All Buinesses Encounter Financial Challenges:
- After 30 years of building a family business, the owner’s health begins to fail.
- Three years into building a business, a young entrepreneur is stymied by why she is growing rapidly, but not achieving profitability.
- A large health insurer decides to divest a division, but finds a backlog of bank statements that their staff are not fully able to reconcile.
- An international textile company seeks ways to reduce their operating costs at U.S. facilities to avoid outsourcing to a lower quality plant overseas.
- A company in a mature industry seeks advice on both closing down a small division and assessing the future direction of the industry.
- A fast growing technology concern considers how best to time its exit strategy to maximize return for its private equity shareholders.
- A garden center seeks to open its second location.
- A weight-loss clinic decides it is time to franchise.
From writing an initial business plan to closing down a non-performing operation, businesses challenge their leaders at every turn. Challenges faced by the owners and senior executives frequently require consultation with an experienced business professional, especially in the area of finances. Beginning with a chart of accounts, it is difficult to design financial systems to produce timely, accurate, and meaningful information. Compounding this problem are reports in formats that make the data hard to interpret and understand. Business leaders are left making decisions based upon information that they don’t fully understand or, worse, consider erroneous. The right financial consultant at the right time can help insure the right result.
Meeting the Challenge
Clear, strong decision-making requires a thorough financial understanding of the current, past and projected future state of the business:
1st Diamond – Start-up
Do I really need a business plan? Yes, planning can help to get an understanding of the business opportunity. It also identifies specifically and financially the actions required to capture that opportunity. An overview, marketing, strategy, operations, and financial detail help bankers and investors decide whether to lend or invest.
2nd Diamond – Sales to Growth
How long until we pass break-even? The newer the business, the harder to tell, but projections can bracket the timeframe and updates to the projections can narrow the brackets.
How well can the business do? This can be answered by benchmarking with other comparable businesses.
Where is the business headed? Combining past results with projections of future activity can help with setting reasonable goals and expectations. Periodic monitoring and adjustments can insure that the business changes as circumstances change.
3rd Diamond – High Growth
What are the key drivers of profit? It is not unusual for a large portion of revenue to drive relatively little profit – the 80/20 rule frequently shows up as a small percentage of products or service offerings provide the bulk of the profit.
Are there opportunities where I can cut costs and improve margins? The cost of each product may not be well understood, making understanding gross margins difficult. High expenses may also be affecting profits.
For my sales presentation, can the savings to my customers be quantified? A sales presentation which shows tangible customer savings can make the difference in completing a sale.
4th Diamond – Mature Markets
What are my company’s financial strengths and weaknesses versus competition? In a mature market, the competition may be defined by a handful of competitors, or many competitors fighting for the same customers. In either case, differentiation is critical whether through low price, superior service, or better location. An independent assessment can improve your competitive posture.
How is a company best managed financially? That depends on the business phase the company is going through along with benchmarking with comparable businesses.
Am I ready to open a second location or franchise? Financial modelling can help create the prospective financials needed by bankers or investors.
5th Diamond – Declining Growth
Should we buy another business? Should we sell this business? What is its value? Valuing a business is an art, but combining the past 3 or more years of financial data with future projections inside of a discounted cash flow model can produce a dollar value. By comparing that with the desired sales price, a strategy can be developed as to what price range to offer or to accept.
Summary
Key financial decisions define a leader’s reputation and legacy. They require a combination of careful consideration, strong grasp of the facts, and experienced business judgement. Financial principles and lessons cut across industries and company size, making an experienced financial consultant a valued addition at these critical junctures. Buying a business, selling a business, downsizing, or going through exponential growth for the first time can keep a decision-maker up at night, but it can be different with the calm, guiding hand of an experienced financial consultant; an investment not only in peace of mind, but also in a profitable business decision.
When and Why to Use a 5 Diamonds Financial Consultant