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Profit Power: Unlock the value of your business

August 21, 2015 -  By Jeffrey Scott

A few weeks ago I interviewed green industry acquisition expert Ron Edmonds for 60 minutes on the topic of “What is your business worth?” We had a lively debate! Here are nine insights from that conversation—and from my own investigations and experience—that will help you unlock the value of your business.

1. If you plan to retire or are even thinking about exit planning, don’t let your people take their foot off the pedal and downshift into a slow gear. You will lose momentum and thus value in the marketplace. Besides, you may decide to postpone transition, and then you’re left stalled in second gear.

2. Value is driven by two things: risk and EBIDTA (earnings before interest, taxes, depreciation and amortization). The less risk your company has, the higher value (multiple) it enjoys. Generally the market pays between two and four or five times the value of your EBITDA. You grow your multiplier by reducing risk in all the different areas of your business: people, contracts, customers, market niche, owner dependence, etc. Your job as CEO is to understand where all your risk is, and systematically work to reduce it.

3. Showing a financial track record with clean and clear financials is important to the buyer when it comes time to negotiate your sale. Yet you should always be ready to sell so if something comes up, you’re not caught off guard. What shape are your financials in?

4. Make sure each of your profit centers is making a good profit, holding its own and not supporting a weak division. Track it and manage it. Do you know the net profit of each division?

5. Training adds value in multiple ways. A track record of training shows a positive culture. When done right it adds to the efficiency of your people and the profitability of your firm. Plus, a training system helps support strong growth. Is your training reactive or proactive?

6. Treat your equipment as a profit center. Do you own equipment that’s losing you money? Do you buy equipment that makes money on the job but not on your P&L?

7. Put the owner’s market-based salary into overhead. Don’t confuse it with profit.

8. Drive out waste from your business now, and you’ll enjoy the fruits of your labor. Unbillable time is the single biggest area where companies have waste.

9. Is your company owner-centric or management-team centric? The former may temporarily drive short-term profit; the latter will drive value, discretionary time and long-term profit.

Reality check

If you had to sell your business this month, what five things would depress the value of your business? Identify them, prioritize and fix them this winter. My experience is that some of the following will be on your list:

• over-dependence on one client type;
• lack of incentives that drive your team to achieve above-average profits;
• the condition of your equipment and shop;
• owner’s over-involvement in key client relationships;
• dependence on a single superstar (including the owner); and
• lack of systems that allow you to change out foremen or salespeople without skipping a beat.

Jeffrey Scott and Ron Edmonds will present the Wealth Building Summit on Oct. 21 in Louisville, Ky., to guide owners step by step on how to unlocking the value and create more wealth now from their landscape business. Early bird discount ends soon.