Baseball season is in full swing, so it's a good time to remember how great hitters get to the Hall of Fame. I t's the same process you should use to focus on revenue enhancement, a fancy term for "get more sales". There are some Simple Metrics to Measure Your Success Most…
A good hitter knows he has to get more hits to be great. A great hitter knows she has to get more at bats to get to the Hall of Fame. W hat are the key metrics that will help you drive that achievement? What could be easier than to focus on top line growth? There is probably no clearer metric to…
Magicians are pretty amazing, aren’t they? They do stuff right in front of our eyes … we’re on the edge of our seats … expecting the unexpected … and even then we have no idea how they just did what they did. Somehow, he gets you to look one way…
New metrics to Define Financial Performance?
In the tumult surrounding the 3D maelstrom (Debt Ceiling, Downgrading and Deficit) of several weeks ago, you may have missed another chilling corporate finance update on the relentless pursuit of performance metrics that extol the sunshine while you’re in the heart of darkness. Yes, there may be some economic value for certain of these metrics, but they’re dangerous barometers of realizable value and highly misleading as to future achievements of tangible operating profits and free cash flow.
Most of us recall the “eyeball counting” that preceded the Dot-Com-Bomb and those certain “Signs of the Apocalypse”, as when your cab driver is telling you what stocks you should buy. (more…)
“Financial Adrenaline” is a term we love around here because it reflects our commitment to help you turbocharge your business with practical tips and techniques to improve free cash flow, the lifeblood of business. As a further extension of our Financial Adrenaline program, we’re going to share a new Business Finance Tip every Wednesday specifically for those business executives who don’t have a finance background. Our current Big River series started with We’re Making Money. Why are we broke? … then No Cash? Can we borrow what we need?, What if our loan collateral doesn’t cut it? and the need for outside investors.
Last week, we began our conversation about business valuation. We continue that discussion today with a valuable chart that will help you understand some of the key valuation principles.
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“Can anybody remember when the times were not hard and money not scarce?”
~ Ralph Waldo Emerson
John Wilson, CEO of Ace Business Stuff, has been working diligently with his controller, Tom Sampson, to assess his financing needs. They may require an equity investor as he suspects that his controller’s right that bank financing may be insufficient.
“Hi Lary,” John said when he got Lary Blogger on the phone again.
“We’re almost finished with our forecast, but it still looks like we’ll need some equity. I’d like to explore what you said about strategic buyers and financial buyers and see the diagram you mentioned.”
“John, this diagram is only meant as a general overview of some key valuation concepts,” I said when I visited with John at his office a few days later. “It should help you better understand certain key concepts which underlie the valuation of an ownership interest in your company.
“At the top is the Strategic Buyer. In short, he’s looking for more than a simple financial return. (more…)
John Wilson, CEO of Ace Business Stuff, was thinking about several of the issues that he discussed earlier that day with his controller, Tom Sampson, and what Tom told him:
“Giving our customers an additional 30 days to pay, relaxing collections and neglecting the sale of inventory already on hand, isn’t a very sound strategy.”
Instinctively, he knew that Tom was right and that whatever bank loan they could obtain, it wouldn’t be enough.
Ted Deepockets, his long-time friend, had periodically needled John about the pros and cons of outside investors. He always seemed like he’d be interested in investing if the opportunity was presented. (more…)
Tom Sampson, the controller for Ace Business Stuff, was in his office considering how to explain to John Wilson, the Company’s CEO, the issues related to the Company’s borrowing capacity and the weaknesses in the Company’s Balance Sheet.
Tom pulled together several schedules for his meeting with his CEO that afternoon, but was still struggling with how to get across some of the subtleties that he knew John would want to understand.
Tom knew that his CEO was absolutely committed to the Company’s success, although he became very frustrated when his convictions about future performance collided with the bank’s concerns about current performance.
Tom knew that the bank considered many factors when judging an asset-based loan.
Having enough collateral to support the Company’s borrowing request was only part of it.
One key ingredient is the quality of the collateral. (more…)
“John, are you ready for our meeting? We said yesterday that we were going to meet to go over our financial projections and review a possible bank proposal.”
“I’ll be right there, Tom,” John Wilson, company CEO said to his controller.
John reflected on their conversation last week about the Company’s expected negative cash flow and the need to borrow from their bank, most of which resulted from giving extended terms to their customers.
John learned his lesson and wanted to avoid borrowing, but Tom had been pretty explicit about the need.
“John, I’ve gone over our short term cash needs again,” Tom said after they gathered in the conference room and were looking at some numbers on the overhead projector.
“I’ve created a simple example on the screen with all the numbers shown in thousands, which you can see in Figure 1 – Borrowing Availability, below. (more…)
“We’re broke,” Tom mumbled to himself. Tom Sampson is the controller of Ace Business Stuff and was reviewing his latest calculations about their cash flow.
“What do you mean, we’re broke?” Tom looked up sheepishly to see John Wilson standing in his doorway. He fingered his collar and turned to address the company’s CEO. “We can’t be broke because business has never been better,” John said. (more…)