Sunday, February 21, 2016

Make Effective Decisions

Effective executives do not focus on making a great many decisions but rather try to make key decisions well founded. They concentrate on what is important. They try to find the constants in a situation, to think through what is strategic. They want to know what the decision is all about and what the underlying realities are which it has to satisfy.

Here are a few steps to consider to improve decision making for the organization.

1. Classify the Problem
Is the issue unique, exceptional or generic? Or is it the first instance of a potentially recurring situation. A fundamental issue may generate a decision process different from a single stray event.

2. Define the Problem
What is this all about?” “What is pertinent here?” “What is the key to this situation?” Questions such as these are familiar. But only the truly effective decision makers are aware that the danger in this step is not the wrong definition; it is the plausible but incomplete understanding of the facts to consider.

3. Make the Right Decision
The effective executive has to start out with what is “right” rather than what is acceptable precisely because a compromise is often necessary in the end. But if what will satisfy the objective to be decided is not clear, the decision maker cannot distinguish between the right compromise and the wrong compromise. There has to be certainty in what the objective is and goal to be accomplished.

4. Provide an Action plan to execute the decision.
What does the action commitment have to be? Who has to know about it? A decision will not become effective unless the action commitments have been built into it from the start. In fact, no decision has been made unless carrying it out in specific steps has become someone’s work assignment and responsibility. Until then, it is only a good intention.

These are but a few considerations that I hope help a business structure strong, positive decisions to improve operations.

Let me have your thoughts:

Sunday, February 7, 2016

Let’s Increase the Value of our business

Most businesses with under $1 million in revenue (which is most businesses) sell at a very small multiple of earnings when their owners decide it's time. Typically they get two or three times their pre-tax profit, if they're lucky. How can you get more juice out the company you've spent years developing?

Here are a few ideas that may help grow that important valuation.

1. Recurring revenue: demonstrate that your customers come back to purchase regularly and you'll drive up the value of your business because buyers will have confidence your sales will continue long into the future.

2. Revenue growth rate: acquirers will look at your top line revenue growth and project how large your business will grow in the future. Revenue growth rate may be even more important than profit growth for driving value. Buyers know how to squeeze margin to increase profitability but it is difficult to replicate the formula you have that makes someone want to buy your product.

3. Positive cash flow: if your company takes in money before it has to spend it, buyers will pay more for your business. Acquirers look at opportunities by measuring the return they'll get on the money they need to invest. If your company generates cash, they will not have to put much of their own into funding your day-to-day operations. The less cash they inject, the better the potential return on their investment.

4. Succession: You may want to consider firming up plans for a successor to your leadership position. Having a second-in-command will help you show the business can continue on successfully without you. If you can't afford an entire management team, at least find and groom your right hand person.

5. Differentiate: you'll get a higher multiple for your business if your product or service is truly unique in the market. Acquirers will graft your product onto their distribution channels and estimate just how big your company could be in their hands. That only works if you have a truly different product or service.

I hope these few tips provide some insight into steps you may take to present a positive opportunity as you reach a stage where you may want to move on to newer challenges.