Tag Archives: ironshield financial

One Hidden Thing That Drives Your Company’s Value

Republished with permission from Built to Sell Inc.

You already know that your company’s revenue and profits play a big role in how much your business is worth.

Do you also know the role cash flow plays in your valuation?

Cash vs. Profits

Cash flow is different than profits in that it measures the cash coming in and out of your business rather than an accounting interpretation of your profit and loss. For example, if you charge $10,000 upfront for a service that takes you three months to deliver, you recognize $3,333 of revenue per month on your profit and loss statement for each of the three months it takes you to deliver the work.

But since you charged upfront, you get all $10,000 of cash on the day your customer decides to buy. This positive cash flow cycle improves your company’s valuation because when it comes time to sell your business, the buyer will have to write two checks: one to you, the owner, and a second to your company to fund its working capital – the cash your company needs to fund its immediate obligations like payroll, rent, etc.

The trick is that both checks are drawn from the same bank account. Therefore, the less the acquirer has to inject into your business to fund its working capital, the more money it has to pay you for your company.

The inverse is also true.

If your company is a cash suck, an acquirer is going to calculate that she needs to inject a lot of working capital into your business on closing day, which will deplete her resources and lessen the check she writes to you.

How To Improve Your Cash Flow

There are many ways to improve your cash flow – and therefore, the value of your business. One often overlooked tactic is to spend less on the machines your company needs to operate.

In the restaurant business, for example, there is an often repeated truism that it takes three bankruptcies at a single location before any restaurant can make money. The first owner of the restaurant walks in and – with all of the typical optimism of a new entrepreneur – pays cash for a brand new commercial kitchen complete with fancy stove, commercial grade walk-in coolers, etc., as well as all new dishware, pots and pans, thus depleting his cash reserves before opening night. Within a year, the restaurant owner runs out of cash and declares bankruptcy.

Then along comes a second entrepreneur who decides to set up her restaurant at the same location and buys all of the shiny new equipment from owner number one’s creditors for 70 cents on the dollar, figuring she has made a wonderful deal. But the outlay of cash is still too great and she too is out of business within a year.

It’s not until the third owner comes along that the location actually survives. He saves his cash by buying all of the equipment off the second owner for 10 cents on the dollar.

The moral of the story is: find a way to reduce the cash you spend on equipment, however you can. Can you buy your gear used on sites like eBay? Can you share a very expensive piece of machinery with another non-competitive business? Can you rent instead of buying?

Profits are an important factor in your company’s value but so too is the cash your company generates. We call this phenomenon The Valuation Teeter Totter and it is one of the eight key drivers of the value of your company. Curious to see how you’re performing on all eight drivers?

Sellability Score

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Long-Term Care Insurance 101—Part 1: The Basics

As a company, IRONSHIELD has embraced the need to include long-term care insurance as part of an overall comprehensive benefit plan. This has brought us in touch with Canada’s most talented experts in the field. I had the pleasure of speaking with Jennifer Jacobs, a top long-term care insurance specialist, who had provided us with an excellent overview of what long-term care insurance encompasses.

Today, I want to share with you Jennifer’s expertise. In Part 1, I will give a brief description of what long-term care insurance is and dispel some of the most common myths surrounding this type of insurance coverage. In Part 2, I will share some insight into the various plans available in the market today and talk about some of their pros and cons.

Long-term care insurance is something that people don’t tend to think about when they are young because they feel that there is no need to. This is precisely the first myth that I wish to dispel in today’s post. Until a while ago, I had never been injured and never thought that I would have to think about long-term care. But then, I was involved in a serious water skiing accident and suddenly, I found myself changing the way I thought about long-term care and how it would benefit my family.

The misconception on long-term care comes from our association of the term with long-term facilities, when in fact, the two are not related at all. A long-term care insurance policy is essentially a security tool that allows you to go through life with confidence in the event that you encounter a serious injury or a situation in which it hinders the daily activities of everyday life. This type of insurance coverage protects your entire financial plan and provides you with an added income that would help maintain the life choices of your household.

When we are young and involved in various activities, we never quite imagine the chances that we may be taking. We are logical and presume that the possibility of injuries is something that we don’t have to consider until we are much older. It is only when we do experience a potentially life-threatening situation that we realize the affects of our injury could be financially devastating. For example, you may require assistance with routine tasks while you are injured, and whether it is by hiring a service or reallocating the task to another family member, the action will affect your overall income in some way.

A long-term care insurance policy is simply an income benefit. By acting proactively and securing an insurance policy in place, you are giving yourself the protection you will need in the future. However, it is important to understand that long-term care insurance is not a replacement for disability insurance. The second myth that I want to dismiss is that a long-term care insurance policy would affect the other various plans you already have in place. This is not the case with this particular type of coverage. The difference with this policy is that it isn’t asking whether or not you can do your job; it is asking if you can live independently. There are very strong overlaps between long-term care and disability plans, but rest assured that you are able to collect on both.

The third myth that I want to discuss is what it means to be able to live independently. While long-term care is strictly about whether or not you need help with your daily living, there are a few criteria that must be met before a claim can be made. First of all, there is a short waiting period to prevent small claims, such as sprains or strains. This ensures that the policy is effective for more severe circumstances, such as fractures, recovery from surgery, and incidents that actually affect you for typically more than 30 days. Secondly, the long-term care insurance plan will provide you with the income no matter what injury you have or how it happened. The only restriction here is criminal acts, such as drug use and the like, for obvious reasons.

In short, the whole purpose of a long-term care insurance policy is to promote your life into the stable state in which you want to maintain it. This type of policy is so unique because it has an unlimited status on it, which means there is no limit on the number of times you can collect in your life time. An unlimited status makes the long-term care insurance plan absolutely one of a kind in the Canadian market today.

To ensure that you are protected financially in the event of a serious injury, don’t forget to check back for Part 2, in which I will discuss the various plans available, as well as a little bit more detail on what counts as being “physically dependent.” I will also talk about the pros and cons of these plans, and point out their most tempting features. I strongly advise you to take the initiative and learn more about securing this very beneficial insurance plan. Its long term effects will certainly prove to be most rewarding in the future.

Related Links

Find Out if You Have the Right Type of Insurance Plan

https://www.ironshield.ca/services/insurance-plan/

Health and Dental Insurance

https://www.ironshield.ca/online-healthdental-insurance/

Why did Charles Wilton sell Citi Bank and buy John Deere?

Charles Wilton

In today’s episode, I chat with Charles Wilton, Portfolio Manager with the Private Investment Management Group at Raymond James.  We talk about the recent deposition and acquisition in his portfolio.

IRONSHIELD Financial Planning’s “Fly On The Wall” update call.
These calls are recorded by Scott Plaskett and allow you to get a behind-the-scenes look at one of his professional update calls. Watch and listen as a “fly on the wall” and get some of the most valuable information you will find on the Internet.

10 Things That Make Your Business More Valuable Than That of Your Industry Peers

Republished with permission from Built to Sell Inc.

The value of your company is partly determined by your industry. For example, cloud-based software companies are generally worth a lot more than printing companies these days.

However, when we analyze businesses in the same industry, we still see major variations in valuation. So we dug through the data available to us from our partners at The Sellability Score and we found 10 things that will make your company more valuable than its industry peer group.

1. Recurring Revenue

The more revenue you have from automatically recurring contracts or subscriptions, the more valuable your business will be to a buyer. Even if subscriptions are not the norm in your industry, if you can find some form of recurring revenue it will make your company much more valuable than those of your competitors.

2. Something Different

Buyers buy what they cannot easily replicate on their own, which means companies with a unique product or service that is difficult for a competitor to knock off are more valuable than a company that sells the same commodity as everyone else in their industry.

3. Growth

Acquirers looking to fuel their top line revenue growth through acquisition will pay a premium for your business if it is growing much faster than your industry overall.

4. Caché

Tired old companies often try to buy sex appeal through the acquisition of a trendy young company in their industry. If you are the darling of your industry trade media, expect to get a premium acquisition offer.

5. Location

If you have a great location with natural physical characteristics that are difficult to replicate (imagine an oceanfront restaurant on a strip of beach where the city has stopped granting new licenses to operate), you’ll have buyers who understand your industry interested in your location as well as your business.

6. Diversity

Acquirers pay a premium for companies that naturally hedge the loss of a single customer. Ensure no customer amounts to more than 10 percent of your revenue and your company will be more valuable than an industry peer with just a few big customers.

7. Predictability

If you’ve mastered a way to win customers and documented your sales funnel with a predictable set of conversion rates, your secret customer-acquiring formula will make your business more valuable to an acquirer than an industry peer who doesn’t have a clue where their next customer will come from.

8. Clean Books

Companies that invest in audited statements have financials that are generally viewed by acquirers as more trustworthy and therefore worth more. You may want to get your books reviewed professionally each year even if audited statements are not the norm in your industry.

9. A 2iC

Companies with a second-in-command who has agreed to stay on post sale are more valuable than businesses where all the power and knowledge are in the hands of the owner.

10. Happy Customers

Being able to objectively demonstrate that your customers are happy and intend to re-purchase in the future will make your business more valuable than an industry peer that does not have a means of tracking customer satisfaction.

Like a rising tide that lifts all boats, your industry typically defines a range of multiples within which your business is likely to sell for; but whether you fall at the bottom or the top of the range comes down to factors that have nothing to do with what you do, but instead, how you do it.

Sellability Score

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Mike Flux – General and Investment Alternatives Update Q2 2014

MichaelFlux_1000x1230

In this video, I speak with Mike Flux, Senior VP of Connor Clark & Lunn Private Capital to chat about their investment outlook from Q2 of 2014. We also discuss how to interpret the current events, and how to properly position portfolios to take advantage of these market events.

In this second video, Mike gives an update on the alternative strategies that they are using in their portfolios to help reduce the effects of the current volatility without sacrificing returns.

IRONSHIELD Financial Planning’s “Fly On The Wall” update call.
These calls are recorded by Scott Plaskett and allow you to get a behind-the-scenes look at one of his professional update calls. Watch and listen as a “fly on the wall” and get some of the most valuable information you will find on the Internet.

Four Mistakes to Avoid When Creating a Retirement Income Plan

Today, I want to talk about the four common mistakes that retirees should avoid making when creating a retirement income plan. These are:

  1. Not factoring in inflation

  2. Not factoring in income taxes

  3. Poor structure of investment management fees

  4. Believing in the myth that your fixed income exposure needs to match your age

First, let’s begin with the mistake of not factoring inflation into your proposed retirement income needs. It is extremely important to consider inflation because how long your money lasts is a direct result of how much it is going to cost you to live your life each year.

For example, you determined that life is going to cost you $5,000 each month. This amount will be used towards food, clothes, etc. But don’t be fooled into thinking that this is the same amount of money that you will need in the future. Things will get increasingly expensive, and your cost today is not going to match your cost tomorrow.

During your working years, it is much easier to anticipate inflation, and most salaries keep pace with the general increase in prices. However, inflation can become a real problem when you are on a fixed income, and your standard of living can be affected if you haven’t properly planned for it. If we factor a Canadian average inflation of 2% a year into the above example of $5,000, it will cost you $7,430 a month to live the same life in the future.

In addition to the effects of inflation, mistake number two is not factoring in income taxes. If you need $5,000 a month to cover living expenses, you will need to withdraw more than that amount in order to have enough to pay the income tax bill as well. Failing to factor income taxes into the retirement plan could exhaust your portfolio before expected.

The third mistake to avoid when creating a retirement income plan is to make sure you are not poorly structuring the investment management fees that are paid to your investment management team. Chances are you’re investing in mutual funds, and will need to pay a fee to the mutual fund company for their services. On average, you would pay 2.5% for this fee. What this means is that if your portfolio generates an 8% gross return, you would only see 5.5% instead.

There is a little trick that I would recommend to reduce the impact of the management fee without changing your portfolio. Instead of having the MER paid before you see your distributions, you can ask your advisor to have the fee unbundled. This means that they will first pay the full 8% gross return generated, and then subsequently charge the management fee. By separating the two, you will be able to earn a tax deduction for the amount that you paid for investment counselling as dictated by the CRA.

Lastly, the final mistake to avoid is thinking that you need to match the percentage of your portfolio allocated to fixed income to your age. For example, it might seem logical to have the majority of your portfolio in bonds at an elder age. However, you will be setting yourself up for a major drop in income due to the low return expectations on fixed income, making it more difficult to counter the combined effects of fees, inflation and taxes that I mentioned earlier.

No matter your age, a sound asset allocation program starts with one’s net worth, expected income needs and risk tolerance. Everyone’s circumstances are different and believing in the myth could lead to underperformance and interfere with you achieving your financial goals.

I strongly invite you all to make sure that you account for these four variables when creating a retirement income plan. Contact your investment advisor to adjust the way you pay your portfolio’s management fee. Make smart choices when planning for your future.

A blood pressure test for your business

Republished with permission from Built to Sell Inc.

When was the last time you had your blood pressure tested?

Taking your blood pressure is one of the first things most doctors do before treating you for just about anything. How much pressure your blood is under as it courses through your veins is a reliable indicator of your overall health; and it can be an early indicator of everything from heart disease to bad circulation.

Does it tell the doctor everything they need to know about your health? Of course not, but one powerful little ratio can give the doctor a pretty good sense of your overall wellbeing.

Likewise, your Sellability Score can be a handy indicator of your company’s wellbeing. Like your blood pressure reading, your company’s Sellability Score is an amalgam of a number of different factors and can help a professional quickly diagnose your company’s overall health.

Predicting Good Outcomes Too

When a doctor takes your blood pressure, they not only rule out possible nasty ailments; they can also use the pressure reading to forecast a healthy life ahead. Similarly, your Sellability Score can predict good things for the future. For example, based on more than 10,000 business owners who have completed their Sellability Score questionnaire, we know the average multiple of pre-tax profit they are offered for their business when it is time to sell is 3.7. By contrast, those companies that have achieved a Sellability Score of 80+ are getting offers of 6.6 times pre-tax profit.

In other words, if you have an average-performing business turning out $500,000 in pre-tax profit, it is likely worth around $1,850,000 ($500,000 x 3.7). If the same company improved its Sellability Score to 80+ while maintaining its profitability of $500,000, it would be worth closer to $3,300,000 ($500,000 x 6.6).

Are you guaranteed to fetch 6.6 times pre-tax profit if you improve your Sellability Score to 80? Of course not. But just like blood pressure, one little number can tell you and your advisor a whole lot about how well you are doing; and your advisor can then prescribe an action plan to start maximizing your company’s health – and its value down the road.

Heart disease is called “The Silent Killer” because most people have no idea what their blood pressure is. People can walk around for years with dangerously high blood pressure because they haven’t bothered to get it tested. The first step on the road to health is to get tested. If you have a great score, you can sleep well at night knowing you have one less thing to worry about. If your score is not where it should be, then at least knowing your performance can get you started down the road to better health.

Sellability Score

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Charles Wilton – Why It Was Time To Sell Walgreens

Charles Wilton

A new interview with Charles Wilton, Portfolio Manager with the Private Investment Management Group at Raymond James.  In today’s episode, we talk about the recent disposition in his portfolio and why he decided to sell Walgreens.

IRONSHIELD Financial Planning’s “Fly On The Wall” update call.
These calls are recorded by Scott Plaskett and allow you to get a behind-the-scenes look at one of his professional update calls. Watch and listen as a “fly on the wall” and get some of the most valuable information you will find on the Internet.