From The Blog

A few years ago, three partners of a local CPA firm sat around the table talking. All of them were Baby-Boomers in age and they talked about what would happen to their 20+ person firm after they retired.

Two choices seemed logical. One, they could entice a larger firm to buy them out or, two, they could hire and train staff to replace them. Either choice required work to build value in the firm and maximize the anticipated “sale” of the business in the future.

At some firms, seasoned Baby-Boomer partners are preparing to exit within the next ten years. They may have children (or grandchildren) in the family who are being groomed to take over the business.

(Eighty-four percent of multi-owner firms surveyed in 2016 by the American Institute of CPAs said they believe succession will be a big issue for them in the next decade.)

Plan

Planning your future exit from the business can differ depending on the size of the business.  Regardless of the industry you are in, training future partners in advance is important for Baby-Boomer entrepreneurs to plan for.

Some businesses include mandatory requirements in written agreements, describing how an outgoing partner must transition clients to work with their replacement.  Partners or co-owners who opt to sell their part of the business may encounter roadblocks because the market is saturated in their area of expertise. This poses a challenge for soon-to-be retirees and their firms.  Planning in advance will increase the probability of a successful sale for those who hope to sell their career-long business at an acceptable price.

Young professionals who are looking to buy in to an existing business must be sensitive to business founders approaching retirement, as many have spent their careers building their firms and may be hesitant to step away.

Opportunities

If you are a young Millennial looking to buy out the owners or you’re a partner or co-owner who is planning on retiring soon, open and ongoing communication is a key element to successful transition.

At some firms, particularly those providing professional and technical services on things like taxes and financial matters, owners can decide to expand their firm now to avoid a leadership gap when they retire. The business might establish specialties in specific areas so that the founder can appoint younger talent to lead in those niche services.  Existing owners may think about when to strategically give notice of retirement to co-owners, so that younger leaders have a firm timeline for when they’ll become partners.

In one business, with a staff of about 10, the co-owners re-organized to have multiple people serve a single client.  This makes a client more likely to stay with the firm when the founder or co-owner leaves the firm.  Ten percent of multi-owner CPA firms surveyed by the AICPA in 2016 reported that they’ll likely look to merge with another firm after their current senior owners retire.

In a merger situation, large firms may shop for specialty expertise in smaller businesses, related to their industry.  They’re likely to ignore a firm without a strong niche. Firms who avoid technology, like using paper instead of cloud-based systems, may drive away interest from a potential buyer.

Ten years ago, small firms most often merged with larger organizations because they lacked a succession plan.  That’s changed, with many firms now merging as a strategic move. Large firms may offer pricey technology, for example, that small firms need so that they can compete and reduce costs.

Summary

As Baby Boomers retire, younger entrepreneurs have immense opportunities to buy into a solid firm.  However, generations may clash. For example, a retiring founder may choose to meet with clients face-to-face, while on the other hand incoming partners could pick email communication.  There is a huge opportunity for multi-generations to learn from each other on those fronts.  However, buy-out deals can fall apart because of different philosophies on how to do business.  Planning in advance will mitigate fall-out and maximize returns for the founder(s) when they are ready to exit.

Experience success!


NIta Black, CEO/Business Strategist
www.NitaBlack.com

“We provide business tools to help clients monetize their ideas.”

Baby Boomers are those born between 1946 and 1964, making them 54 to 72 years old, and the U.S. Census Bureau indicates an estimated 74.1 million of them in the U.S.

Photo:  Carolyn Michael-Banks
CEO/Founder of A Tour of Possibilities, LLC
www.ATOPMemphis.com ~ at the LevelUp Conference 2018

The estimated number of Boomer women is 38.44 million. In addition to their existing assets, Baby-Boomers are set to inherit $15 trillion over the next 20 years. Add to this the fact that women drive 70% or more of all consumer purchasing.

Despite these figures, Nielsen estimates that less than 5% of advertising dollars are targeted to adults aged 35 to 64. According to the report, “Typically, once a group of consumers reaches the so-called ‘cut-off’ age of 49, marketers ‘go back to go,’” the report says.

Knowing more about Baby-Boomer women can help you market to them. 7+ facts:

1. Once the college bills are out of the way and children launch their own households, the discretionary spending power of 50-plus women soars. They spend 2.5 times what the average person spends. Women are the primary buyers for computers, cars, banking, financial services and a lot of other big-ticket categories.
– Marti Barletta, Primetime Women

2. Born between 1946 and 1964, Baby-Boomer women represent a portion of the buying public no marketer can afford to ignore. With successful careers, investments made during the “boom” years, and inheritances from parents or husbands, they are more financially empowered than any previous generation of women.
– Mary Brown, Carol Orsborn, Ph.D., Marketing to the Ultimate Power Consumer—The Baby-Boomer Woman

3. Over the next decade, women will control two thirds of consumer wealth in the United States and be the beneficiaries of the largest transference of wealth in our country’s history. Estimates range from $12 to $40 trillion. Many Boomer women will experience a double inheritance windfall, from both parents and husband. The Boomer woman is a consumer that luxury brands want to resonate with.
– Claire Behar, Senior Partner and Director, New Business Development, Fleishman-Hillard New York

4. The number of wealthy women investors in the U.S. is growing at a faster rate than that of men. In a two-year period, the number of wealthy women in the U.S. grew 68%, while the number of men grew only 36%.
– The Spectrem Group

5. Women account for 85% of all consumer purchases including everything from autos to health care:

  • 91% of New Homes
  • 66% PCs
  • 92% Vacations
  • 80% Healthcare
  • 65% New Cars
  • 89% Bank Accounts
  • 93% Food
  • 93 % OTC Pharmaceuticals

American women spend about $5 trillion annually…over half the U.S. GDP.

6. Women represent much of the online market – Digital Divas by The Numbers

  • 22% shop online at least once a day
  • 92% pass along information about deals or finds to others
  • 171: average number of contacts in their e-mail or mobile lists
  • 76% want to be part of a special or select panel
  • 58% would toss a TV if they had to get rid of one digital device (only 11% would ditch their laptops)
    51% are moms

Source: Mindshare/Ogilvy & Mather

7. Women and sports. Women make up:

  • 47.2 % of major league soccer fans
  • 46.5% of MLB fans
  • 43.2% of NFL fans
  • 40.8% of fans at NHL games
  • 37% of NBA fans
  • Women purchase 46% of official NFL merchandise
  • Women spent 80% of all sport apparel dollars and controlled 60% of all money spent on men’s clothing
  • Women comprise about one-third (34%) of the adult audience for ESPN sport event programs

Source – www.she-conomy.com

Here’s what research says, as provided by Jan Marino, BoomerCafe.com:

As the unofficial spokesperson I feel compelled to let you know what I’m hearing from 10K of my closest boomer friends. Here’s a list of ten things that we Boomers want and need from service providers:

  1. Explanations and education about your product or service intelligently delivered informing us why we should invest in your product. 
  2. Options about what the trend of the service/product is … i.e. what’s its “shelf life” 
  3. Engagement with us. We really want to mentor and help others not make the same mistakes we did. We may appear arrogant, but we’re not…we just don’t want to be ignored. 
  4. We want you to know that we control over 70% of the disposal income in this country and we have lots of places to spend that money. We won’t spend it with companies that ignore us or call us aged or aging (even if we are both … you don’t need to remind us). 
  5. Use clever and well thought out campaigns for marketing. Don’t be afraid to go mobile. Offer us deals and great products especially women’s clothing. We have lots of money to spend on clothing, but not many of us can wear a size 0 or show our midriffs. 
  6. We are health conscience and not as worried about our sex lives as ads claim. Help us stay in shape and look good. 
  7. Our pets are part of our family and we think they need stuff, so we’ll splurge on them. 
  8. Our parents are a huge part of our lives and we are taking care of them. Products and services that makes life easier for them and us will sell if treated in an intelligent way…. i.e. NO cold calling…form relationships with families. 
  9. Reinvention and career services that help us stay on top of trends and technology are imperatives. We want to stay well-informed, so we can talk to our children and grandchildren. 
  10. We still care about changing the world and philanthropy. Get large numbers of us interested in worthy causes. We fully understand that the earth’s resources are limited, and alternative methods hold great returns.


NIta Black, CEO/Business Strategist
www.NitaBlack.com

“We provide business tools to help clients monetize their ideas.”

“Learn how to sell.  It’s the best investment you will ever make.  Mark Cuban says so.”  This is a quote from Jeff Haden’s article at Inc.com (August 2017) – enjoy the short video interview of Mark Cuban, billionaire investor, NBA team owner.

You need an angle – email me at info@NitaBlack.com #businessstrategist if you would like to discuss.  You need a sales budget.

How to Budget Sales.

One way to get an idea of a reasonable sales budget for a startup is to look at the industry data. Starting with census data, even though it is always dated, will help a start-up know how many companies are out there and average sales. Go to www.census.gov to pull Sales/Receipts by NAICS industry code. Start with the U.S., then the state, and then MSA and/or county to review geographic reports. Look at the total number of companies in each geographic area and calculate average Sales/Receipts per firm.

The industry information tells you how much was sold by your competitors.  It helps clarify the size of your target market, in dollars spent with your competitors by potential customers.  White papers and other research should help you estimate sales – a key line item in your budget.  The Sales Budget helps you set goals for all other line items in your budget.

Choose the information that is most relevant and comparable to the startup. Assume that it will take at least three to five years for a startup to reach the average Sales/Receipts per firm in the industry. Be conservative in your sales estimates. Consider preparing at least three scenarios of most likely, best case, worst case estimates so that appropriate planning can be considered for required capital, labor, and other resources.

Often, cash flow problems arise because of high growth as well as low growth.  Below is an example (see case study) of how the industry data can be used as a basis for the Sales/Receipts budget.

Sales Budget Process – Case Study.

The Market – XYZ Flooring Company is part of the Construction sector 23, doing business as a specialty trade contractor classified as NAICS 238330 and competing in the Memphis, TN MSA. Can you see how this information maps?  We start with the Construction sector, then choose a specific trade within the total sector.  Next, we look at the US data, data by state, data by Metropolitan Statistical Area (MSA), data by city and/or county.  These levels of information usually tell us something that helps us compete for customers.  We choose the most relevant data, based on the company’s mission and vision.

The Sub-Sector – The construction industry sector has three major groups of companies – (1) Construction of Building (236), (2) Heavy and Civil Engineering Construction (237), and (3) Specialty Trade Contractors (238). Specialty Trade Contractors include flooring, as well as poured concrete, structural steel, framing, masonry, glass and glazing, roofing, siding, electrical, plumbing and HVAC, drywall, painting, tile and terrazzo, finish carpentry, site preparation, and other specialty trade contracts.  Within the 238 sub-sector, there were 39 Flooring contractors reporting under NAICS 238330 in the Memphis MSA for 2009, according to the U.S. Census Bureau. These businesses employed 175 workers with an annual average payroll of $6.9 million.

Geographic Region – XYZ Flooring competes for business primarily in the Memphis MSA, although growth is expected through sales in the three states of Tennessee, Arkansas, and Mississippi. 2007 information reports 187 flooring contractor businesses in the state of Tennessee, 67 flooring contractors in the state of Arkansas, and 42 in the state of Mississippi. Average annual sales size per business is reported as $917,000 by Tennessee companies and $652,000 by Arkansas companies.  This lets us know what may be a reasonable sales budget for XYZ Flooring.

Base Budget Plus Future – As a startup XYZ Flooring’s Sales Budget assumes it will take five years to reach the average Sales of approximately $652,000. The first-year sales are $385,000 based on 5 to 6 retail (consumer) orders per month at $2950 average price per order. Approximately one-half of the annual sales are retail resulting in a total retail sales budget of $194,700 annually. The remaining sales budget of roughly $192,500 includes 10 commercial orders a year at $19,250 per order. The company’s budget is based on an 80% pipeline of orders already placed, with 13 retail orders or $38,000 lined up for the first quarter plus $46,200 in pending commercial orders.

Growth Assumptions – Our source of referrals for both retail and commercial customers are well-established and are believed to support the current Sales/Receipts Budget. An annual growth of 10% for the first five years is assumed conservative, based on industry data provided by xxx Flooring Association which indicates recent historical industry sales growth of 12% to 15% per year.

Frequently Asked Questions (FAQs).

As the startup builds a track record each week, each month, each quarter, and each year, budgets should become more reliable. Who knows, a startup may outperform the industry in the first year so using several scenarios will help predict company needs and avoid crisis management.  Below are a few FAQs to help you as a startup.

  1. How do I calculate Breakeven Sales? Breakeven Sales in dollars is equal to Fixed Expenses divided by Gross Profit Margin.
  2. How do I calculate Gross Profit and Gross Profit Margin? Gross Profit in dollars is Revenue less variable Cost of Sales. Gross Profit Margin as a percent is Gross Profit in dollars divided by Revenue.
  3. How do I calculate Net Profit and Net Profit Margin? Net Profit in dollars is Revenue Less Total Expenses. Net Profit Margin as a percent is Net Profit divided by Revenue.
  4. How do I calculate Breakeven Sales plus $100k Profit? Breakeven Sales in dollars plus $100k Profit is equal to Fixed Expenses plus $100k divided by Gross Profit Margin.
  5. What costs are typically included in the line item variable Cost of Sales? Variable Cost of Sales includes materials and labor costs which vary with Revenue. For example, a $10 widget may have $3 in material cost and $3 in labor cost for a total of $6 in variable Cost of Sales per widget.
  6. What is positive Cash Flow? For example, Client ABC orders 100 widgets at $10 each which equals $1000 in Revenue. Client ABC pays Startup Business XYZ on the date of the order. Business XYZ has thirty days to pay Vendor to purchase product and twenty-five days to ship to Client ABC. Positive Cash Flow in this example is $1000 for thirty days until payment by Business XYZ to Vendor is made.  It’s great if you can collect money from your clients first and then pay your vendors and your people later.  That way you have cash in the bank before you actually need to spend it.
  7. What are Fixed Expenses in a Business? These are typically rent, utilities, insurance, office staff, W-2 employees, and other expenses that must be paid each month, quarter, or year, regardless of the level of Revenues in the Business. It is important to hold fixed expenses at a very low level, in the case of most startups.
  8. Why does a Business need research? Research should answer questions that help a Business compete and survive long-term. These are questions like (a) Who am I competing with, (b) Where are my competitors and what do they “look like”, (c) What are my target clients buying, (c) Who can pay for what I sell, (d) How much will they pay, (e) How much are my competitors charging and many other questions.
  9. What is a Sales Plan? Unless clients are begging you for business, typically, you must go find them. You must evaluate who your “best” client is and how to reach them. Where do they live/work, what do they do, why will they do business with you, and how will you reach them? The sales plan includes who you should contact, how often contacts should be made, in what ways should you contact, what actions should be taken over what period, and what goals within what timeframes can be reasonably attained.
  10. Why is a Sales Forecast important? A financial forecast starts with the Sales Forecast. This can be based on industry data, regional demographics, or other information. The goal of a good Sales Forecast is to estimate the financial performance of a Business for the coming day, week, month, quarter, year, or years. It helps set the expense budget for the same period. If actual Sales are significantly less than the Sales Forecast, the management of expenses becomes even more critical for long-term survival of a Business.
  11. Why is a Marketing Plan important? A Marketing Plan has several core components that, when completed by the Business Owner, will clarify how to reach clients that will buy from you. A Marketing Plan includes the estimated cost so that you can budget for these expenses. It is an integral part of the Business Plan, identifying the unique selling proposition of the business, the competitors of the business, and strategies to connect with and/or retain clients so that the Business generates adequate revenue to operate in a profitable and successful manner.

Learning how to sell without a Sales Budget is like learning to water ski with no boat.  Your sales budget will clarify what products and services are sold and which ones drive the most revenue.

For more information on building sales and other business strategies, contact Nita Black at (901)413-1315.  You can also find Nita on Facebook, LinkedIn, and Google+.

Experience success!


NIta Black, CEO/Business Strategist
www.NitaBlack.com

“We provide business tools to help clients monetize their ideas.”

Nita Black - Business Strategist

Recent Posts