by Kevin Jennings | Aug 2, 2022 | Business Owners, Professional Advisors
The classic 1978 film Up in Smoke relates the misadventures of Pedro and Man (Cheech and Chong) who unwittingly smuggle a truckload of marijuana from Mexico into the US. Today, marijuana is a highly-respected and highly profitable business. An evening stroll in many areas typically includes inhaling secondhand smoke!
Bank of America Securities reports industry sales at $25 billion in 2021. Industry experts see it rising to $100 billion by 2030. While these stats include CBD which is more readily available and less regulated, the dollars are quite staggering. Many believe this industry is not influenced by the trials and tribulations of the economy.
Cannabis companies include retailers, cultivators, and processors. Several companies participate in all these segments. With some exceptions, such as those in California and Colorado where legalization has been around for several years, these companies report low or no profits. Their investors are betting on the future.
While challenges exist on the local and federal levels, more states are legalizing medical and recreational use. Local governments can impose their own restrictions. Landlords are frequently reluctant to lease to cannabis shops, fearing those store “attract the wrong kind of people.”
Valuations of cannabis companies are challenging for some. The data out there to support a valuation, while growing, is limited. Much of this data sources from Canada. The various restrictions that can differ by state lead to issues of comparability with databases of private transactions. Many cannabis companies are startups. Not only is there the higher risk of failure, but operating profits are also often low or nonexistent.
When considering the value of these firms, an analyst must look to the future. What will the company earn over the next few years? This is a valid valuation technique that, in its best form, can be speculative. A lesson many learned from COVID is the future may have a very unexpected twist. With cannabis companies, add in the struggles between entrepreneurs and legislators, the still-extant federal restrictions, and the growing inflow of competitors. Add to that the possibility that Big Tobacco will become increasingly involved!
JBVal has successfully performed valuations for cannabis companies ranging from dispensaries to cultivators to cannabis conglomerates. Our valuations have been vetted by auditors and have been utilized buy sell agreements, gifting and more.
by Kevin Jennings | Jun 21, 2021 | Business Owners
Are you leaving money on the table?
Over the combined 50+ years the team at JBVal has performed valuations, we hear from proud business owners, “This business would be nothing without me.”
It’s inevitable one day, they will not walk in the door. When asked what happens when that day comes, they shrug it off. They realize the business may sell for much less than its true worth.
Too frequently, they are right. The business is worth nothing without them. He or she makes all decisions and is effectively if not in practice CEO, CFO, VP of Sales & Marketing and VP of Operations. And size of business seems unimportant. We’ve seen this in companies from $5 million to $25 million in size.
Is this smart? Is this fair to your family (especially those working in the business)? Your employees?
The obvious answer is no.
Can it be fixed?
The simple answer is yes.
The recipe is simple. The ingredients: a bit of work, time, and the willingness to cede decision making to others. This last ingredient is the hardest for many entrepreneurs. (read more on why you must delegate here)
McDonalds and other successful franchises provide turnkey businesses to franchisees. By turning yours into a turnkey business, your business can be sold for its true worth. It’s been proven over and over, buyers won’t buy a business which lacks a strong management team, one that is not dependent on you!
What do buyers look for?
- Well developed team
- Organizational chart
- Employee retention
- Customer retention
- History of earnings
- Annuity-like cash flows
- Sustainability
Ask yourself honestly, “Would I buy my business?” “Would I want my child to live the life I lived in this business?”
In a series of articles, we will discuss ideas on how to turn your business into a more profitable turnkey business. One that can prosper without you.
by Kevin Jennings | Feb 15, 2021 | Business Owners
Every company wants to increase profitability. The first place they should look is actually not to new leads, but inward at their own operations. 99% of businesses are missing out on potential profits. With minor tweaks, a business owner can begin to realize thousands of dollars or more in his or her pocket. After 35+ years of performing business valuations for thousands of clients, patterns started to arise. The most common areas of profit leaks have become very clear to me. There’s one area I always look to first to discover profit leaks: profitability by customer.
Customer Analysis
Which customers are most profitable to your business? Ask most business owners this and you’ll be met with blank stares. Most businesses treat their target customers the same. But they’re not. Without knowing the different spending patterns and behaviors of different customers, a business can lose thousands or more in potential profit. People within different market segments spend their money differently. This shouldn’t be a surprise. As Donald Norman said, “market segmentation is a natural result of the vast differences among people.” Divide your customer base into as many segments as practical. The more segments you have identified, the better. This may mean dividing up your customers by… Geography, age, industry, size, etc. Find out more on customer analysis from brandwatch.com
Identify the Most Profitable
After segmenting the customer base, understand your KPIs for each segment. Understand which statistics are the biggest factors in profitability and measure those factors for each segment. How much money does it cost to acquire a customer in each segment? How much does each segment typically spend? Once you’ve split your customer base into segments and answered these questions about each, you can easily identify the outliers in both directions. Some of these segments will be much more profitable than the average, and some will be much less.
Target, Target, Target
Without knowing which segments are most profitable, it is likely that marketing was previously aimed at a broad audience. (To read more on finding your target audience check out this article from lotame.com.) Now that you have identified which customers are most and least profitable, stop wasting money by marketing to the least profitable customers. Instead, double down on the most profitable ones. Learn everything about your most profitable segments. Learn their buying habits, their motivations to buy, their most pressing pain points and the things they value most. Become conversant in their tribal language and begin to even think the way they do. How can you do this?
- Read their trade journals.
- Go to the webinars they go to.
- Converse with them as much as possible.
The more you get inside of your target customer, the more personalized your marketing will be towards them and the more effective it will be as well.
If you’re not segmenting your customer base, you are inevitably losing out on profits. Most businesses wish to serve a broad audience. Meanwhile, most of their profits are actually coming from few segments and they are blissfully unaware of the profit they could be making. By eliminating their focus on the unprofitable segments and doubling-down on their focus on the most profitable ones, a company will see much higher profit margins very quickly. Get started with JBVal today and explore your most profitable segments. Another power tip to small business owners and their advisors from us at JBVal!
by Kevin Jennings | Feb 5, 2021 | Business Owners
70% of family businesses fail before reaching the second generation, 90% before the third (source: Family Business Institute) Do you want this to happen to you? Did you know there is such a high failure rate? Is your future doomed? Few business advisors and even fewer owners know the business structuring secrets that give you the best odds for success. How much time and energy have you invested in planning your exit? And face it: You will exit, voluntarily or otherwise.
The secret to a successful multi-generational business transition is Business Optimization.
- Is your next-generation management unqualified, unprepared and therefore reluctant or incapable of leading?
- Does your business run through repeatable trainable processes or the sheer force of your will?
- If you are unreachable for a month or two, where would your business be when you returned?
In our 35+ years of experience working with family businesses, we’ve seen many that have unnecessarily fallen victim to these high failure statistics. We’ve seen those that have thrived after transitioning. We know the secrets. These same transition secrets properly applied will add to your cash flow and profits, reduce your burden of management and increase the saleable market value of your business! The secrets are called Business Optimization. It takes 2 to 5 years.
When should you have begun to optimize your business?
- The ideal optimization plan creates a turnkey business, one that is not dependent on you. Your role is strategic guidance.
- Did you start your business as an expert in all areas? Probably not. Your team needs time to learn their roles and responsibilities. Business Optimization is an ongoing process, not a one-time event.
- Are your children the best qualified to run the business? What’s best for the business is best for the family. Tough discussions, yes. But best for the business, your employees and your family.
JBVal has helped many family businesses with their transition. To explore if and how Business Optimization will benefit you contact us for a free 30-minute strategy session to discover if and how we might help you with yours.
by Kevin Jennings | Dec 8, 2020 | Business Owners
A manager is emailed the company’s budget for this year and he looks at it with a smile. He files it away into the Budget folder. “Finally, we’re done with that for another year,” he says. Traditionally, budgets are completed once a year and forgotten about. In today’s rapidly changing business environment, “set it and forget” won’t cut it. Without updating your budget regularly, a business is throwing potential profits right out the window. Like gas fuels your car, cash flow fuels your business and your lifestyle. Don’t you want to get the most possible cash flow from your business?
Rolling Budget
A rolling budget is a continuous budget. Many companies utilize rolling budgets to keep a more updated version of their budget to better reflect their business. (Read more information on rolling budgets here) Instead of completing one’s annual budget and forgetting it, rolling budgets are reevaluated continuously throughout the year. Most that utilize this practice reevaluate their budget every month or quarter. Rolling budgets require more effort to update than a static budget but are worth it. They reflect the business and the environment much more accurately. Technology changes at a rapid rate. Consumer behavior changes at a rapid rate. BUSINESS changes at a rapid rate. Don’t you want your budget to reflect that? Take the past year for an example. Many companies rolled out their annual budget on January 1, 2020, excited about the upcoming year. They believed their accountants and accounting software have put together a budget that will accurately predict their 2020 performance. They were ready to set it and forget it. In only a few weeks, news of the virus hit and these companies had to realize their static budget wasn’t going to work out. Clearly, this is a dramatic example. A pandemic was a very rare experience. Still, external challenges will arise, and predictions never pan out exactly. Rolling budgets will better adapt to these challenges. Static budgets don’t reflect the business as it is. The longer it has been since the budget has been updated, the less it reflects the business. Think of yourself. If you try and evaluate your plans for the next year, you may believe you have a reasonable prediction of how it will go. However, we all know that unexpected opportunities arise and new challenges are always popping up. In a very short time, the trajectory of your year will drastically change.
Profit Leaks
The true power of budgeting lies in optimizing cash flow. Budgets reveal your hidden profits. Think your business doesn’t have profit leaks? Think again. EVERY business has them! With outdated, static budgets, you will only realize profit leaks once a year. They will become much more likely. Once a profit leak begins, the longer it goes without being plugged, the more costly it becomes. Companies with rolling budgets evaluate their spending more frequently and avoid profit leaks. A dollar in new sales puts ten to twenty cents in your pocket. Once. A dollar of plugged profit leaks puts a dollar in your pocket, year after year after year. Plugged profit leaks also lead to increased profit margins. Now, every dollar you earn puts thirty centers into your pocket instead of twenty. Rolling budgets lead to increased profit margins and more valuable businesses. Contact me to explore how you can use a budget and rolling forecast to fill your pockets with more cash. Another power tip for small business owners and their advisors from JBVal.
