Decision making styles are carefully vetted as this is a key driver of culture and buyers want to see how the acquisition might fit in with their culture. To learn more about decision-making and value please call us at 203.298.4137, or email questions to info@ftgfinancial.com.

Cash Flow Management and Planning

wpadmin — Wed, 11 Jan 2012 20:56:54 +0000

Today’s Value blog is about how cash flow management and planning affects buyers, investors, partners and lenders value assessment of your company. We are not just talking about looking at yesterdays bank balance and deposits to see which of the bills that are teed up will get sent out today. We are talking about understanding the cash cycle, that is how assets, income and expenses flow through the income statement and balance sheet. Many companies are breakeven or profitable, but struggle with cash to pay bills. This is due to the fact that cash not only goes in and out of the business, but while it is in the business it gets used for inventory, work in process, accounts receivable, as well as other short term assets. It may eventually finds its way back to cash, but it hides for periods of time in those other areas often leaving the business wondering why there is never enough cash around. This tendency for cash to be something else happens in both product and service companies, and may be tied up for a few days to several months. Understanding how cash flows through both the income statement and balance sheet means that it is possible to look ahead weeks or even months to where cash is likely to be on any given day. This enables management to plan for cash needs on the horizon or prepare investment programs when cash appears to be in excess of the planned needs. It also means when management is talking to capital sources that they have a firm handle on their needs and can demonstrate both how the money will be used and how much is needed. This will result in not taking on excess funds and the costs both financially and in increased ownership that goes with the excess funds. It also means that as a seller you can demonstrate cash flow and provide strong support for your asking price, which will mean less downward negotiation by the buyer. If you would like to know more about cash flow planning, please call us at 1.203.298.4137, or email questions to info@ftgfinancial.com