by Greg Caruso | Jun 17, 2024 | Exit Planning Business Valuation & Growing Business Value
At the highest level, business value is simple. The formula is:
Business value = Forecast Future Cash Flow / Risk
In business valuation risk is the likelihood of achieving the forecasted cash flow in the future.
Risks come from many angles and chip away at profitability and value.
Here are a few risks, but certainly not all risks:
Payment Risk – Many businesses extend large amounts of credit and don’t always monitor changes in client credit risk over time. Manage accounts receivable and be careful with credit.
Interest Rate Risk – Everyone remembers this one now!
Liquidity Risk – Cash is like blood to your body. Even a profitable business can run out of cash. Manage cash daily or weekly depending on your balances.
Market Risk – It has been a good economy, so long leaders are forgetting about what a recession is really like. If you are in a cyclical industry review plans for when the party stops and sales drop by 20%, 40% or whatever happens in your industry.
Regulatory Risk – This can be a wildcard for many businesses and often understated until a problem arises.
Supply Chain Risk and HR Risk – These both were under-appreciated until Covid. Do you have alternatives if your key people leave, or primary supplier has problems?
Emerging Risks – It’s your guess about what is next. Review and do your best to get it right.
Appropriate risks should be reviewed and systems implemented at each level of your organization. For instance, in construction, weekly safety talks are given by many companies. These are most successful when the conversation goes two ways. Often staff will understand their day-to-day problems and risks better than management.
by Greg Caruso | May 16, 2024 | Exit Planning Business Valuation & Growing Business Value
In the fast-paced world of business, productivity is queen and king. Overall, improving productivity is not just about doing more work; it’s about working smarter, achieving better results, and creating value for all stakeholders involved—employees, customers, shareholders, and society at large.
Just a few of the many places improved Productivity will show up.
Adaptability and Resilience: In times of economic uncertainty or market volatility, businesses with high productivity are better equipped to weather challenges and adapt to changing conditions. They can pivot quickly, reallocate resources, and seize new opportunities, maintaining stability and resilience in the face of adversity.
Employee Engagement: When employees feel that their work is meaningful and their contributions are valued, they are more engaged and motivated. Improving productivity can create a positive work environment where employees feel empowered, supported, and recognized for their efforts.
Cost Efficiency: (Of course!) Increased productivity allows businesses to achieve more with fewer resources, which can lead to cost savings. By optimizing processes and reducing waste, organizations can improve their bottom line and profitability.
Investing in Productivity: A Smart Move
Boosting company productivity isn’t just about working harder; it’s about working smarter. Here are some ways to achieve this:
- Proactive Planning to anticipate growth. Analyze your current capacity and identify potential bottlenecks. Invest in additional resources like equipment, personnel, or training programs in advance.
- Prioritization and Scaling by focusing on core tasks that directly impact sales and customer satisfaction. Consider outsourcing non-critical functions to free up internal resources.
- Invest in the right tools and technologies to streamline workflows and automate tasks.
- Prioritize employee well-being through flexible work arrangements and a positive company culture to reduce stress and burnout.
- Implement clear communication channels to ensure everyone is informed and aligned with goals.
- Track key performance indicators (KPIs) to identify areas for improvement and measure the impact of productivity initiatives on conversion rates.
A productive company is an efficient company. By focusing on employee well-being, streamlined processes, and clear communication, you can unlock the hidden multiplier of productivity and watch your company results and business value soar.
by Greg Caruso | Aug 4, 2023 | ESOP Business Valuation
Join Gregory Caruso at The ESOP Association Multistate Regional Conference 2023 in September as he presents “Your ESOP Valuation: More Than Just a Number” with co-presenter Sarah von Helfenstein. Certainly, the value found is the key of any business valuation, but valuations also contain so much other information that is useful to management and trustees. Learn from an experienced former small business owner and ESOP valuator what attributes should be compared and analyzed to use your business valuation not just for the number, but as a management tool. In this session, we will dive deep into the intricacies of ESOP valuation, moving beyond the surface-level numbers to uncover the key elements that provide a valuation appraiser and more importantly, management and trustees insight into a company’s value. This is an important topic for all ESOP trustees, plan administrators and employee-owners. It can become a management tool for trustees and management and allow employee stock owners to participate more fully in the success of their company. Internal and third-party Trustees will learn what to look for and how to better assess a value conclusion provided by a valuation appraiser.
Register for the Conference here.
by Greg Caruso | Jul 13, 2023 | Exit Planning Business Valuation & Growing Business Value
Cutting expenses can potentially increase the value of a company, but it depends on the specific circumstances and the approach taken to reduce expenses. Here are some factors to consider:
- Impact on profitability
Reducing expenses can improve profitability, which is a key driver of a company’s value. However, if the expense cuts negatively impact revenue or customer satisfaction, the overall effect on profitability may be minimal or negative.
- Quality of expense cuts
Simply cutting expenses without considering the impact on the business can be counterproductive. Effective expense reduction requires careful analysis of each expense category, prioritizing areas that have the least impact on the business and identifying opportunities for cost savings and efficiency gains.
- Impact on employees
Expense cuts may require reducing employee compensation, benefits, or headcount. This can negatively impact employee morale, productivity, and retention, which can have long-term negative effects on the business.
- Industry and competitive context
Expense cuts should be evaluated in the context of the industry and competitive landscape. For example, if competitors are investing heavily in research and development, cutting R&D expenses may put the company at a disadvantage.
- Long-term vs. short-term impact
Expense cuts may have a short-term positive impact on profitability, but if they limit the company’s ability to invest in growth opportunities, the long-term impact on value may be negative.
Overall, cutting expenses can potentially increase the value of a company if it is done in a strategic and thoughtful manner that considers the impact on profitability, employees, industry and competitive context, and long-term growth opportunities. However, expense cuts alone are not a guarantee of increased value, and should be part of a broader strategy to drive growth and profitability.
by Greg Caruso | Apr 28, 2023 | ESOP Business Valuation
Recently, the Department of Labor (DOL) committed to a regulatory process to develop new guidelines for ESOP valuations https://www.nceo.org/employee-ownership-blog/dol-commits-regulatory-process-esop-valuation-guidelines. This development has important implications for ESOP trustees who are responsible for ensuring that valuations are conducted properly and in compliance with DOL regulations.
Key Takeaway 1: The DOL is committed to ensuring that ESOP valuations are conducted properly.
This is good news for ESOP trustees who are responsible for ensuring that valuations are accurate and in compliance with DOL regulations. It’s important for trustees to stay up to date with any new guidelines that are issued so that they can continue to fulfill their fiduciary responsibilities and ensure that plan participants are receiving accurate valuations of their ESOP holdings.
Key Takeaway 2: New guidelines could provide more clarity and consistency in ESOP valuations.
One potential benefit of new ESOP valuation guidelines is that they could provide more clarity and consistency in how valuations are conducted. This could make it easier for ESOP trustees to select qualified, independent appraisers and ensure that valuations are conducted in compliance with DOL regulations. More clarity and consistency could also make it easier for plan participants to understand the value of their ESOP holdings and make informed decisions about their retirement planning.
Key Takeaway 3: ESOP trustees must continue to be vigilant in ensuring compliance with DOL regulations.
While new ESOP valuation guidelines could provide more clarity and consistency, it’s important for ESOP trustees to remember that they are ultimately responsible for ensuring compliance with DOL regulations. Trustees must continue to be vigilant in selecting qualified, independent appraisers, ensuring that valuations are conducted properly, and fulfilling their fiduciary responsibilities to plan participants. Any new guidelines issued by the DOL should be seen as a tool to help trustees fulfill these responsibilities, rather than a replacement for their ongoing diligence and oversight.
Additional thoughts:
New DOL regulations could potentially benefit ESOP owners if they were designed to provide more clarity and guidance around certain aspects of ESOPs. For example, the DOL could provide more guidance on the selection and responsibilities of independent appraisers, which could help ensure that ESOP valuations are more accurate and consistent.
The DOL could also provide more guidance on how ESOP trustees can fulfill their fiduciary responsibilities, which could help prevent conflicts of interest and ensure that plan participants are receiving the best possible management of their ESOP.
Another area where additional DOL regulations could be beneficial is in providing more flexibility for ESOPs. ESOPs can be a powerful tool for business owners looking to transition ownership of their companies to their employees, but the current regulations can be complex and restrictive. Additional regulations that allow for more flexibility in how ESOPs are structured and managed could make them more attractive to business owners and potentially lead to more widespread adoption of this retirement plan option.
It’s important to note, however, that any new regulations should be carefully considered and designed to balance the needs of plan participants with the needs of business owners and the broader economy.
