Blog

Feb 15

Drive up Value

Posted by Peter Marmara-Stewart at Wednesday, February 15, 2017

Will this be the year you seriously drive up the value of your Company?

If you have resolved to make your company more valuable in 2017, you may want to think hard about how your customers pay.

If you have a transaction business model where customers pay once for what they buy, expect your Company’s value to be a single-digit multiple of your Earnings Before Interest Taxes, Depreciation and Amortization (EBITDA).

If you have a recurring revenue model, by contrast, where customers subscribe and pay on an ongoing basis, you can expect your valuation to be a multiple of your revenue.

Breedlove & Associates sells for 6X Revenue

In 1992, Stephanie Breedlove started a Payroll Company to make it easier for parents to pay their Nannies on a recurring basis. It began small and Breedlove self-funded her growth, which averaged 20% per year.

By 2012, Breedlove & Associates had hit $9 million in annual sales when Breedlove accepted an offer from Care.com of $55 million for her business—representing an astronomical multiple of more than six times Breedlove’s revenue.

Buyers pay up for Companies with recurring revenue because they can clearly see how your Company will make money long after you hit the exit.

Not sure how to create recurring revenue? Here are five models to consider:

Products That Run Out

If you have a product that people run out of, consider offering it on subscription. The retailing giant Target sells subscriptions to diapers for busy parents who don’t have the time (or interest) in running to the store to re-stock on Pampers. Dollar Shave Club, which was recently acquired by Unilever for five times revenue, sells razor blades on subscription. The Honest Company sells dish detergent and safe household cleaning products to environmentally conscious consumers and more than 80% of their sales come from subscriptions.

Membership Websites

If you are a Consultant and offer specialised advice, consider whether Customers might pay access to a Premium Membership website where you offer your know-how to subscribers only. Today there are membership websites for people who want to know about anything from Search Engine Marketing to running a restaurant.

Services Contracts

If you bill by the hour or the project, consider moving to a fixed monthly fee for your service. That’s what the marketing agency GoBrandGo! has done to steady cash flow and create a more predictable service business.

Piggyback Services

Ask yourself what your “one-off” Customers buy, after they buy what you sell. For example, if you make a Company a new website, chances are they are going to need somewhere to host their site. While your initial website design may be a one-off service, you could offer to host it for your customer on subscription. If you offer interior design, chances are your customers are going to want to keep their home looking like the day you presented your design, so they might be in the market for a regular cleaning service.

Rentals

If you offer something expensive that customers only need occasionally, consider renting access to it for those who subscribe. ZipCar subscribers can have access to a car when they need it without forking over the cash to buy a hunk of steel. WeWork subscribers can have access to the company’s co-working space without buying a building or committing to a long-term lease.

You don’t have to be a Software Company to create Customers who pay you automatically each month. There is simply no faster way to improve the value of your Business this year than to add some recurring revenue.

Feb 09

One Hidden Thing That Drives Your Business Value

Posted by Peter Marmara-Stewart at Thursday, February 09, 2017

You already know that your business turnover and profits play a big role in how much your business is worth.

Do you also know the role cash flow plays in your valuation?

Cash vs. Profits

Cash flow is different from profits in that it measures the cash coming in and out of your business rather than an accounting “magic” of your profit and loss. For example, if you charge $10,000 upfront for a service that takes you three months to deliver, you will be recognising only $3,333 in revenue for 3 months.

But since you charged upfront, you get all $10,000 of cash on the day your customer decides to buy (go you!). This positive cash flow cycle improves your business valuation because when it comes the time to sell your business, the buyer will have to write two cheques: one to you, the owner, and a second to your company to fund its working capital – the cash your company needs to fund its immediate obligations like payroll, rent, etc.

The trick is that both cheques are drawn from the same bank account. So if you are receiving cash in advance, the requirement for working capital is reduced, which means more for you.

Unfortunately, the inverse is also true.

If your business is a cash suck, an acquirer is going to calculate that they need to inject on closing day, which depletes their resources and results in less for you.

How To Improve Your Cash Flow

There are many ways to improve your cash flow – and therefore, the value of your business. One often overlooked tactic is to spend less on the machines your business needs to operate.

In the restaurant business, for example, there is an often repeated truism that it takes three bankruptcies at a single location before any restaurant can make money. The first owner of the restaurant walks in and – with all of the typical optimism of a new entrepreneur – pays cash for a brand new commercial kitchen complete with fancy stove, commercial grade walk-in coolers, etc., as well as all new dishware, pots and pans, thus depleting their cash reserves before opening night. Within a year, the restaurant owner runs out of cash and declares bankruptcy.

Then along comes a second entrepreneur who decides to set up their restaurant at the same location and buys all of the shiny new equipment from owner number one’s creditors for 70 cents on the dollar, figuring they made a wonderful deal. But the outlay of cash is still too great and they too are out of business within a year.

It’s not until the third owner comes along that the location actually survives. They save cash by buying all of the equipment off the second owner for 10 cents on the dollar.

The moral of the story is: find a way to reduce the cash you spend on equipment, however you can. Can you buy your gear used on sites like eBay? Can you share a very expensive piece of machinery with another non-competitive business? Can you rent instead of buying?

Profits are an important factor in your business value but so too is the cash your company generates. We call this phenomenon, The Valuation Seesaw and it is one of the eight key drivers of the value of your business.

Feb 01

5 Ways To Get Your Business To Run Without You

Posted by Peter Marmara-Stewart at Wednesday, February 01, 2017

Some owners focus on growing their profits, while others are obsessed with sales goals. Have you ever considered making it your primary goal to set up your business so that it can thrive and grow without you?

A business not dependent on its owner is the ultimate asset to own. It allows you complete control over your time, so that you can choose the projects you get involved in and the vacations you take. When it comes to getting out, a business independent of its owner is worth a lot more than an owner-dependent company.

Here are five ways to set up your business so that it can succeed without you:

1. Give Them A Stake In The Outcome

Jack Stack, the author of The Great Game of Business and A Stake In The Outcome wrote the book on creating an ownership culture inside your company: you are transparent about your financial results and you allow employees to participate in your financial success. This results in employees who act like owners when you’re not around.

2. Get Them To Walk In Your Shoes

If you’re not quite comfortable opening up the books to your employees, consider a simple management technique where you respond to every question your staff brings to you with the same answer, “If you owned the company, what would you do?” By forcing your employees to walk in your shoes, you get them thinking about their question as you would, and it builds the habit of starting to think like an owner. Pretty soon, employees are able to solve their own problems.

3. Vet Your Offerings

Identify the products and services which require your personal involvement in either making, delivering or selling them. Make a list of everything you sell, and score each on a scale of 0 to 10 on how easy they are to teach an employee to handle. Assign a 10 to offerings that are easy to teach to employees and give a lower score to anything that requires your personal attention. Commit to stop selling the lowest scoring product or service on your list. Repeat this exercise every quarter.

4. Create Automatic Customers

Are you the company’s best salesperson? If so, you will need to fire yourself as your company’s rainmaker in order to get it to run without you. One way to do this is to create a recurring revenue business model where customers buy from you automatically. Consider creating a service contract with your customers that offers to fulfill one of their ongoing needs on a regular basis.

5. Write An Instruction Manual For Your Business

Finally, make sure your company comes with instructions included. Write an employee manual or what MBA-types called Standard Operating Procedures (SOPs). These are a set of rules that employees can follow for repetitive tasks in your company. This will ensure employees have a rulebook which they can refer to when you’re not around, and, when an employee leaves, you can quickly swap them out with a replacement to take on duties of the job.

You proofing your business has enormous benefits. It will allow you to create a company and have a life. Your business will be free to scale up because it is no longer dependent on you, its bottleneck. Best of all, it will be worth a lot more to a buyer whenever you are ready to sell.

Jan 25

Is it okay to ask for help?

Posted by Peter Marmara-Stewart at Wednesday, January 25, 2017

We are a few weeks into the new year, and old and potentially bad habits may have already come back to you. How are you going with your goals?

There is nothing wrong with calling for help. In fact, this is one of the best ways to making sure you do achieve your goals.

The American Society of Training and Development (ASTD) did a study on accountability and have put together the following statistics:

The probability of completing a goal if:
 You have an idea or a goal: 10%
 You consciously decide you will do it: 25%
 You decide when you will do it: 40%
 You plan how you will do it: 50%
 You commit to someone you will do it: 65%
 You have a specific accountability appointment with a person you’ve committed to: 95%

So, here you can see that just having a goal is not enough. As we have previously stated, it is important to plan on how you will do it, and when you will be doing it; but the biggest thing that improves the chances of success is committing to someone and being accountable to them.

Now that you know this, what are you going to do to achieve your goals?

If you have some business and financial goals you want to achieve, and you need help, please do not hesitate to contact us. We have some great accountability programs for business and personal goals.

Jan 18

How are you going with your goals in the New Year?

Posted by Peter Marmara-Stewart at Wednesday, January 18, 2017

We are a bit over two weeks in now which means that, according to Statistic Brain, almost a third of people who made New Year resolutions have already failed. As stated in our previous blast, achieving goals require planning. So I hope that by the second week, you have finalised the plans that you will need to achieve them.

If you need some help achieving your goals, make sure you find the right people to assist you. Also remember that it is important to find someone that will keep you accountable.

http://www.statisticbrain.com/new-years-resolution-statistics/

Jan 11

We are back!

Posted by Peter Marmara-Stewart at Wednesday, January 11, 2017

We are back and it is time to hit the ground running by making sure we are prepared for the year ahead.

I hope that everyone is enjoying their summer and that everyone had a great time over Christmas and New Year. I know, for me, it was a great time to recharge and get some things done around the house.

The way we are starting this new year is by reviewing our plans for the year. We started planning in November but we will finalise and confirm our plans when we get back in January. By doing this, we come in with fresh thoughts against what is already proposed. It is like a test to our plans.

During our process, we will be doing the following:

- Checking what are the issues in our plans.
- How will we be achieving our goals?
- Are our goals still relevant?
- Making necessary amendments to our plans.
- Cementing in our course of action for the year.

So, some questions for you:

How did you go about planning your 2017?

Did you make any New Year Resolutions?

If you did, were they SMART?

Do you have an accountability partner to help you with them?


Remember that it is important to make plans because failing to plan is planning to fail.

Sep 16

Photo Board Notice

Posted by Peter Marmara-Stewart at Friday, September 16, 2016

As you already know, our goal here at Preston Coe & Ring is to help you achieve the following:

- "Living for today, saving for tomorrow and protecting in between"

We would like to create a photo board for our office with various photos of our team and of our clients “living for today”, in celebration of the things that we all love to do and have achieved so far on this journey we are experiencing together.

Examples of photos that could be included are:-

1. You and/or your family on a favourite holiday
2. Things that you like to do most to relax (sit on the beach/read a good book)
3. Recreation activities (favourite sport to play or attend)
4. Awesome photos you have taken yourself with landscapes or on adventures

Please note that your privacy will be protected and no personal information will be attached to the photo.

If you would like further information or would like to contribute, please let us know.

We look forward to hearing from you soon.

Sep 14

Property Types to Avoid

Posted by Peter Marmara-Stewart at Wednesday, September 14, 2016

By Renee Kiley of Property Way

There are so many different types of properties that selecting one can be very confusing, and mixed messages from arm chair experts can make it all the more difficult. There are however some specific property types I suggest you avoid altogether as they are simply a very bad choice or are very high risk investments. My advice is not only based on my personal opinion, Australia’s biggest Banks also have concerns with the majority of the below property types and will restrict lending levels on them. I always say that if the Banks are wary and don’t want to lend on a particular property type you should steer clear as they have access to far more property and mortgage related data than we do!

One of the key things to remember is, just because a property has good cash flow it doesn’t mean it’s a good investment, the whole point of investing is to achieve capital growth, cash flow just allows you to hold onto the property whilst it grows in value for you.

Here is my list:

Mining towns – Some of Australia’s most highly volatile and controversial property markets. These towns rely heavily on both investors and the mining industry and property markets can literally collapse overnight when a mine shuts or scales down. Mining towns do not have diverse economies to prop up their property markets. Examples are areas like Emerald and Roma in QLD and Port Hedland in WA.

Department of Defence Housing (DHA) – Yes they seem attractive on the surface with long leases and generally no ongoing maintenance costs however they have huge management expenses, generally need to offered up for sale to defence housing to sell first instead of the open market and are only located in areas that require housing for defence personnel, which may not necessarily be the best place to invest in.

Student Accommodation – Most banks have a limit on the size of a property before they will lend on it. This is about 45m2 for a one bedroom apartment. Student accommodation is often much smaller than this so bank financing is terribly difficult. Not to mention the fact that these properties only appeal to a certain (small) segment of the market, often have complex lease arrangements attached and cannot be occupied by anyone other than a student.

Serviced Apartments – With these properties, an operator is engaged to look after the building and manage the property. So you are reliant on them and cannot change companies as the management rights form part of the ownership. The management fees are also very high which can dilute what often looks like great cash flow, they have an extremely limited resale market and rely on tourism and strong economic conditions to drive occupancies.

Large “Off the plan” Projects – At Property Way; we generally don’t approve projects with any more than 50 apartments in the development (any more than this would require a very, very convincing reason). The majority of our projects have only up to 15 or 30 apartments. As projects get bigger, resale and capital growth prospects get worse as there are so many other similar properties in the same building that can drag values down. Not to mention that the land content (the component of the property that actually grows in value) is very low. Banks also restrict their lending in large developments for fear of over-exposing themselves in a particular building.

A Property With Title Issues – This only affects a very small percentage of properties however making a mistake here can be extremely costly. Part of your solicitors role is to check the Title for the property and let you know if there are any covenants, easements, overlays or outdated title structures that could restrict you from selling or making changes to the property in the future. Some examples of this might be apartments with Company Share Title (banks will restrict their lending on these properties) or a Heritage overlay on a house which might mean you must renovate or improve the property in accordance with heritage conditions; this can add tens, sometimes hundreds of thousands of dollars to the cost of a renovation or addition to the property.

You can probably see a recurring theme here, the best types of properties are those that will appeal to both an investor and an owner occupier, so don’t limit yourself to a small segment of the market by purchasing one of these property types, it’s just not worth the risk.

Jul 20

Age & Service Pension Client Review

Posted by Peter Marmara-Stewart at Wednesday, July 20, 2016

As you may be aware, there will be changes to the Age and/or Service Pension assets test that will take effect from the 1st of January 2017. Evidently, a person’s Age and/or Service Pension entitlement is based on an assets and an income test. The test that results in the lesser amount of pension is the test that is applied.

In the 2015 budget the government announced a major change to the assets test which will take effect from the 1st of January 2017. The change will see an increase in the current lower thresholds – which will result in an increased pension entitlement for some people.

Currently – once a person’s assessable assets exceed the lower threshold, their age pension reduces by $1.50 per fortnight for every $1000 of assets above the threshold. From January 2017, this ‘taper rate’ will increase from $1.50 per fortnight to $3.00 per fortnight for every $1000 of assets above the threshold. This will result in a substantial number of pensioners suffering a reduction in their Age or Service Pension.

The following table provides a brief outline of the current lower and upper thresholds in comparison to the future thresholds after the 1st of January 2017.


*The future upper thresholds are based on the current rates of pension.

Depending on your personal circumstances if you believe your assets (excluding your home) are in excess of the current threshold as per this table – we strongly urge you to review your situation before the end of the year. There are certain things you can do that may help to preserve your pension entitlement.

If you would like to discuss your current and future Age or Service Pension position, and the options that may be available to you, please contact our office to make an appointment.

Jul 11

Phone Scam Scums

Posted by Peter Marmara-Stewart at Monday, July 11, 2016

Another phone call was received recently from one of the scammers by one of our staff, and it was then recorded by the answering machine.

To have better awareness of their methods and spiels, we have shared below an audio sample for your information:

Audio re Tax Scam

If ever you receive any calls such as this one, please do not entertain or give out any personal information to these scammers and report accordingly to the proper authorities. Be careful of who you give out your details to, and do not be afraid to ask questions about their identities. Most importantly, know your rights and listen to your guts. Be aware, be vigilant. Don't be a victim.
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