Counter Intelligence Return on Investment

Counter Intelligence Return on Investment

Increased Business Valuation

Most business sellers are price takers and sell based on a financial sales model.

Business finance is based upon the liquidity of the venture and the ability of a lender to continue the business.  Financial pricing for businesses is based upon an EBIT [1] x multiplier.  Currently this is between 2 and 3.  And easy way to think of the multiplier is to think of it as “how many years would it take to get here?”

Utilising the reporting available from Counter Intelligence to strengthen the business and renegotiate with suppliers will enable a less proficient business operator to cost-effectively operate the business and as a result the potential buying market expands and the financial future can be better predicted.

Reports provide insight into the metrics of the business. Using these metrics to manage the venture produces the ability to move from the fundamental leverage points, such as price reduction and more choice to move technical aspects of streamlining and derisking of the venture.  Price and stock alone do not produce success but rather undermine the venture.  To derisk a venture creates added value within the business and retained earnings in the business increase its overall value.  92% of Small businesses in Australia fail within a decade.  This can be to do with not adapting the model to changing marketing environments and consumer buying trends.  It can also be to do wtih the fact that a business has a life span and should be exited. Each of the components listed above and can independently increase the EBIT and the valuation by an additional 10% each.[2]

By amortising and depreciating the investment in the innovation, this figure is removed from the overall bottom line of the business but would be included in the EBITDA[3].

Retention of Cash within a business heightens the EBIT and therefore the overall business valuation.  Accountants often recommend purchasing a car, using the straight line method of depreciation.  This is not always the right advice for a business.  When a business lacks future direction this improves the quality of life of the owner but reduces the value of the business.  Many business owners have their home, car, etc within the business and in the small business and do not draw a wage.  The issue with not drawing a wage is that the business owners is stealing from their EBIT. Taking cash does the same thing.  It removes money from the fundamental numeric value of the business at the most costly part.  If a business lasts less than 10 years, then surely the answer is to change, sell or invigorate the business before that time.

Systemising offers the opportunity for a similar business to consolidate The Company with their business or continue to run as a stand-alone venture.

Introducing a system or automating the ‘professional’ parts of a business reduces outgoing expenses and replaces them with tax friendly expenditure which results in more profit.  Systems can also include a system for generating customers.

Utilising NPV[4] to highlight the potential of the Free Cash Flow will enable a longer vision into the future with a more predictable outcome.

Forecasting into the future increases the multiple by which the business value is determined.  The future a business can see into the future, the greater the multiple from 2 to 3 up to 5 or 6, doubling or tripling the value of the business at liquidity and reducing the exposure for finance by creating a higher valued asset.

Your Counter Intelligence Reports will assist you to decrease volatility, reduce potential liabilities, and improve internal operations efficiency and effectiveness, improved governance and to put in place a succession plan.

Managing relationship with supplier and creating contracted relationships increased the value by an additional 10%.  The supplier reports enable knowledgeable negotiation and suppliers based upon volume and trends.

Succession Planning

The current business methodology of The Company is thorough and proficient however it is labour intensive and reports, though of a highly professional standard are not timely in such rapidly changing times.

A new owner of the business or a financial institution view a business that is ready for new management as a liquid asset.  By operating through a standardised system, the venture moves from one of high tacit knowledge and disorder to one of documentation, historical accuracy and predictability.

Furthermore they are reliant upon existing skills and procedures, which are not easily transferable to a new leader.

Standardised systems enable the successor to access all information through training rather than an ‘earn-out’

A new operator appears the likely candidate to continue the business, however in the event that the outgoing operator] were to retire and the accountant reduce working hours, this would leave a void within the business that would need to be filled and few are skilled in the manual processes.

Utilising Counter Intelligence will enable the new operator to operate the business almost single handed, with immediate access to all aspects of the business.

Reduction of staff and therefore wages further increases the EBIT by the amount of wages no longer being paid out, but also through streamlining will increase EBIT by another 10%.

The outgoing operator will be able to assist and guide by utilising CI Web Reports to access the business reports via his iPad.

Quality of life versus the demands of hands on office work has altered in priority as more people value life balance.  Accessing of the relevant information remotely provides a balance between quality of life and the opportunity to work in the nooks and crannies of the day, enhancing time management.

This will deliver the expertise into the business and provide quality of life, in a similar manner to an earn-out.

Savings from Efficiencies

Reallocation of 90 minutes of labour per day x 200 working days per year @ $16.25/hr[5]. = 300 x 4 years = $19,500

The obvious efficiencies provide a limited view of the savings from systemisation.  The real value is apparent at the point of value realisation.  The outcome of a business’s transfer of ownership and the ease with which a founder is able to leave their business to a new owner creates liquidity.  Whilst many think that they will get the cheque and hand over the keys and walk out the door, this rarely happens and a savvy purchaser will not permit this to happen.

[1] EBIT Earnings before interest and taxes

[2] Proactive Trade Sale Strategies. Prof. Tom McKaskill, Opportunity Evaluation, Session 10.1. Australian Graduate School of Entrepreneurship, Swinburne University.

[3] EBITDA Earnings before interest, taxes, depreciation and amortization

[4] NPV Net Present Value

[5] Minimum wage for a counter hand in a fast food takeaway restaurant

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