One of the great parts about my job is that I get to work with really intelligent people in really interesting places. I just got back from 5 days of client meetings in New York. It really fires me up to work with such motivated passionate people in the industry. During our meetings, one of[…]
One of my favorite management truisms is “what is measured gets managed”. In our industry, it seems that daily there is a new metric to be managed. Whether it is cycle time, rental days, repair vs replace, severity, or refinish hours, this is an industry dominated by operational metrics. But for all of our focus[…]
Warning: there are some serious accounting terms in this post! But they are terms that every business owner needs to know. When I work with clients as an outsourced CFO, I tend to spend a bit of time working through the balance sheet. A poorly managed balance sheet has the tendency to burn up cash,[…]
While earning my MBA and while working as an equity analyst, I learned that to better understand the strength of a company, as well as the motivations of management, it is always best to look directly at the statement of cash flows. The cash flow statement tells the reader exactly how much money the business generates and exactly how management is investing and spending the money they make.
When using comps to determine your valuation there are two pieces of data needed – your financials (i.e. profitability) and the multiple, or comp. Discover 5 simple ways to maximize your financials and increase your valuation.
I just wrapped up a week in Detroit where I presented at an industry event organized by a major paint manufacturer. I discussed growth strategies in a consolidating industry. We talked about industry evolution and ways to increase the value of your business by taking advantage of the same trends and using the same corporate[…]
I’m at SEMA AAPEX this week. I have had the fantastic opportunity to meet with a huge diversity of businesses, ranging from the single location operator to multi billion dollar international organizations. Throughout the course of the entire week a common question I receive is “Brad, how can you you help increase the value of[…]
The end of the year is almost upon us. Only 9 full weeks left in 2015. The last quarter of the year always goes fast. There are simply more holidays and outside demands in the last three months of the year.
I wanted to take a break from big, high-level industry analysis for a moment and drill down into the nuts and bolts of financial management. As the year begins to draw to a close it is a good time to take stock of the current state of business. Here are six simple financial KPIs to look at every month to increase the value of your business.
Many of these financial KPIs are similar to metrics that the large consolidators use to evaluate individual locations across their networks. While there are many more complex metrics that are important to evaluate regularly, this is a list of what I consider to be simple financial KPIs that a business owner ought to be looking at on a monthly basis, if not more frequently. […]
Recently I was at NACE in Detroit. NACE brings together leaders in collision repair, automotive service, and the multitude of stakeholders in insurance, parts, paint, and technology industries. It was a fantastic event full of great networking and educational seminars.
I had the opportunity to sit down with a lot of business owners in the industry who were incredibly optimistic about their future. They clearly recognize the challenges facing their business but are actively engaging in strategies to mitigate their risk while growing and thriving.
Consistent throughout many of my discussions, however, was the concern of managing the financial risks that often accompany growth. The lessons of M2 and other failed bids at rapid growth are still fresh in the minds of many in the industry. While these business owners are excited about the growth opportunities available to them they recognize that growth will bring additional financial pressures and challenges. In light of these concerns, our conversations naturally shifted to the role of the Chief Financial Officer (CFO) and how a company manages the financial risks growth entails. […]
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! […]
Over the next few weeks we will be discussing the Boyd Group Income Fund (“Boyd”), one of the world’s largest collision repair operators. As of the date I’m writing this, Boyd owns and operates 340 collision repair facilities in North America under the names Boyd Autobody & Glass in Canada and Gerber Collision & Glass in the U.S. (amongst other co-branded names such as Champ’s Collision Centers and Craftmaster Auto Body). Boyd also has a significant retail auto glass operation in the U.S. The company trades as a unit trust on the Toronto Stock Exchange and has an enterprise value of over a $1 billion (all values are in Canadian dollars unless otherwise indicated). Enterprise value is the total value of the company, including net debt (total debt – cash) and equity.
Because Boyd is publicly traded, it is required to file quarterly and annual reports outlining the financial performance of the company. Every three months the company files a report that includes an income statement (also called a Statement of Profit/Loss or a profit and loss statement), a balance sheet (also called a Statement of Financial Position), and a statement of cash flows. It also includes a rather lengthy section of Notes to Consolidated Financial Statements where management discusses the results along with numerous footnotes further explaining the results from operations. You can access Boyd’s recent financial reports on their investor relations website.
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. […]
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. […]
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. […]
The collision industry is a $30 billion market in the U.S. But not a single company accounts for even $1 billion in sales. There is a race to get to the $1 billion in sales mark. (Editor’s note: keep an eye out for our upcoming article on what is driving this race to $1 billion).
The quickest way to get to the $1 billion mark is to acquire other businesses that already generate a few million dollars in sales. So the consolidators need you – but they are also afraid of you.
They are afraid of you because you lack experience.
The large consolidators by their very nature are incredibly cautious. They are backed by some of the largest financial institutions in the world and are stewards for hundreds of millions of investment dollars. They unfortunately cannot just “take your word for it”.
Sure you have been in business for years. You have long term employees. You have long term referral accounts via DRP’s or dealer referrals and repeat business.
But you are inexperienced in their world. […]
Many owners I interact with still run their business the same as the day they started. They are the first one there in the morning and the last one to leave. They know what is going on with every file. They are the only ones allowed to make decisions.
This level of dedication is admirable. Unfortunately while it can feel profitable and even feed our own ego, it often gets in the way of maximizing the value of your business. You want your business to run better today and be better positioned for tomorrow – even if you are not planning on selling any time soon.
In order to maximize the value of your business you have to view your business from the outside in. Or, as a good friend of mine once told me, work on your business not in 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: […]
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. […]
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.
Previously we talked about the state of the industry. Wall Street has arrived in the collision industry. And Wall Street doesn’t play nice when it comes to money.
The insurance companies we do business with every day are some of the most powerful financial institutions in the world. Even the small ones wield huge influence. Their campaign contribution dollars get favorable politicians elected. Their lobby dollars get favorable laws passed (Obamacare anyone?)
In other words, they get a great return on their investment. […]
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? […]