Kitchen & Bath Design News

JAN 2018

Kitchen & Bath Design News is the industry's leading business, design and product resource for the kitchen and bath trade.

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Olan began his presentations by stressing, "There is a rich vein of gold in your financial re- ports. The information you need is always there – you just have to know how to see it." Financial statements are a digital health report that "explain the quality of your decisions and activities over time," he continued. The balance sheet is a snapshot of the health of a company since its inception. "The status of a company is expressed in terms of assets and liabilities, with assets equaling liabili- ties plus equity," he explained. "Assets are the thing the business controls or owns, while liabilities are the company's financial debt or obligations that arise during the course of its business operations." Olan urged business owners to start with a clear definition of the business model to create a strategic plan. "What are your business objectives and, for each objective, what are your strategies to achieve them?" he queried. "You're laying out an understanding of what you'll need to succeed. Those insights become the seeds of your funding strategy." To plan properly, a three-year capital growth plan should be put into place. "Expenses may start out higher than revenues, but the key will be the crossover point, and whether you have enough capital to reach that crossover point," Olan stressed. Why plan for three years instead of just one, he questioned? "Planning for a longer term forces you to think strategically vs. simply tactically. You need to think of your enterprise as a long-term body of work. If you want to get ahead, think ahead." FINANCIAL OUTLOOKS Once a business owner has established a business and spent years nurturing its growth, the question turns to what the business is worth, and when to divest. Paul Hajek tackled this subject in his presentation, "What's Behind a Business Valuation." In addition to the statistics mentioned at the beginning of this article, Hajek noted that, of the baby boomer business owners, 66% are not familiar with all exit options; 83% have no written transition plan; 49% have done no long- term planning; 40% have no exit plan, and 56% have little idea what their company is worth. And, once the transition is made, many are unhappy with their decision. "Twelve months after selling, three out of four business owners surveyed profoundly regretted the decision," of- fered Hajek. "They don't know what to do with themselves after the sale, and they are unhappy about someone else controlling their legacy." Another reason to plan ahead, according to Hajek: 80% of businesses valued at less than $50 million on the market don't sell. Mergers and acquisitions professionals believe that most business owners are not prepared for a transfer, and an overwhelming majority note that busi- ness owners have unrealistic expectations of what their companies are worth. When selling a business is being considered, Hajek recommended taking a closer look at finan- cial statements and segregating non-operating assets and liabilities – all the things found on the balance statement that are not needed to run the business. In addition, the value of the business can be determined using the company history, forecast and industry/economy research to project future cash flows, among other things. A knowl- edgeable buyer will review the company's past performance, future performance, the business model and its risks, and alternative investments. The things a seller should ponder when plan- ning an exit strategy are: financial independence, the value of the company, estimated departure date and legacy. SELLING THE CONCEPT Mark Hunter, CSP and author of High-Profit Prospecting, was tasked with convincing the assembled that "Profit Isn't a Dirty Word." Hunter provided tips on running a successful company, noting that properly trained and happy employees are key, as well as doing business hon- estly and being a leader in the community. But attracting the right customer base and treating that customer base appropriately is the crux of success. "If you fail to sell with integrity, you get clients who lack integrity," he stated. He stressed that, often, salespeople are not firm on price because they don't believe in it themselves, and "it's our own mindset that keeps us from raising our prices." He added, "People want the best when it comes to a remodel, so why are we afraid of profit? When we charge a little more, the customers perceive more value." He acknowledged that there are some people who are cheap, and "cheap people hurt you. You can't take a Wal-Mart customer and make them a Nordstrom customer." He urged attendees to get rid of cheap customers because they weigh the business down. STRATEGIC PLANNING A strategic plan explains the "how" a business will achieve its vision and mission, according to Kevin O'Neill, found- ing partner, Accelerant Growth Principles LLC in Anniston, AL, who tackled the subject of devel- oping a strategic plan. "A strategic plan defines the goals and objectives of the business and its organization. It establishes key strategic initia- tives, milestones and timelines for achieving a business' goal." O'Neill believes that strategic planning should be updated every two to three years, while the vision, mission and values of a business should be reviewed every three to five years. Key strategic initiatives for a company in- clude systems and technology solutions; vendor partnerships; showroom and office facilities; financial and operational goals; staffing and training resources; sales pipeline development, and market development. "The mission is the reason and purpose for your business, and your mission statement lays the foundation for employees to know what the company is doing and where it's going," he ex- plained. The vision statement is a future-based description of the organization's purpose and aspirations as the mission is accomplished; it is what the organization will become, he added. "And value statements are the principles and ethics of an organization, and guide the organi- zation's behavior as a whole and individually." Since kitchen and bath dealers do not manufacture product and rather are a complex service provider, having sound service and the right employees in place are key elements to success. "You're not selling products…you're selling yourself, you're selling your employees, you're selling the experience," he reported. Because of this, he believes "recruiting, train- ing, motivating, compensating and retaining top personnel will be among the owner's most impactful responsibilities." A TOP 10 FAILURE LIST Why do businesses fail? Dan Luck, education manager, The SEN Design Group and owner of Bella Domicile in Madison, WI, offered his top 10 reasons: #10. Location: Luck noted that his own busi- ness was originally located next to a gravel pit. A change in location, along with name change and business direction, led to success. #9. Out of control growth: Businesses can be ruined by over expansion. Sometimes less is more. #8. Lack of a succession plan: Business owners need a clear understanding of where their business is going and how they're going to get there. #7. Lack of cash cushion: Having enough liquidity to survive rainy days is key, as well as a good line of credit. #6. Failing to change with the times in a changing or declining market: Those com- panies that don't change and adapt could be looking at a failure situation. #5. Operational mediocrity: Those that have the ability to execute their great ideas are ahead. #4. Operational inefficiencies: It's important to have a three-year profit plan, but it should be reverse engineered. #3. Dysfunctional management: A lack of focus, vision and planning can lead to failure. #2. Poor accounting: Businesses should be using accrual accounting so that decisions can be made based on the company's current financial state. #1. Owner's ego: Don't be overconfident when making decisions. Partner with peers and outside resources. Luck added, "Remember, companies do not plan to fail, they just fail to plan." ▪ PAUL HAJEK KEVIN O'NEILL MARK HUNTER, CSP DAN LUCK January 2018 • 87

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