By: Daniel Kim
In economic times like these, it’s more important than ever to know the value of your company.
Put on your investor hat for a moment. It’s important for companies that want to grow to know where to aim for the next three to five years, but also to prepare your business for engaging with outside capital. I hear from plenty of coaches here at CEO Coaching International that their clients want to sell in the next five years, but aren’t sure how to get there.
I come from 25 years of experience in investment banking. I’m here to tell you that any outside capital you seek to grow or sell your business is going to want to know how quickly you’re growing, how you’re operating relative to competitors, and how you’re operating relative to historical growth, alongside a detailed picture of your current financial health.
Whether or not you plan to sell, doing due diligence now gives you a roadmap to what that can look like—and how you’re doing relative to your competition. Here’s how to get your financial house in order:
1. Know your numbers
You would think financial numbers are at the fingertips of every CEO. But that’s not always the case. The first conversation you need to have is how to get these basic numbers if you want to make a plan to grow.
I’m not talking about your customer net promoter score, customer satisfaction rates, conversion rate on cold calls, or customer lifetime value. CEOs need to think even BIGGER. Specifically, keep an eye on your CAGR and EBITDA—top-line numbers that give you a snapshot of your overall financial health. You should know:
- Gross Margin
- Cost of Acquiring a Customer
- Operating Expenses by Department
- Net Margin
Too often, CEOs get caught up in day-to-day issues and don’t sit down to analyze their financial foundation. Schedule a monthly financial review for you, your CFO, and your controller to dig into the overall health of your business, including how your numbers are performing, reviewing financial statements, and discussing trends.
2. Run multiple cash scenarios
A business can’t survive without cash. Yet many companies conflate profit with cash flow—a critical mistake.
As CEO, you need to have a handle on your cash situation. You, not your CFO.
As we cross the bridge from strategy to execution, one of the tools that we use to pressure test our CEO clients’ annual goals, especially when it comes to their cash and growth, is a sensitivity analysis. This “What If?” analysis allows businesses to estimate how variable inputs affect potential target outcomes and determine what level of growth is sustainable for your business.
- Add your KPIs from your balance sheet. This includes your cost of goods sold (COGS), gross profit, operating expenses, and other assets and liabilities.
- Make some key assumptions. What if site traffic increases by X%? What if the average time to close decreases? What if your growth rate doubles? What if…
- Think BIG. What actions and changes would you have to make to achieve this theoretical what-if (if positive) or defensive positions to take to avoid it (if negative)? Should the outcome occur, what new challenges would it create? How would it impact the year? How much cash do I need?
This analysis offers a pathway of “how” to complete your goals, with the numbers behind your target automatically calculated. For example, if you know that if you want to get to $100 million in value, you’ll be able to see exactly how much you’ll need to grow your revenue and EBITDA.
3. Work with an expert
If you’re in a tough situation, and you don’t know what you’re missing to solve the problem, it’s helpful to look from the outside in. You can be too close to the problem to be able to uncover it. That’s why I helped develop these tools in the first place.
For companies that need to go deeper, CEO Coaching International offers a specialized triage service designed to help you identify exactly what’s holding you back—and how to solve it. I love getting the chance to jump in and help CEOs use these tools I created as part of this team. We do a full business audit, business plan creation, and a special two-day-intensive workshop with leadership to help you find long-term solutions to your current challenges.
This deep dive can be just what you need to stick to the system, maintain momentum, and keep Making BIG Happen.
Learn more with our free eBook, Top 5 CEO Financial Must-Haves
This five-step playbook is designed to help you get your financial house in order. It’s filled with the wisdom and insights from our world-class coaches, all former CEOs who know what it’s like to be a leader during times of uncertainty.
About CEO Coaching International
CEO Coaching International works with CEOs and their leadership teams to achieve extraordinary results quarter after quarter, year after year. Known globally for its success in coaching growth-focused entrepreneurs to meaningful exits, CEO Coaching International has coached more than 1,000 CEOs and entrepreneurs in more than 60 countries and 45 industries. The coaches at CEO Coaching International are former CEOs, presidents, or executives who have made BIG happen. The firm’s coaches have led double-digit sales and profit growth in businesses ranging in size from startups to over $10 billion, and many are founders that have led their companies through successful eight, nine, and ten-figure exits. Companies working with CEO Coaching International for two years or more have experienced an average EBITDA CAGR of 53.5% during their time as a client, more than three times the U.S. average, and a revenue CAGR of 26.2%, nearly twice the U.S. average.