28 Mar The “4 Letter Word” You Can Use to Increase the Value of Your Business

Wouldn’t it be great to have a magic slot machine? Imagine what it would be like if, each time you pulled the arm, you made more than you bet. How much time would you spend cranking that arm?

You can gamble on a lot of things when it comes to the value of your business, but only one strategy has a virtually guaranteed return. Most companies are valued on a multiple of earnings before interest, taxes, depreciation, and amortization (EBITDA). As a result, every extra dollar of profit you earn in the short term will translate into a winning spin down the road.

When someone is interested in acquiring your business, they will want to look at three years worth of your financial reporting. Every extra dollar of profit you can generate will make a significant impact on the offer you receive if you are considering an ownership transition in the next thirty-six months.

Derek Morin and His P.U.R.E Method

Derek Morin, the founder of Tabarnapp, which creates after-market sales applications for Shopify website owners, was obsessed with finding every dollar of profit available.

When his partner, who handled the finances, left the company, Morin was forced to look closely at his profit & loss (P&L) statement. As Morin saw potential areas for improvement, he made notes in the margin next to each line item he wanted to change.

To save time, he started using a single letter beside each entry to represent the action he
wanted to take:

P stood for “Plus”, something profitable that he wanted to grow.
U stood for “Unnecessary”, an expense he could eliminate.
R stood for “Replaceable”, a cost that could be replaced with a better or cheaper option.
E stood for “Equal” and was used for items that should be left untouched.

Morin realized his shorthand notes could be organized into a memorable acronym he referred
to as “PURE.”

Morin treated the PURE method like a game. Every month he scoured his P&L with the same four-letter system. He then challenged his team to act on each item that needed improvement. He became obsessed with squeezing out a few more dollars of profit every month. His game worked.

In 2020 Morin bought out his business partner in a deal that valued the company at around $400,000. Two years later, after applying the PURE methodology of improving profitability, Morin sold Tabarnapp in an agreement that netted him a roughly tenfold increase in the value of his business.

The Downside of Using Your Company’s Bank Account As a Slush Fund

Treating your company like your piggy bank can have a negative effect when you are ready to sell. Co-mingling personal and business expenses and letting other costs go unchecked may help you reduce taxes in the short term but could end up costing you more in lost value in the long run.

To prevent this from happening, keep your P&L “PURE”. That way, you’ll increase your chances of hitting the jackpot when it’s time to sell your business.

24 Feb 3 Ways to Create a Culture of Ownership Inside Your Business

There are a lot of factors that determine a company’s value. Arguably, the most important is the answer to the question “how would my business perform without me?”.

You need your employees to make an owner-like effort every day for your company to thrive when you’re not around. The best way to do this is to create a vibrant culture of ownership inside your business.

Three ways to get your employees to care as much as you do:

1. Cast Your Employees as the Stars of a “David vs. Goliath” Movie

In 2008 Gavin Hammar started Sendible, a platform that allows companies to manage all their social media accounts from one place. Sendible grew steadily until 2016, when a large competitor entered the space, resulting in a sales plateau. Hammar gathered his employees and explained the challenge they were facing.

Instead of sugarcoating the issue, Hammar encouraged his team to think of themselves as underdogs in an “us-against-the-world” battle. Hammar then went to work positioning his company as a smaller, more personal option. He started a podcast, shared photos of his employees online, and answered customer questions via asynchronous video, and sent personalized LinkedIn messages to every new customer.

With an enemy to battle every day, Hammar’s employees followed his example and gave extra effort to humanize themselves and the company. As a result, Sendible started to grow again. By 2021 the company was flourishing, which is when Hammar accepted a lucrative acquisition offer from ASG.

2. Provide Perks Others Can’t or Won’t

Another way to create a thriving culture is to offer perks your competitors can’t or won’t. Natalie and Chris Nagele are the power team behind the software as a service (SaaS) company Postmark. Unlike most hard-driving software executives, the Nageles were committed to creating a great place to work.

Rather than take on outside investment and the corresponding pressures of demanding investors, the couple decided to self-fund their business. Obsessed with helping her employees do more meaningful work, Natalie began researching ways to inspire her staff. She came across data from the Henley Business School suggesting that implementing a four-day workweek created a healthier workplace culture.

Inspired by Natalie’s findings, the Nageles considered implementing a four-day workweek. They didn’t need the permission of their board or outside investors, because the couple owned the company outright. After a short discussion, the couple decided to try it.

Transitioning to a three-day weekend created a culture in which their employees enjoyed working, resulting in consistent growth for Postmark until 2022, when the Nageles sold the company in a life-changing exit.

3. Gamify Your Business

You can also inspire your employees to give owner-like effort by gamifying your business. Josh Davis founded the freight brokering company Speedee Transport. Brokering freight is all about gross margin – the difference between what you charge the customer and how much it costs to hire a driver to move the stuff.

Rather than simply telling his employees to focus on gross margin, Davis made a game of it. He created quoting software with a virtual gross margin scoreboard for his employees.

The software gave each employee a very public, objective, and transparent scoreboard they could follow to determine whether they won or lost that day. Davis then tied his employees’ compensation to gross margin, which created a healthy competitive culture within the company.

After gamifying his business, the company saw tremendous growth. Within two years, Speedee Transport grew from two to forty-five employees. This rapid expansion caught the attention of an acquirer, who offered to purchase Speedee Transport for a truckload in 2019.

Recap

One of the secrets to building a valuable company is to get your employees to work as hard as you do. Owner-like effort comes from making your people feel like part of a shared mission and giving them a working environment that brings out the best in them.

19 Dec Who’s Your Biggest Critic?

This month, we are sharing another blog post from Eric Knam with The Business Acceleration Team. Eric is a certified business coach providing business help, advice, and mentoring services to small and medium-sized businesses. We’ve watched many of our business colleagues move from working IN their business to working ON their business, enjoying the perks of being the boss as a result of partnering with Eric.

Keep reading to learn more about who is your biggest critic!

Who is Your Biggest Critic? | The Business Acceleration Team

The Benefits of Positive Self-Talk