THE LUMIERE BLOG
Getting Your Financial House In Order - 5 Things You Must Do Now
About The Author - Randy Katz is a Cofounder of Synesis Advisors, a San Francisco based firm that works with clients in marketing, selling and purchasing privately held businesses that are traditionally underserved by investment banks.
In a business sale, the hardest barrier for the seller to overcome is often the ability to let go after 20/30/40 years in business. I’ve seen many more instances of Seller’s remorse than Buyer’s remorse in my handling of M&A. Yet even though business is humming and you’re ready to move on, the business may not be ready to be shown in the best light.
Just as you would stage a house for sale, a business should be staged. I’m not referring to cleaning the office when a potential buyer comes for a meeting (though you should do that too), but rather being able to show the true profitability of your operation. The more explanation it takes for a buyer to understand your financials and the higher amount of adjustments it takes to normalize your income, the higher probability that a buyer will discount your valuation. Think of it this way….if I don’t understand your financials or don’t believe an adjustment that you are making, I will perceive the endeavor as riskier. If I am willing to accept the risk, I will require a higher rate of return; hence offer a lower price.
Below are common issues that I consistently see when analyzing financials, though this list is certainly not comprehensive.
Multiple businesses units or locations with consolidated financials:
I have seen a number of scenarios where a business owner has several franchises, multiple retail locations, multiple business divisions, or even disparate businesses all under one tax return and P&L.This is problematic when you are only selling one location, division, or franchise unit. Oftentimes, the revenue of each component is broken out, but the expenses are all lumped together. This makes it difficult to impossible to identify what percent of gross profit and cash flow is generated from each component of the business. If a buyer is unclear of the economics of what they are purchasing, it will be difficult to come up with an appropriate valuation and get through due diligence. Additionally, banks will have a difficult time underwriting loans, meaning sellers will likely receive less cash up front in their deal. In these instances, the minimum a seller should do is create separate P&Ls that are representative of the independent entities and divisions, noting how shared corporate overhead expenses are allocated. Depending on which issue above you’re solving, multiple business entities and tax returns should also be considered.
Not taking end of year inventory
Businesses with a large number of SKUs or several hundred thousand dollars in inventory know the pain. It’s difficult to close the business for the day or assign the team with the mundane task of counting everything in the warehouse. The problem arises that you lose the ability to accurately calculate your Cost of Goods Sold (COGS). Let’s suppose that you finished the year with $200,000 more inventory than you started. It’s normal for a business owner to use their purchases as the COGS number, but in this instance, you have overstated your COGS by $200,000 and understated your income by the same amount. Additionally, there is a higher likelihood that your COGS as a percentage of sales will swing. These false swings will cause confusions regarding both your pricing power and the strength of your vendor relationships. It also makes it difficult for both the business owner and buyer to understand the amount of working capital needed to operate the business. For business owners who don’t want to spend the time, there are inventory counting services who can handle your inventory counts for you.
Reclassifying expense items
It’s not uncommon to change CPA’s, bookkeepers, or decide on one’s own that one line item may be better classified somewhere else. I’ve seen scenarios where variable cost field labor is considered a cost of goods sold one year and included in salaries and wages in future years. One’s CPA can be classified under professional services or accounting. You may break out worker’s comp insurance as a separate line item from your liability insurance in one return and consolidate them as a single insurance line item the following year. Any one reclassification can usually be easily explained and is not cause for concern. However, multiple changes year after year may ultimately require the hiring of a forensic accountant to unwind the confusion, which can be costly. Additionally, multiple changes will raise a red flag. Consider what a buyer will think…if you don’t pay attention to managing one of the most important aspects of your business, what else are you failing to pay attention to?
Personal expenses run through business
It’s a common saying with a wink and a nod… “I have certain benefits as a business owner in addition to my income.” While tax avoidance or deferral are legitimate methods to reduce ones tax liability and improve cash flow, tax evasion is another story. Personal expenses such as one’s Mercedes lease, travel and entertainment expenses, or child on the payroll that does not work in the business, may all seem like easy things to explain to a buyer. However, consider what a buyer will think when you begin the discussion about how your personal expenses will go away once they own the business…. “You’re okay being dishonest with the IRS when it benefits you financially. Now, you’re asking me to take your word for something when we’re entering into a negotiation that will benefit you financially.” In addition to the concern this brings to the buyer, banks that are often the source of capital for business transactions will usually not give you credit for these types of expenses. This could create a situation where the price is lowered or you are asked to carry a larger promissory note. For my normal disclaimer, please recognize that there are times you can have the best of both worlds. You may be able to justify financial adjustments that benefit your taxes in the short run and your sale in the long run. However, there are many instances that you may save 30 cents on the dollar in the near term, only to give up $3 for every dollar of incremental profit on the backend. Make sure you are working with your CPA and M&A advisor to understand which category your discretionary items fall into.
Lack of a Balance Sheet
Just because your P&L shows net income, it does not mean that you are making money. That’s right, your balance sheet tells a story too. For example, your business is on cash accounting, meaning that you recognize income when the cash is received. You have $500,000 in accounts receivable that should have been paid in December 2013. However, the client did not pay you until February 2014. During 2014, your business truly operated at a loss of $250,000, however when you add in $500,000 of cash received, it appears you made $250,000. Let’s consider a scenario that makes your financials look worse on the surface….you have a huge tax bill coming, so you pre-pay expenses for the following year. In that instance, the business will look less profitable than it should. These types of items can only be seen and understood when you keep an accurate balance sheet.
Remember that buyers are typically looking at 3 years of financial statements, as are the banks who are lending money. When you’re thinking about going to market, give yourself three years to get your financial house in order.
8 Inbound Marketing Hacks Your B2B Company Should Be Using
Kristen Deyo of Business 2 Community, a business resource site where professionals can establish thought leadership, increase exposure for their business/organization, and network with others.
"The B2B marketing landscape has changed dramatically over the past few years. Digitalization has taken the B2B journey online and empowered buyers to self-educate and collaborate with their peers before ever speaking to a sales or marketing person. This shift has put increased pressure on B2B marketers to execute a strategy focused on demand generation and growing the lead pool."
5 Most Used Call To Actions On The Internet
Jefri Yonata of Bread N Beyond a visual design firm that provides animation and video production for Lumiere Clients put together an infographic that describes the most commonly used, and most effective, CTAs, including examples and notes on how they're specifically used.
"The process that those companies have gone through in convincing you to use their products is meticulous. There are many contents, emails, pictures, and videos involved in building a marketing funnel. But I assure you, CTA plays a major role in getting you onboard."
Understanding Your Balance Sheet's Impact on a Transaction
About The Author - Randy Katz is a Cofounder of Synesis Advisors, a San Francisco based firm that works with clients in marketing, selling and purchasing privately held businesses that are traditionally underserved by investment banks.
When evaluating companies, owners typically have a good sense of their profit and loss statement and want to make it a focal point of conversation. However, they don’t seem to grasp the importance of the company’s balance sheet.
The lack of understanding of one’s balance sheet and the poor quality of the information on balance sheets is cause for concern and can dramatically impact a transaction. Below, I explore several issues that can occur in a deal if the balance sheet is ignored by a business owner
Too Much Working Capital in Deal
When buyers make an offer on a business, it identifies the assets and liabilities that are being assumed in the transaction. An informed buyer will make an offer that includes enough working capital (current assets – current liabilities) that allows the business to continue operating without disruption. If the business has not historically managed its working capital correctly, a buyer may believe that the business needs more working capital than it does in reality. An example of this may be a business keeping more inventory than necessary in stock, or letting accounts receivable remain outstanding for longer than agreed upon terms. Should a buyer negotiate excess working capital in a transaction, money is being left on the table for the seller.
Net Income is Opinion. Cash Flow is Fact
The income that a business generates is not necessarily indicative of its performance. For example, a business using cash accounting may be increasing Y/Y, but if accounts receivable is increasing, revenue may be understated (on an accrual basis), or if accounts payable decreases, expenses may be overstated (on an accrual basis). The balance sheet is the best indicator of the cash generation ability of the business because it allows the business owner to measure the changes in business performance from one period to another.
Not Taking End of Year Inventory
Many balance sheets I look at have an inventory that is constant from one period to the next. Of course, it’s laborious to take inventory in a 20,000 foot warehouse or when a business has thousands of SKUs. However, the end of year inventory number is a key determinant in a company’s cost of goods sold. Should a buyer make an offer and find that inventory is overstated on a balance sheet, that implies that cost of goods sold is understated on a profit and loss statement, thus a business is making less money than the seller is portraying. It’s an awful experience for a seller to have a deal fall apart in diligence because the buyer made an offer and later renegotiates or reneges due to incorrect information being provided.
Rebate of Prepaid Expenses and Prepaid Revenue
The closing of every transaction has adjustments. Some bills are prepaid and the benefit is going to be gained by the buyer. This prepaid expense should be an asset on the balance sheet. Some clients pay cash before a project has started and the buyer will need to perform a service. This prepaid revenue should be a liability on the balance sheet. When negotiating a transaction, the buyer and seller need to identify the flow of prepaids to make sure they are negotiated, and ultimately need a mechanism to measure them upon the closing of a transaction so that each party is recognizing the revenue and expenses that belong to them.
Tax Consequences in a Resale
When a business is sold, the total purchase price is split up into categories, i.e., furniture, fixtures & equipment, goodwill, covenant not to compete, etc. This process is known as the allocation of purchase price. Each category is taxed differently, so optimizing the allocation can potentially result in significant tax savings to the seller. However, just because a tax rate in one category is higher than another does not mean that category is bad if the seller already has a tax basis in the category. A seller’s tax basis is changing continuously as assets are purchased, depreciated, and amortized, and the best way to keep track of the basis for each category is on the balance sheet. Remember, it’s not just important to maximize what you get, but what you keep.
In Stock Deal, the Buyer is Purchasing Balance Sheet
If you recall from prior articles, buyers are often structuring their transactions as asset deals, whereby they are acquiring all assets of the business, but not the corporate entity itself. Thus, they are not acquiring your balance sheet. However, for deals that are structured as stock transactions, the entity continues to operate as if nothing changed, such that the balance sheet is acquired. Buyers are weary of purchasing unknown liabilities and will use heavy legal representations to protect themselves if agreements are structured this way. The cleaner and more accurate the balance sheet, the higher probability a buyer will consider this deal structure and that a seller will keep from breaching legal representations.
There are numerous other issues that might exist, but this should underscore the importance of an often ignored element of your financials. For more information or to discuss your own situation, reach out to Synesis Advisors, your CPA or Lumiere for guidance.
A Simple Guide to Establishing a Content Strategy
You have a fantastic product or service. Great, that’s step one. Step two is finding a way to effectively tell the world about it, but demonstrating your skills or subject matter expertise to prospective customers is not always easy. You must be persuasive, professional, and methodical with your strategy in order to ensure buyers chose your company over that of your competitors. Our experts have seen that delivering consistent, engaging content through the proper channels offers you the best chance of improving your buyers’ experience and therefore successfully converting those buyers into new clients.
Here we have outlined the steps we recommend to successfully establish a content strategy:
Steps to Establish a Content Strategy
1) Define Your Customer
Determine your ideal client profile by evaluating the problem or pain point buyers are looking to solve and establish how your product or service can offer a solution to their problem. When you know who your ideal clients are you can tailor your marketing campaigns around their specific needs and desires.
2) Create a Campaign
If your content is properly focused and valuable, it will create awareness and attract your target client, but after they consume your content, what's next? Make sure to plan the next step by presenting a call-to-action or an offer that gives your prospects a chance for further engagement and nurturing.
A call-to-action (CTA) is a tactic designed to provoke an immediate response. Such as, “Sign up now,” “Get Started!” or “Learn More.” Call to actions can be displayed in a clickable format that directs your prospects to a form where they enter their contact information.
Offers are a tool for lead generation, without them, businesses have difficulty converting visitors into leads. Offers should be high-quality and valuable to your target audience, enough to convince them to fill out a form and provide their information.
3) Identify Keywords
Identify both broad and long-tail keywords to incorporate into your content to rank for keywords that matter to your Ideal Client. For example, if you own a carpet cleaning business a broad search keyword might be “carpet” but a long-tail keyword is a phrase specific to your prospective clients such as “carpet pet stain removal service” or “pet stain carpet cleaner.” Check out Google Keyword Planner to identify effective keywords relevant to your product or service with high search volume.
4) Establish an Editorial Calendar
Editorial calendars are used by small businesses, publishers, and bloggers to schedule content across different media, such as newspaper, social media, and email or print newsletters. Editorial calendars are more than just a platform for publishing dates. A successful editorial calendar maps content and schedules resources, offers, and channels.
5) Create a Workflow
Now that you have defined your ideal client profile, created a campaign, identified keywords, and established an editorial calendar, you are ready to create a workflow. This involves designing and implementing landing and thank you pages, email workflows (automated responses) and, lead scoring. Workflow tools such as HubSpot or Autopilot offer easy-to-use templates and the ability to create beautiful, personalized workflows--customized to fit your ideal clients in every stage of the buyer’s journey.
6) Measure and Adjust
Now that everything is off and running, you might be wondering how do you ensure your content strategy investment is actually profitable. Not to worry, most workflow tools make it easy to track and measure a multitude of data Including how many people are opening your emails, what offers generate more leads, how many leads are converting to clients, etc. Get together with your team and show them the results of your efforts. Decide what’s working and what’s not, and adjust your workflow accordingly.
Final Thoughts
Creating a Content Strategy and building a campaign may seem like daunting tasks at first, but after doing a little homework you will find it all comes down to figuring out what your ideal client is looking for and then designing your workflow and content around that information. Check out tools such as HubSpot or Autopilot to help you build beautifully customized offers, collaborate with your internal team for campaign ideas, poll your existing clients to see what products or services they are looking for the most, and consult experts for advanced advice if needed. Most importantly, don’t worry that your content strategy won’t attract buyers, like the saying goes, “If you build it, they will come.”
5 LinkedIn Features You Need to Take Advantage of Today
Jackelyn Ho, Founder, Arrival Gym offers five easy updates you can make to your LinkedIn profile a more effective tool for generating interest in business or services.
"If you're like me, you set up your LinkedIn profile over five years ago, update it whenever you get a new job or gig, and use it mostly to connect with people you've met at conferences. There's nothing wrong with this - except that the things you wrote about yourself five years ago may be a bit outdated."
What You're Probably Missing In Your Marketing Plan (And It's Costing You Thousands)
Carrie McKeegan, CEO and co-founder of Greenback Expat Tax Services recommends adding internal staff as you grow for most of your business' needs with one exception, your marketing staff.
"If you're a typical B2C business, your marketing activities will likely cover at least a few of the following areas: partnerships, SEO, Google AdWords, content marketing, advertising, PR, email marketing, sales, and social media. However, if you break down the skill sets needed for the various different marketing activities, you will quickly find that there's little to no overlap in the type of personality and experience you need for each of these functions."
Lumiere’s Guide to Editorial Calendars
Editorial calendars are used by bloggers, publishers, and small businesses to schedule content across different media, such as newspaper, blogs, social media, and email or print newsletters. An effective editorial calendar is much more than just a platform for publishing dates. An effective editorial calendar maps content and schedules resources, offers, and channels.
Editorial Calendar Basics
Now that you have decided to create an editorial calendar, these tips will ensure you are the most successful.
1) Create a list of Content
List all the content you intend to publish. If you are unsure of blog titles but know you want to post 4 blogs per month, you can simply write “Original Blog 1” or “Curated Blog 2” to serve as placeholders. Utilize a blend of both original and curated content (HootSuite recommends a 60/40 split), both of which are very different and require disparate efforts to complete:
Original Content
Original content is content you have created from scratch and publish for potential leads, subscribers, and customers. You can hire a professional writer or marketing team to create this content for you, or perhaps you or someone in your company has a knack for writing and wants to give it a shot. Just make sure that the content you create is true to your brand and showcases your business properly.
Curated Content
Curating content is the process of sorting through existing online content such as articles, publications, blogs, or social media posts and choosing the pieces relevant to your industry or company and sharing them with your subscribers.
2) Establish Creation and Publishing Dates
Gather the team, get the whiteboard out and strategize. What is feasible for your team? How many pieces can you write per month? How up to date and in demand is your content? Are you outsourcing the creation of your content? If so, what does your budget allow? 2, 4, 8 pieces per month? Great, schedule it! Having creation and publication dates allows for a common goal and transparency across your team and outsourced providers.
Each piece of content will need to be broken out into several steps and assigned to the appropriate party. Here are some editorial steps to help you get started:
3) Identify Resources
Make sure to assign or list responsible parties associated with the creation of each piece. For example “Original Blog 1” may not only require a writer, but also an editor, designer, or publisher. Editorial calendars make it easy to divide work but also can illustrate gaps in your resources. If your existing capacity (or skills) are not sufficient to meet the schedule you establish, consider using freelance or outside help. Although they do come with the extra layer of managing, services like Scripted or inbound marketing agencies can provide the writing expertise or bandwidth you lack.
4) Don’t Forget these Important Editorial Steps
It is not as simple as just writing and publishing. An effective editorial calendar should include all of the steps required from inception through measuring the effectiveness.
Additional key steps for each piece of content are:
Outline - Start with an outline of the content piece with the important points, steps, and keywords.
Write - Assign a date and resource for creating the piece.
Edit - Review the content for tone and adherence to your style guide and provide feedback to the writer of any changes.
Publish - Schedule the content to be published See Social Report’s Best Practices for Scheduling Content.
Promote - Most Blogging platforms will automatically promote to your awareness channel. Consider adding content to a newsletter or customer communications as well.
Measure - It is important to know how your content is performing. Track views, shares, time on page, leads and customers for a true ROI calculation.
Update - Content can become stale very quickly. Schedule a task for reviewing and updating the content in the future to keep it fresh.
5) Determine the Best Awareness Channels
An effective calendar will not only display the title of a piece, the parties responsible, and the due dates but will also list which vehicle you would like to use to share your content with your subscribers. Some pieces may be suitable as blog posts, some as direct emails, while others may be more effective as a simple social media post. Use your calendar to decide and share with your team.
6) Publishing Schedule
Now that you are familiar with the basics of what to publish, let’s discuss when to publish. As the old saying goes, “Timing is everything!”
When it comes to creating your publishing schedule, you will want to consider your audience and any upcoming events that may affect or influence their actions, your business, or your content choices.
Here are some questions to ask yourself:
Are there any upcoming events to focus your content on?
Do seasons or holidays impact your product offering?
Is there an industry-specific season coming up? For example, if you are a sporting goods store, you will want to tailor your content to each sport’s particular season.
7) Utilize Productivity Tools
Now that you have learned what an Editorial Calendar is and what to put on it, you might be asking yourself what is the best tool to use to display your calendar. The answer is whatever works best for you and your team. If you want to start with something fairly simple a Google Calendar or Shared Google Document may suffice. If you want to create something a little more robust, you may want to try a tool designed specifically for project management such as Asana which allows you to assign collaborators, create dependent tasks, calendar, and more. Whatever tool you choose, the goal is to get creative, get organized, and get going on your fabulous new Editorial Calendar.
If you follow these steps, what could be a daunting task, can be managed efficiently. A well-thought-out calendar truly helps marketing departments and professionals stay organized and focused--thus increasing traffic and generating customers.
12 B2B Marketing Techniques for Lead Generation
There are many ways of generating leads for your business, Aashish Sharma, Founder and Blogger at Entrepreneur York, specializing in Social Media and Digital Marketing, discuss 12 techniques for lead generation in his recent posting:
"61% of marketers say that generating quality business leads is their biggest challenge. This shows that all businesses need to spend a lot of energy to attract prospects. To make things a bit easier, it’s important to be clear about some simple but proven marketing tactics — these 12 techniques are essential if you want to know how to attract customers more effectively."
6 KEYS TO SUCCESSFUL LEAD NURTURING
6 KEYS TO SUCCESSFUL LEAD NURTURING
Lead nurturing is the process of building relationships with buyers throughout the buyer’s journey by providing high-quality content that is relevant and engaging at each stage of their journey. The goal, of course, is to move prospects through the funnel quickly and to convert into paying customers. Marketing and communication efforts focused on listening to the needs of prospects and providing the information and answers they are looking for is essential to this process. Workflow automation tools such as HubSpot are also a great way to assist you in this process by automatically closing stale leads or convincing your prospects that you have the right solution for them. Wondering what else your company can do to convert your leads into buyers?
Here are the 6 key steps to successful lead nurturing we have identified:
1) Identify Your Ideal Client Profile/Buyer Persona
An Ideal Client is someone that can use your service or product to solve their problems or needs. For example, let's say you have a dog walking service. Anyone with a dog could use your service of course, but over time you have found that your most regular and repeat customers are busy single professionals that are at work all day and do not have time to walk their furry friend themselves. You might then run a dog walking special from the hours of 9-5. By identifying the demographic most likely to use your service you can cater your marketing to appeal to that group.
2) Learn the 3 Stages of the Buyer’s Journey
Prospects move through three stages of the buyer’s journey: Awareness, Consideration, and Decision. During Awareness, the buyer is determining possible solutions to their problem, issue, or product need. During Consideration, the buyer begins to investigate different options. Finally, during the Decision phase, the buyer has decided to purchase and is looking to support their decision. Sending an offer to set up a meeting to discuss your services with a prospect in the Awareness phase will most likely go unanswered, but during the Decision phase could prove fruitful. To be successful, present different content throughout these different stages to help ease your prospects to the next phase.
3) Make Awareness a Priority
Creating the perfect content for your ideal client is useless if they don’t begin the journey in the first place. This is why Awareness is a critical component. Create engaging content and optimize it around keywords the buyer is searching for when researching their need. Also, make sure your campaigns contain all of the keywords your prospects might use. Google Keywords Planner can be used to supplement this process. The goal in the Awareness phase is to provide engaging content that answers questions the buyers didn’t already know. Quality content will also help increase the organic search ranking of your website.
4) Utilize Lead Scoring
Lead scoring is a system used by sales and marketing professionals to identify the worthiness of a lead by attaching a value to it. The value is based on the information provided and behavior related to interest in a product or service. The higher the ranking, the more likely the prospect will convert into a customer.
Segmenting and lead scoring is critical to great workflows and getting the right offer to the right person at the right time. Too many companies push all leads into one giant bucket and then wonder why they quickly opt out of communication.
5) Get a Workflow Tool
A 2017 study showed that 82% of companies agreed that marketing automation could make them more efficient, delivers an ROI and can increase marketing’s contribution to the pipeline. Why? Because automating workflow makes following up on leads easy! Also because it makes delivering the right offer to the right people at the right time, possible. Workflow tools such as HubSpot or Autopilot align content and offers you’ve created with your inbound strategy to nurture leads through to the decision stage.
6) Evaluate and Optimize
Lead Nurturing is one of the most critical processes for any marketing or sales department. Having a direct effect on your company’s bottom line, you need to ensure that your workflow is well-designed, transparent, and measurable. Evaluating your existing workflow will allow you to see what’s working and what’s not. Brainstorm with your marketing team and ask questions such as what happens when a lead fills out a form requesting an ebook? They receive the ebook download and then what? Are they contacted again? When? How? Mapping out these existing workflows will allow you to see the gaps in your workflow if any. It will also allow you to see additional opportunities to reach out to your prospects. Once you have thoroughly evaluated your current system, you can begin to revise it, improve it, and optimize it. Let your workflow tools do the heavy lifting for you!
The Bottom Line
Lead Nurturing is an essential marketing strategy for any growing business. Don’t wait and hope your customers find you. Lead them to your business or product by creating engaging and relevant content and providing that content at the right time. Don’t waste time marketing to the wrong demographic, identify your ideal customers, craft an appropriate message and reach out, when the time is right. Set up a system and let your workflow tools do the rest. Before you know it, you will have customers lining up, ready to get onboard with your service.