Welcome to the July 2010 issue of our monthly electronic newsletter. In this issue we introduce the topic of benchmarking and building a financial dashboard to help companies improve and stand out. This is a discipline that many business owners may want to adopt to increase the value of their business, whether or not they are considering selling. We will be introducing a financial dashboard and benchmarking services for IT companies soon.
If you are looking to buy, sell, or determine the value of a privately held company, please call us or send us an email.
Sincerely,
Bob Dale & John Austin
Austin Dale Group
512-327-0427
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| Benchmarking Helps You Stand Out
If you are thinking of selling your business in 3 months or 3 years, you'll want to stand out in the crowd so that you can maximize the value of your company. One way to stand out is to create a financial dashboard and benchmark your company against similar companies in your industry.
Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. Benchmarking is often coupled to one or more "dashboards" that give instant visual meaning to the numbers. For example, with easy to use software, your financial data can be used to create "speedometer", "tachometer", and "fuel gauge" views. This financial dashboard provides a simple visual overview of the health and direction of an organization, and is especially powerful if it shows how you stack up against other companies that are in your sector of the industry.
Some of the benefits of benchmarking include:
- provides realistic and achievable targets
- encourages the company to look around and learn from others inside or outside of their industry
- creates an atmosphere conducive to improvement
- allows employees to visualize the improvement which can be a strong motivator for change
- helps to identify weak areas and indicates what needs to be done to improve
Building a system around a cycle of [benchmark / adjust / repeat] can improve your company and move you into the top tier of performers by helping you establish internal goals, spot market opportunities, exploit competitor weaknesses, and unify and motivate your employees.
Some of the typical financial benchmarks include:
- gross, operating, and net profit margins
- sales and profitability trends
- inventory, accounts receivable, and accounts payable turnover
- salary and compensation data
- revenues and costs per employee
- marketing expense as a percent of revenue
- revenue to fixed assets ratio
The most critical components of a successful financial benchmarking program are accurate data and a set of indicators that tell the true story of a company's fiscal performance over time. Because acting on the trends identified in financial benchmarking often triggers the need for process and operational changes, buy-in from owners and senior managers is important for success.
At this point you may ask, "Where can I find competitor information?" Small and mid-market companies, without expensive consulting firms to gather the data, have to be creative to find relevant data. In some industries, benchmarking data are available for a fee. The data should contain companies that are similar in size, complexity, and products and services, and within your geographic area if possible. You want to use a source that represents a large universe of inputs so that one or two unusual companies don't skew the numbers. Most companies will choose an industry group, usually based SIC or NAICS codes, that best represents their business. Benchmarking can be either internal or external. Internal benchmarking allows companies to measure their progress toward established goals, while external benchmarking helps them determine how their processes and operations stack up against their peers. When companies find numbers that deviate from the benchmark, it causes them to ask why they are outside the norm, and to start looking for solutions. In the end, benchmarking is about changing and improving the organization. By standing out in the crowd, you will give yourself the best chance to increase the value and attractiveness of your business. |
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Private Equity Stays Strong in IT
There have been 271 Information Technology companies involved in completed or announced private equity deals since the beginning of 2009, according to the PitchBook Platform. So far this year, there have been 103 deals, compared to 104 at the same point last year, putting 2010 in a good position to match 2009's total count of 181 deals. The software sector continues to attract the most investor attention, accounting for 50% of this year's deal flow, and although California continues to be the most popular location for target companies, Texas is taking a bigger piece of the deal flow this year, jumping from 7% to 14%, and so is Virginia, going from 3% to 13%.
Source: PitchBook Data, Inc., July 2010
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Corporate Growth Through Strategic Acquisition - part 5 in a series.
There are several categories of strategic acquisition that can produce outstanding results with effective integration of the businesses. Many acquisitions actually have elements from several categories:
5. ADDRESS A SHORTCOMNG OR COVER A WEAKNESS - The acquiring company has to be honest and self-critical about their shortcomings to be able to use this as a criterion to acquire another company. Some of the areas of weakness that the buyer may consider are:
· Customer concentration - if too much of their business is concentrated in a small number of customers
· Product concentration - if too much of their business comes from only one or two products
· Weak product pipeline - in some industries where innovation is critical, having a thin product pipeline can be fatal. For example, many acquisitions in the pharmaceutical industry are aimed at covering this weakness.
· Management depth or technical expertise
· Great technology and products - poor sales and marketing. |
Austin Dale Group helps business owners grow and sell their businesses, or buy other businesses, to reach their goals. We work with all types of information technology companies, as well as construction-related businesses, environmental services, manufacturing, publishing, and food services.
We offer these services:
· Succession and exit planning
· Merger and acquisition advisory services (business sales & acquisitions)
· Business valuation
· Business value enhancement - in addition to our virtual CFO services, can assist you with benchmarking services and best practices from industry peer groups
Austin Dale Group
P.O. Box 162727
Austin, Texas 78716-2727
512-327-0427 |
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