MidasNation™ - Building America One Business at a Time

Good morning All and Happy New Year! As a new contributor to this blog I would like to briefly introduce myself. I have an academic background in Finance and Accounting and a professional background as an Associate at a Private Investment Bank (past 17 months) and six years in the recreational gymnastics industry (coaching and management since 2004). I was first introduced to Private Capital Markets and Rob Slee during my first year as an undergraduate by my dad, and Founder of this blog, Tim Rhine. In his quest to always present to me the most logical and relevant facts and news of the world, my dad soon brought me to the realization that my studies were contradictory and that my business school classes had nothing to do with the private business industry, where many of my colleagues and I were bound to end up. Sure enough, five years later, I am a manager at a private business and looking into the world of private investment banking. At this time, once again, Rob Slee’s body of knowledge enters my life, and this time it is backed by his latest founding, MidasNation. Let’s take a closer look.

What is MidasNation? MidasNation is a community dedicated to helping private business owners create value and take their businesses to the next level. Who cares? Every private business owner and manager in America, or at least they should care.

MidasNation Founder, Rob Slee, launched the body of knowledge, Private Capital Markets (PCM) in 2004 and continues to leverage this body of knowledge to bring small business owners and managers the tools to increasing their businesses’ value by 5-10x. Along with getting the knowledge of PCM into the hands of business owners and managers, the Midas initiatives provide Mentors (successful former business owners) and Advisors (industry experts) to assist the owner or manager, both directly and indirectly, in every step of the value creation process.

On the third Thursday of every month, Rob Slee takes an hour to present valuable topics in the world of private business value creation and explain the tools presented in PCM.
Take a look below for a recap of the questions the 2010 webinar series answered:

Aggregating Your Way to Business Success (January 21, 2010): What does it mean to be a niche-aholic? How can creating and implementing an aggregation model enable you to aggregate your space and thereby create business value?

Creating Value in Your Business (February 18, 2010): What is the real meaning and importance of your company's "Cost of Capital" and how do you use it to make daily decisions that increase the value of your firm? What value drivers should you focus on within your business?

Negotiating the Bizarre Bazaar (March 18, 2010): How is private business value influenced by the company's access to capital? What tools do you need to figure out how capital providers make lending decisions? How do private cost of capital and lenders' "credit boxes" relate to capital access and increasing business value?

Strolling the Private Transfer Spectrum (April 22, 2010): What are the hundreds of ways to transfer all or part of a private business and how do they select particular values for the business? How do you time the transfer as to maximize the business' value?

Business Models (May 20, 2010): What are the ideas behind the current migration from conceptual to aggregation business models and how can you create a model that will dramatically increase the value of your company? How have companies aggregated their spaces with little capital investment?

What's Really Happening in the Private Capital Markets (September 16, 2010): What do banks, asset based lenders, mezzanine and private equity investors require to get their money? What are current and future acquisition multiples? How can you build company value in the next few years?

Inciting a Revolution in Your Business (October 21, 2010): What is the path to becoming a Value Architect? How can you grow the value of your business by 10x while reducing your risk of ownership? Why are "incrementalist" lifestyle businesses being wiped out?

Midas Metrics (November 18, 2010): What is the structure of Rob's forthcoming book, Midas Metrics? How do Value Architects manage their businesses through metrics? What is the process to choosing the correct value-driving metrics for your business?

2011: Fact or Fiction (December 16, 2010): What does Rob think will happen in 2011 for the U.S. and world economies, private capital markets, middle market M&A and public capital markets? How will business managers increase business value in 2011? What are MidasNation's goals and likely accomplishments for the upcoming year?

To view the 2010 webinar series, register at MidasNation.com. Your registration will also include invitations to the upcoming 2011 webinars and Rob’s weekly MidasNote (his comments on the Nation) sent directly to your inbox. Registration is complimentary.

Why are value creation and the knowledge found in PCM so important to every business owner in America? His future, his family’s future and America’s future depend on it.

My professional career is a mere two years old and I do not know exactly where I will end up, but I do know that my main goal is to create value for my family, and America, whether through building my own businesses or helping others.

Best in Your Business,
Bethany

MidasNation and Business Value Creation

The past year has seen a tragic decline in privately held main street and middle market business value.  In many cases markets have declined or disappeared altogether for business owners and these owners are seeing their net worth and potential retirement vanish.  There are notable exceptions to be sure, within particular verticals and niches, and some business owners are building and prospering, but generally speaking, things are not good.

Business owners, for perhaps the first time in their lives, must focus on creating value in their businesses, or they are going to perish.  What is value and how do you measure it?  Let's make it simple.  Value is the financial market value of your business.  It is the check a third party, outside buyer, would write you for your company.  Even if you have no intention of selling, as a business owner, you must monitor this number and take action to increase it, or you are not creating value.  If you are not creating value, at best you may have a life-style business or a job.  At worst, you will have literally nothing.

Value creation starts with the mindset of the business owner.  Your motives lead to actions, that result in a business model (how you're organized and what you do) that equals profits, losses, cash flow and value creation, or not.  The road map to value creation can be found within Rob Slee's books: Private Capital Markets; Midas Managers; and Midas Marketing; and on the MidasNation website www.midasnation.com  Read MidasNotes, view the webinars and look for Wealth Map information to get started in creating business value.

I have spent a lot of time this last year working with business owners in creating value.  It is the only way for individual business owners and America to survive and prosper.

Think VALUE CREATION.  Let me know if you want to discuss how to increase the value of your business by 5-10x.

Kindest Regards,

Tim
Email:  trhine@pointebreak.com

Strategy, Change and Hope - JOBS

In reference to value creation in private business, Rob Slee has often said “Hope is not a strategy.”  On Wednesday of last week, the President of the United States met with “business leaders” about “job creation.”   Not one representative from private business was present, much less invited.  With private business representing over 50% of the GDP and responsible for creating over 80% of new jobs, that meeting represented a strategy of pure hope with no chance of success.

What can we do to create jobs in America?  MidasNation believes that with the right strategy, the proper tactics and implementation, and most of all the right change in human (read business owner) behavior, business value can be created and thereby jobs.

How do you create business value?  Become a value architect.  Value architects require earning a return in excess of the “cost of capital” invested in their businesses.  You can go to past MidasNotes and articles by Slee for detailed discussion of cost of capital, business value, incremental business value and the definition of “investment” but let’s make this simple, so you can get started today creating value in your business and thereby JOBS.

Look in the mirror and repeat after me “I will not accept any return for any activity or investment in my business that does not return at least 25%.”  That means you don’t hire anyone, buy any equipment, sign any contracts, or sell any products that do not make you at least 25%.  That’s 25% after all expenses, not gross margin.  Does that mean you immediately cease all current activities that are not making at least 25%?  No, but don’t continue business as usual!  Spend your time thinking, designing, exploring, and asking customers, employees, suppliers and vendors, advisors and peers, ‘how can I make 25% or more?’  If you demand it, the returns will come.  You simply will not engage in the activity unless they do.  ‘OK,’ you say, but ‘what do I do first?’

First, map out your processes in your company.  Include every activity and determine what value it adds to your firm and the value it ultimately adds to the product or service.  You now know the high value activities, so expand and capitalize on them, and explore options to the non-high value activities.  These options can include outsourcing or new ways of operating.  Expand this analysis and new view of your operations to yourself.  What are your daily activities that are contributing value to your company?  Are you making coffee in the morning?  Nothing wrong with that; I have to have my morning coffee, so “nobody gets hurt!” but, let’s not confuse those activities with creating value.  If you can hire someone else for less than $50 per hour to do most of your activities, then why not do it?  Spend your time working on the strategies that will pay off in excess of 25%.  Only you can devise the strategies that will take your company to the next level.

Michael Gerber said “Work on your business, not in your business” and I agree.  Become a value architect to create returns greater than a 25% cost of capital and you are headed in a value creation direction.  This will pay off in current economic benefit, cheaper and more available financing and a higher valuation upon a financial or legacy exit from your company.

For more on creating business value visit us at PointeBreak Solutions  or contact me at trhine@pointebreak.com or t.rhine@midasnation.com

Tim

Business Value Creation - the "5% 'ers" attend EMC

Saturday I was fortunate enough to jointly address a group of business owners attending the fifth annual EMC Family and Closely Held Business Forum Retreat in Rancho Santa Fe. I was invited by Todd Poling of Vantage Point Advisors and Carmen Bianchi, Director and Founder of the EMC Forum. Todd led the discussion of a case study on building business value against the backdrop of an earlier presentation by Rob Slee of MidasNation. The business owners attending were a self selected group, which Rob and I term the "5% 'ers," whom are truly interested in creating value in their companies. They were aggressively engaged throughout the presentations and I found their insight, comments and feedback very encouraging in these challenging economic times. Building main street and middle market business value is the only hope we have to initiate and sustain an economic recovery, and have confidence that we will leave a better America for our children and grandchildren than the one we inherited.

Tim Rhine
www.pointebreak.com

THE CRISIS ON MAIN STREET – Not Understanding the Value Game

Has anyone noticed that Main Street America, which accounts for over one-half of the US gross domestic product (GDP) and 80% of all new jobs, is not responding to the GWSP, the Great Washington Stimulus Package?  It can be argued that the GWSP is working, not working, ill-conceived, brilliant, well intentioned, etc.  That’s not the point.  Here is the point:

MOST MAIN STREET AND MIDDLE MARKET PRIVATE BUSINESS OWNERS HAVE NOT, AND ARE NOT, CREATING VALUE IN THEIR BUSINESSES

If value had been created over the last decade, all these businesses may not be thriving now, but would certainly be better off today than they are, with much greater chances of survival.

Rob Slee over at MidasNation has been writing about this for some time.  His article, The Great American Reset, is worth reading.  Full disclosure here – I’m a partner in MidasNation.

What can you, as a business owner do to create value in your business?  First, change your mind-set. It’s not business as usual.  It can’t be or you will not survive, much less thrive.  If a business activity, new hire, capital investment or product does not pay for itself and earn a return greater than your cost of capital, on all you have invested in your business, then DO NOT DO IT.  Second, measure and evaluate the results of the non-financial activities in your business.  Michael Gerber said it best – “Work on your business, not in your business.”

Tim
www.pointebreak.com

Strategic Benchmarking for Value - James S. Rigby

James S. Rigby, early contributor to this blog, educator, mentor and founder of the Strategic Benchmarking for Value Network, passed away on January 16, 2009.  Among his many endeavors, Jimmy had a dream to assemble best of class business analysis tools in one location, and to provide those tools to advisors and business owners alike.   Accordingly, he assembled a diversified group of business professionals, co-authored a text book, Driving Your Company’s Value, and founded the SBV Network.  I was fortunate to be a Charter Member of the network and with its other members, work with Jimmy on refining and improving existing toolsets.  Cooperatively, we developed new tools and methodologies to assist advisors and business owners in increasing the value of their businesses.  Jimmy was all about business, when it was time for business, and all about friends, family and faith otherwise.

Strategic Benchmarking for Value is a methodology for business value creation that carries on with Jim Rigby’s former colleagues and new devotees.  In today’s difficult economic environment, value creation toolsets are more important than ever.  Thanks Jimmy.

Tim Rhine
www.pointebreak.com

Value from an Investment Banker's Perspective - The 2nd in a Series

Intangibles, and How They Influence Market Value

Investment bankers deal in the real world of MARKET VALUE, but no value is established until a transaction takes place-a check is written, the contract for services and the earn out is negotiated and agreed to by all parties. We know from experience that all transactions, within a given industry, and for businesses of a certain size, have a range of value. That value is most often measured by a multiple of EBITDA (Earnings Before Interest Taxes Depreciation and Amortization). Therefore, because there is a range of value as measured by a multiple of EBITDA, then there must be more to value than only EBITDA or there would not be a range.

Ignoring for the time being the differences in terms of the deals, and the variance of negotiating skills and competency (or lack thereof) of professionals on both sides of a transaction, the range of value can often be explained by the intangibles of the business. Intangibles are the aspects of the business that do not appear on the balance sheet but provide value to the business and influence the range of value as measured by EBITDA.

Let’s illustrate how important this can be for a business owner. Assuming a business is worth between 3.5 and 4.25 times EBITDA (and in most cases the range is substantially higher than this illustration) and assuming the EBITDA equals $1MM, the range of value amounts to $750,000 or a 21.4% premium. To a small or middle market business owner, this is significant and could amount to the difference between retiring in relative comfort and being able to achieve his or her personal goals, or not achieving them.

How can business owners obtain this 21% premium? We are often asked the most significant ways to improve value in a business. I have listed some of those intangibles below.

Ways for owners and managers to improve the value of a business through INTANGIBLES:

1) Provide for redundancy of management – acquirers do not want to buy a “one man shop.” There is too much risk associated with it and if competent management is in place, you increase the number of prospects to buy the business, thereby increasing the likelihood of obtaining a higher value. Owners should be able to take a three month vacation and come back to a better and stronger business than when they left. Work “ON” your business, not “IN” your business.

2) Cross-train your employees – this reduces risk and increases the number of buyers because you have a stronger business model.

3) Increase the business and financial literacy of all personnel in the company – if employees understand how their actions affect the bottom line (and what the bottom line really means) and how it affects them, they are more responsible in their actions and more productive. Employees are remarkably easier to motivate and manage when they understand the financial drivers of the company and financial transparency has been provided to them. This takes a commitment of resources, but will pay back ten fold in value and benefit to the company.

4) Implement and document systems – it takes the ambiguity out of daily activities. People will know how to handle situations and can “manage by exception” and not by emergency. Utilize customer resource management (CRM) programs, enterprise resource planning (ERP) programs, inventory control systems, sales and management, financial and accounting systems and document them all.

5) Diversify your customer and product base – don’t be overly concentrated in any one customer or product. Again, diversification decreases risk.

6) Have a written business plan in place and measure and compare financial pro forma with actual results. This allows your banker and a prospective buyer to see how the business is organized, how it makes money, how its profitability and cash flow can service debt and how value is created. It will also make it easier to sell the business based upon a higher future value.

7) Keep it simple – the business plan and model. If it is too complicated, the value of the business decreases.

If you address the above 7 points, you will have decreased the risk of your business and increased its value. You will have also lowered your cost of capital, which is a reflection of the perceived risk of your business, which increases value. You will have led to making some tangible improvements in value, such as increased free cash flow and increased asset utilization, which I will address through the “Value Formula” in the next article.



Visit http://www.pointebreak.com/ for more on creating business value.