Advanced KPIs: The Boyd Group

Over the past few weeks we have taken an in-depth look at the Boyd Group Income Fund (Boyd) income statement, cash flow statement, and balance sheet. The purpose of this was to understand how a large MSO uses corporate finance to drive growth and to also explain how a company that reports a net loss in the millions of dollars actually generates millions of dollars of cash for shareholders (or, in Boyd’s case, the “unitholders”). We also discussed how Boyd is leveraging scale to drive increased profitability and sales growth.

This week, rather than just reviewing the financial statements as they are, we are going to complete a bit of financial analysis to derive certain KPIs that tell us more about how Boyd operates.  I will keep the analysis straightforward – no derivative equations I promise! […]

The Boyd Group: Understanding the Balance Sheet

For the past few weeks we have been talking about The Boyd Group (“Boyd”), one of the largest collision and glass repair business in the world. Headquartered in Winnipeg, Canada, Boyd operates under three main trademarks; Boyd Auto Body and Glass in Canada, Gerber Collision and Glass in the U.S. and Gerber National Glass Services, a network of over 3,000 independently owned glass repair and replacement businesses across the U.S.  Boyd is the largest pure-play collision repair business in the world by number of locations, and one of the largest in terms of sales.

This week we are going to look at Boyd’s fiscal year 2014 Balance Sheet, or more formally the Consolidated Statement of Financial Position. The balance sheet, unfortunately, is one of the more overlooked financial statements in the industry. For many, it is a statement relegated to year-end tax planning and rarely, if ever, analyzed throughout the year. But understanding and managing a balance sheet is one of the core tenets of corporate finance.

Regardless if your goal is to grow, sell, or stand pat, balance sheet management is critical to your business. […]

The Boyd Group: Understanding the Cash Flow Statement

Last week we discussed the Boyd Group Income Fund (“Boyd”), specifically the Fiscal Year 2014 Income Statement, and how it is both similar and different to the income statements of other operators in the industry. In 2014 Boyd generated an impressive $844 million in sales but reported a net loss of over $15 million. Many in the industry mistakenly assume that because the company operates at a net loss it is only able to remain in business through the benevolence of Wall Street banks. The reality is that Boyd, while operating at a net loss, generates substantial cash for shareholders. And when adjusting for certain accounting idiosyncrasies unique to the legal structure and location of the firm, the company generates a respectable profit. To understand how this is possible is to understand the difference between cash and accrual accounting*, and more generally, how to use corporate finance to drive systemic growth.

*See the footnote at the end of this article for a further explanation of cash vs. accrual accounting.

While Boyd generated a significant net loss on an annual basis, it also generated substantial cash from collision and glass operations. […]

3 Ways Consolidators Manage Their Finances

I talk a lot about finance. After all, I have a Master’s in Business Administration (MBA) with a specialization in finance and M&A. I think telling the story of a business through numbers and being able to interpret a business through financial reporting is pretty neat.

But more than just being neat, it is incredibly important and valuable. It is so important that in some Fortune 500 companies the CFO is as valuable as the CEO (in fact, a common way to become a CEO is by first becoming CFO). Sitting in on Wall Street earnings calls, often it is the CFO doing most the talking while the CEO can take a bit of a back seat. The large consolidators actively recruit seasoned CFOs that have experience in consolidating industries.

But this is less the case in the rest of the collision industry. […]

Using Finance to Drive Systematic Growth

Previously I spoke about how collision repair operators will have to develop new core competencies in order to compete against the increasing competitive pressures as a result of industry consolidation. As we saw last week, consolidation is a trend that is not going away, and most likely will continue in frequency and intensity. Collision repair is no longer just about fixing cars and minding KPI’s.

In business school we talked a lot about core competencies. The most basic definition of a core competency is something a business is really good at. In collision repair, most operators would have a core competency in vehicle repair and customer service.

In fact, we may actually be too good at those things. […]

How Financially Fit is Your Business: Understanding Working Capital  

Working Capital is something that is scrutinized by almost every company but rarely talked about in the collision industry.

But I guarantee every large MSO in your marketplace is actively managing Working Capital.

It is also something that major vendors will consider if you are negotiating for a pre-bate or other consideration for purchasing their product.

Banks look at it too. If you want to borrow money to grow, they will scrutinize Working Capital to ensure that you can afford the loan.

If you ever sell your business, it will be a hotly negotiated topic as well.

Most business owners do not look at working capital until one of the above situations forces a working capital negotiation. But that is the wrong time to start managing working capital. It is like going on a diet the week before your annual doctor checkup. […]

6 Ways to Maximize the Value of Your Business

Previously we talked about valuation methods. Valuation is great, but like any tool, only as good as the person using it.

Anyone can tell you that your business is worth $10 million. But if you can’t find a buyer at that price, is it really worth that much? An investment banker once told me that a business is only worth what a buyer is willing to pay for it…PERIOD.

In order to maximize what a potential investor or buyer is willing to pay for your business you must be able to demonstrate the value of your business to them.

Understanding valuation methods is important (common valuation models are discussed in this article).

You also need to pay attention to recent comps. Know what other businesses in your industry sell for. If possible, know the profitability and size of those businesses so you can compare them to your own business.

But in addition to the above, here are six more ways to maximize the value of your business: […]

3 Reasons MSO’s Know Exactly What Your Business is Worth

A colleague of mine was recently approached by one of the Big 4 inquiring about his business. After a few brief conversations around his financials they came back to him and offered him a very specific number to buy his business.

He remarked to me, “They knew more about my business and what it was worth than I did. I had no idea.”

Ask 5 business brokers what your business is worth and you’ll get 5 responses. Ask 5 investment bankers and you will get 25 responses.

How do the MSO’s know exactly what your business is worth? How do you value a business?

There are three common ways I see collision businesses valued: by discounted cash flow (DCF), the multiple method, or by asset value.

Let’s break each one down. […]

What is this EBITDA thing?

EBIT…Huh? What the heck is that?

Say it out loud with me: Eeee – bit – dah.

One more time out loud.

EEEE – bit – daaaah.

 

Did your co-workers just look at you funny? Good.

EBITDA is short for Earnings Before Interest Taxes Depreciation and Amortization. It is a shortcut to estimate cash flow to the firm. It’s also one of the more common financial measurements used to value firms.

EBITDA approximates the cash the business is generating for all stakeholders (owners, investors, debt provides, etc.).

That is important for an investor to know. When someone invests in your business, they want to know what they are getting in return. EBITDA is a good way to measure that.

[…]

Profits Don’t Matter – Why it’s really all about cash flow.

It’s all about profits, right? You can’t survive in this industry unless you mercilessly watch your profit margins. Parts margin, paint margin, labor margin, gross profit margin, overhead expenses, the list goes on and on.

But what if I told you that the big boys don’t care about their margins? […]