episode 42 – amplify the value of your business through trust

August 1, 2016

When someone like Jeff Lacy says that the single most important aspect a business owner should remember when it comes to creating, and then sustaining, business value is to start with the end in mind, you listen – and for good reason. As a former business owner with “more than 30 years in business development, building and leading sales and operations teams and identifying the most critical gaps slowing sales growth and implementing the strategies,” Jeff now serves as an area president for FocusCFO, an Ohio-based professional CFO services practice. These days he works to help others grow and sustain their businesses. This week on episode 42 of unsuitable on Rea Radio, Jeff joins Mark to talk why a business’s true value matters and what business owners can do to maximize that value. Complete with real-world examples and words of warning – this episode is certain to be valuable to listeners in all stages of their entrepreneurial careers.

Are you ready to look beyond the day-to-day demands of payroll, minor challenges and the tendency to be overly focused on sales as a cure-all solution? Then this episode is for you! When this show ends you will be ready to set aside some time each week to contemplate the big picture – which is essential for securing meaningful business growth. In addition to recommending a variety of solutions capable of moving the needle, Jeff discusses why the true value of your business matters so much and why business owners should know the true value of their business as early as possible.

Finally, Jeff touches on overlooked measures of value that are oftentimes overlooked by owners and subpar valuation professionals. According to Jeff, solid relationships with vendors and clients, for example, can amplify the goodwill of any organization; thus directly impacting the company’s overall value. Jeff argues that real value is found within the trust that exists between the business and people – not just in the business’s products or services. Once you have identified your business’s true value, you can identify a plan that will not only work, but will work efficiently and effectively.

get the book

Know & Grow | Tim McDaniel | Book for Sale

How much is your business worth? How much do you need it to be worth to support your retirement? If you don’t know your business’s value – its real value – your retirement may be in jeopardy. If you knew what your business was worth today, what would you do differently to increase its value and leave your business on your terms?

If you don’t know the current value of your business or what steps you can take to increase it, Know and Grow The Value of Your Business: An Owners Guide to Retiring Rich, is a great place to start. Through the pages of this book author Tim McDaniel will guide you to help you realize that your business is an investment – an asset that needs to be regularly nurtured and protected. Know and Grow The Value of Your Business is designed to help you realize that you need to exit your business on your own terms.

Learn more about the book here and purchase your copy on Amazon!

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Mark:	Welcome to unsuitable on Rea Radio, the award-winning financial services and business advisory show that challenges your old-school business practices and the traditional business and culture. On this show, you’ll hear from industry professionals who’ll challenge you to think beyond the suit and tie, while offering you meaningful, modern solutions to help you enhance your company’s growth. I’m your host Mark Van Benschoten.
	We’ve talked before about how important it is to have a realistic view of your business’ value long before it’s time to sell it, so you can live that retirement of your dreams. It’s all about maximizing the value of your business, but how do you do that? What exactly should you do today to drive real results tomorrow? That’s where today’s guest comes in. Jeff Lacey, who is an area president of FocusCFO, an Ohio-based professional CFO services practice, will talk about what it means to maximize your business’ value and will get you started in the right direction with some real-world examples proven to yield real results. Welcome to unsuitable, Jeff.
Jeff:	Thanks, Mark.
Mark:	Really glad that you’re here. Before we get started, one question for you. Is there something that you think about today that you learned when you were at Lima Shawnee? It doesn’t have to be anything thought-provoking, anything business-related.
Jeff:	How important relationships are. I think back to my days at Lima Shawnee. Some of the relationships that I developed there are still very important to me today and that’s what I give the most thought to.
Mark:	It’s funny you bring that up, because I also think about my times at Saugerties High School in relationships, because I married my high school sweetheart. That’s right there in my face every day, appropriately. We’re going to talk about business value and maximizing value and things that you can do today in anticipation of maximizing that in retirement. We’ve known each other for a while, and I know that you had a business that you sold. I hope you can tell us about that experience and also some things you’ve learned afterwards.
Jeff:	Sure.
Mark:	To get started, since I’m a negative guy, is there one thing you did wrong in the process that you wish you could do over again? You had your business. You monetized it and now you’re living retirement.
Jeff:	Yeah. I really had I had it to do over again. I would have started the very first day with the end in mind.
Mark:	That’s a great piece of advice. A lot of people don’t have that perspective.
Jeff:	Yes, but I’ve thought about it a lot and I do believe when we start something, a business, a lot of times you just don’t give a lot of thought to what it’s going to be like five years, or ten years, or even fifteen years down the road. Thinking back on it, I would have started with the end in mind and created my strategy from there.
Mark:	I think as an entrepreneur, a small business owner, you start that business, you’re probably more worried about making payroll on Friday than a liquidating event in 30 or 40 years.
Jeff:	That’s right. Payroll is always on your mind, every single month. The other thing that typically was front of mind was just sales. When we started the business, that’s what we focused on. Our answer to basically every situation we ran into was go sell more.
Mark:	Your statement there, you wish you would have thought about the end in mind more, is it carving out an hour a day, a certain amount of time a month to think about that? Obviously, you need the sales, you need the sales growth, you need the profitable sales, so how would you have inserted what you wish you would have done? How would you have inserted that?
Jeff:	Well, I believe that you make the time to contemplate and think big picture. I feel that running the business every single day, it was just what was in front of me that day. Knowing what I know now, as I’ve gotten older as well and matured, it’s important to take some time to reflect and think big picture. Had I had it to do over again, I would have made time to do that, at least on a weekly basis.
Mark:	Would you have done that by yourself? Would you have had an advisor, a confidant?
Jeff:	Yes and yes. I would have done it by myself, but most definitely, I would have worked with advisors. I now have the luxury of being on a friend of mine’s advisory board for his company that he’s started, and I really see the value of that. That’s not anything that I did, at least formally, and I certainly would have done that, because I believe the input that I would have gotten from that type of group would have really given me the opportunity to think more “big picture.”
Mark:	It’s not completely forgetting about the sales and the increase in sales, it’s carving some time out saying, “I need to focus long-term, what I want to accomplish,” and still having your sales focus. You probably wouldn’t have gotten any less sales. It’s like that amoeba that will consume the desk, however big the desk is. You probably would have gotten the same amount of sales, but you would have had some time to focus on the long-term objectives.
Jeff:	Yeah. I think of it now in terms of … In my own retirement planning, my financial plans, I do have a strategy. I do have a goal. I sometimes wonder why I didn’t have that same foresight to do that with my business.
Mark:	It comes with perspective. None of us are perfect. Some people think they are. I won’t mention any names. That was the one thing you wish you had done. What’s one thing you step back and said, “Wow! I did that really, really right?”
Jeff:	We did really develop a good team of advisors over the years. I actually talk to a lot of people today that when we’re talking about business, and that’s one of the main things that I say is develop a good team. I really feel that I had strong legal counsel, I had strong accounting counsel, I had a CFO. Everybody on my team, I could really count on and I did count on. I think that’s really important.
Mark:	That’s great. Not to recap, because we’ve got a lot more time, so we wish we had spent more time thinking long-term. How do I get out of this? What’s the monetizing event? Not going to work here forever, but we did well by having a group of advisors and having a team there.
Jeff:	I actually wish I would have met with them more often as well, more consistent, more meetings. Seeing the value of that now, I really think that I could have utilized and taken advantage of it even more than I did.
Mark:	I see sometimes in business, organizations have good years. Maybe leading up to it, things might have been a little lean, so there’s a little cash, a little equity in the business. People say, “Well, I’m going to take that out.” Somehow they rationalize it, justify it. “I didn’t get a raise the last two years. I want to buy a new boat,” whatever, instead of leaving it in the company, and I struggle with that, because you really hurt the value of your business. Any thoughts on that?
Jeff:	Yeah. It became important to me as we developed the business that we really understood the cash that we needed to sustain ourselves. As I mentioned, I had some really good advisors. One of those advisors was a CFO. By implementing projections and being able to look outward, we were able to, with more confidence, determine the amount of money that we could take out. Not to say we were always 100 percent right, but by completing projections and those types of things, we felt confident that the money we took out of the business, we could afford to take.
Mark:	I like your use of the word confident, because I think people today don’t have that confidence and they lament over decisions. They miss opportunities or internal stress. I think as we get older, just having the savvy to say, “Here’s my decision. There’s risk. We’re going to go forward with it.” Letting that lay. You can’t take it back. That would be one thing I’d like for people to do, is to be a little more confident in their decision-making. Vet through the process, whatever your process is, and then march on. Don’t look back, start pulling your hair out.
Jeff:	I think the decision-making, certainly part of it, is gut feel. I think it is important to listen to your gut, but the other piece of decision-making is the information that you have that allows you to make better decisions. The advisors and the group of people that we work with in our businesses are helping us get that information so we can make better decisions and feel good about it.
Mark:	You’ve said several times how important a good CFO is, and I can’t stress enough how businesses do well when they hire on a new CFO.
Jeff:	I’ll give you one specific example, and I talk about this a lot. When we first started to work with our CFO, we had never used cash-flow projections before. That changed my business life to be able to look at the business and really be able to say, “Thirty days from now, I’m going to have this much cash.” Sixty days, or even as much as a year out, I had a sense of what my cash was going to look like. It really gave me a much more comforting feeling about the business.
Mark:	Getting back to that confidence we were talking about. You say cash-flow projections. I think some listeners might be intimidated by that. “Oh, I can’t do that. That’s too sophisticated for me. It’s going to cost a lot of money.” To me, it’s just very, very simple. It doesn’t need to be anything more than what it is. How much cash are you going to have a month, six months, whatever it needs to be?
Jeff:	It is very simple. I never really even knew what I was missing until I actually had the information. From that point on, it was something that we needed and we counted on every single month to be able to plan our business and the expenses that we were going to incur down the road.
Mark:	Wouldn’t you rather know today that you might have a problem in two months than have it hit you upside the face seven weeks from now?
Jeff:	Yes. We had a company of just under 50 employees and I really felt a strong responsibility to those employees, so I really looked upon it as myself, as I needed to do my due diligence to make sure that I could provide for them as well.
Mark:	That’s probably why you had a very successful company. Thinking about it that way, not like, “How much money could I take out? I want to buy that boat, take that vacation,” but it’s your responsibility to make sure that the organization is going to be around, going to be sustainable, not going to be strapped for cash. That’s probably another reason why you had such a successful company.
Jeff:	I think it’s certainly part of it.
Mark:	We talked about an introduction of business value and we’ve had Tim McDaniel on talking about business valuation services, but sometimes I see people say, “Well, I need $2 million, so that has to be the value of my business.” Obviously, that’s completely wrong. Do you see that attitude still existing?
Jeff:	I don’t know that I necessarily see that. I see more people don’t really think or know the value of their business and I would put myself into that category as I went through my business journey. I didn’t really understand the formula that went into business valuation, so I think I overestimated, in some cases, what the value was. That’s what I tend to see out today in the business owners that I talk to is really an overestimation of what that value is. I think I fell into that category too.
Mark:	Do you think that’s driven by … They hear multiples on CNBC. It’s selling at six multiple of “ebidah,” so they go through and they calculate “ebidah” and they times it by six. They think, “Well, that’s the value of my company.”
Jeff:	I do. I do believe that to be the case, because in a lot of conversations, even about my own business, someone may ask me, “Did you get five times?” or “Did you get three times?” I think that’s kind of a common theme out there, is some multiple. It seems to me a lot of people think the number is five. It could be anything, but I do think that it’s really important to understand what that formula is and what drives it. Then you can affect it.
Mark:	As Tim has pointed out, there’s other non-financial things that drive that value. One of the things that resonates from talking to Tim is workplace in force, a stable workplace in force, and how somebody will pay more for a business with a stable workplace in force than one that that’s not. There are other things that you think of, in what I might call non-financial, that have an impact on value that somebody can focus on?
Jeff:	Before I go there, I would like to comment on the workplace or workforce. That’s one of the things that I’m very proud of in our business, is that we were able to maintain our management staff and our key employment staff for a very long time, almost the full term that we owned the business. I really feel that that is absolute key, so I think that had a lot to do with value, but the other thing that I feel is important is the relationships, the business relationships that we developed. I already mentioned about the relationships I had with my advisory team, but also the relationships I had with my vendors and with my clients.
Mark:	Do you think that drove value?
Jeff:	I do. I do because I believe a lot of it had do with the goodwill. I didn’t know it at the time, necessarily, but looking back on it, I really do feel that it drove value, because those relationships with our clients, especially when we sold our business, those relationships really were very important. As we transitioned to another company and sold a different product, they actually stayed with us for the long haul. That told me over time that they felt comfortable with us as people, more so than the product that we sold.
Mark:	That’s very interesting, and I agree with you. I’ve never thought about it. Always people talk about workplace in force, but it’s also the relationship with your vendors and your customers, making sure that those are solidified. I can definitely see how that would increase value.
Jeff:	I believe it’s the trust factor. I believe it’s the customers that trust us as their provider, plus the vendors that trust us and our employees that trust us. I think over time, that’s a huge intangible that doesn’t get looked at, but I think it was really important for us.
Mark:	Very thought-provoking there. Do you think it’s more important for current cash flow or to generate long-term value?
Jeff:	I think you need the current cash flow to generate the long-term value. I think it’s important always to be looking longer-term to figure out how you can sustain it and grow it. I think you need it in the current situation to even be able to get from here to there. I think, from our perspective, we were always trying to look for ways to sustain it and grow it over a period of time through other resources, other products, other services that we could sell to our clients.
Mark:	I agree with you. I guess that was almost a trick question, trying to get you there. I think you need to generate current cash flow and that will, if done appropriately, generate long-term value.
Jeff:	Yes.
Mark:	People get tripped up. They think it’s one or the other. I think it’s both, they kind of work together.
Jeff:	I agree with that, too.
Mark:	Do you think that business owners, this is speculation on your part, do you think they’re more in tune to this today than 15 years ago, 20 years ago? Do you think if Jeff Lacey was selling his business today, do you think Jeff Lacey would have been more knowledgeable today than he was when he liquidated his business?
Jeff:	That’s a hard question for me, because we do have a lot more information out there about business value and maximizing business value. It’s kind of my sense, though, as I talk to different people that I don’t know that they necessarily have taken the time to learn about it and consider it. I think over 15 years, it’s probably greater and better than it was then, but I don’t know if it’s to the extent that we think it could be.
Mark:	I agree with you. I think it’s still emotional for people and they’re not looking at the facts. As you say, look at the formula, what drives value, what doesn’t. They’re not being honest with themselves. Even though there’s more accessibility to information and to advisors, people probably aren’t taking advantage of it as they should.
Jeff:	It’s my sense that there not really thinking about it. I fell into that category. I didn’t really think about it, but life happens, and life can happen quickly and changes can occur. You may be thinking, “I’m not going to sell this business for whatever or ever or for a period of time, and then something changes in life that dictates the need to do that. Then you sit there and you wish that you would have considered it.
Mark:	Sure. Recapping, you wish you’d spent more time long-term planning, thinking about how you get out of the business. You really liked how you used your advisors, very proud of the relationships, not just internally, but externally to vendors and to consumers. We all could do more with the information that’s available, educating ourselves in this process, and as you stated, when you’re going to get asked, “Nothing lasts forever,” much like this podcast. Before we wrap up, there’s a question we ask every guest. If you could have one superpower, what would it be?
Jeff:	To always live in the present.
Mark:	That’s very thought-provoking.
Jeff:	I work on that. I think that if I can take today and do the best I can do today, the tomorrows will take care of themselves.
Mark:	Sure. I agree with you. I tell people I have very few regrets. Not that I haven’t made my share of mistakes, but there’s only so much I can do about those and try to be in the present also. I think that’s great advice. Thanks again for joining us on unsuitable, Jeff, and thank you to our listeners for tuning in. If you want to learn more ways to maximize your business’ value, we’ve included some great resources on our website to help you along. Just visit www.reacpa.com/podcast and click on the more resources link within the episode’s synopsis. I also want to encourage you to subscribe to unsuitable on iTunes or SoundCloud and never miss an episode again. Until next time, I’m Mark Van Benschoten for unsuitable on Rea Radio, encouraging you to loosen up your tie and think outside the box.