By Jean-François Fontaine, B. Eng. M.Sc.A. Profit Maker & Speaker at Vision Profit (www.visionprofit.ca)
As a business leader, you are concerned by a succession plan that will insure the sustainability of your business. You must be focused on maximizing the value of your business, years before you decide to sell the control, while getting the maximum return of your efforts, invested over the years.
It is a no brainer, you must evaluate/adjust/confirm your business plan while foreseeing in advance what should be the business’s value 5 to 10 years from now. You need a plan that will, at least, double your EBITDA to insure maximum return. But HOW to achieve this objective is not trivial, it is, on the contrary a real challenge
Doubling the EBITDA is not a trivial objective; it is a real challenge to achieve!
The conventional method is to perform a Strategic Planning Process that should answers questions such as, where do you see your business 5 years from now? But in today’s world, this approach does not deliver what it’s expected! How could it be possible to answer such question in a world of constant changes where we keep wondering how to catch-up the technological progresses pace that keeps increasing.
Changes become a way of life instead of punctual events that occurs from time to time!
How could we really think projecting ourselves 5 years from now could be realistic if we even don’t know what the next 18 months will be?
We need to change our perspective, instead of looking from outside toward inside our business, we have to change the direction of our analysis and start, from the inside, to understand what made us successful over the years. In other words, how could we be really profitable if we do not understand our Profit Drivers! Those, at the origin, that made us what we are!
Once we understand deeply the reasons of our profitability, we can, then, “extrapolate” toward what we should aim for.
Understanding the Profit Drivers that made us what we are is pre-requisite to define what we should aim for!
Your business contains a treasury that you do not suspect it existence! It is the BIG DATA, the one that belongs to your organization. These DATA are related to your primary activity that consists to manufacture and deliver products to your clients. In fact, with the proper perspective, you can extract from it a lot’s of information that will guide your growth plan.
Information, such as, how the market react to your product offers, or what is the best mix-product or mix-market to pursue can be identified. The unsuspected wealth of your corporate data can even identify what should be the short term strategy that will boost your EBITDA.
With the analysis capability that comes with software such as Excel, our ability to extract strong strategic information has expanded beyond expectations. However, don’t get me wrong, despite the wealth of your corporate data, those has to be organized/characterized in order to deliver the real information.
Let me explain what it means to organized the DATA:
From your database, it is possible to cross sales data with operational data to aggregate each sales transaction with the real efforts that has generated the sales $ and the contributions $. However, each aggregated transaction comes raw without information about the MARKETS, the MARKET SEGMENTS, ETC. Most of the time this information related to clients is not properly organized into the company’s database to allow good conclusions about trends.
Nevertheless, it does not prevent adding the proper characterization to each sale transaction that will allow conclude about where the profit is coming from and what are the trends to expect for each market we are involved in. Here is a very simple example that shows how we can extract the trends from the corporate data, but the most important, how we can identify a sales strategy:
The first chart shows how,
for the CONVENIENCE MARKET of products distributed through WHOLESALES DISTRIBUTORS,
the yearly contributions $ and the % of contribution over the sales that have been generated over the last 4 years.
The second chart shows the sales volume in units that evolves in relation with the applied pricing strategy.
The sold volume goes in the opposite direction of the % of contributions/Sales!
As you can see, this market segment is highly sensible to the pricing strategy. Over the last 4 years, the % of contributions that is related to prices has been reduced by 5% while we observed an increase in the sold volume. However, we can also see an increase in the yearly generated contribution $ that proves the positive pricing strategy impact.
Now, just imagine if you tag all your sales transactions according to the involved MARKETS and INTERMEDIARIES your business in involved. You would be in the position to identify the markets and intermediary to target by measuring the real monetary impacts on your profitability.
From there, you can build a stronger sales strategy that will lead you toward higher profitability level and an EBITDA increases. It is then a matter of building a short term sales strategy that maximises the sales contributions by identifying with what market and intermediary you want to generate your profit.
With the unsuspected richness of your corporate data, you can identify the winning Strategies that have a significant impact on your profitability
Every year, change pace increases and it is becoming very difficult to accurately project ourselves 5 years from now. Predicting the next 18 month is a challenge. How to build a succession plan that will increase the EBITDA in these conditions?
Corporate data contains unsuspected wealth with which you can build a winning strategy that will increase the profitability of your business. By appropriately characterizing your sales data of the last 5 years, you can monetarily quantify the impact of market trends and intermediaries in order to choose the ones that will enable you to quickly increase your EBITDA.
Thereafter, it is possible to extrapolate those trends and proceed with a market watch process that will allow building a scalable sale strategy (market/intermediary) that will be revised on a yearly basis.