Tag Archives: scott plaskett

Mike Flux – Market Update and Investment Alternatives Q1-2016

MichaelFlux_1000x1230

In this video, I speak with Mike Flux, Senior Vice President and Portfolio Manager of Connor Clark & Lunn Private Capital to chat about their investment outlook from Q1 of 2016. We also discuss how to interpret the current events, and how to properly position portfolios to take advantage of these market events.

In this second video, Mike gives an update on the alternative strategies that they are using in their portfolios to help reduce the effects of the current volatility without sacrificing returns.

IRONSHIELD Financial Planning’s “Fly On The Wall” update call.
These calls are recorded by Scott Plaskett and allow you to get a behind-the-scenes look at one of his professional update calls. Watch and listen as a “fly on the wall” and get some of the most valuable information you will find on the Internet.

Rich vs. Famous

Republished with permission from Built to Sell Inc.

Have you set a goal for your company this year?

If you’re like most business owners, you’re striving for an increase in your annual sales. It’s natural to want your company to be bigger because that’s what everyone around us seems to celebrate.

Magazines profile the fastest growing companies, industry associations celebrate their largest members, and bigger seems to be better in the eyes of just about every business pundit with a microphone.

But growth can come at a steep price and can even detract from your ability to build your personal wealth.

The Contrasting Exits of Michael Arrington

For example, let’s take a look at an entrepreneur named Michael Arrington. Arrington started Achex in 1999. It helped facilitate payments in the early days of the internet, and Arrington was focused on growing it. He accepted two rounds of outside capital to fund the company’s expansion.

Achex was ultimately sold to First Data Corporation for $32 million in 2001. Unfortunately, because Arrington had been focused on growth above all else, he had not only raised two rounds of financing but also reduced his personal stake in the company down to next to nothing. As he told Business Insider, “When I started my first company, Achex, we raised $18 million in venture capital in 2000 from DFJ. The company later sold for $32 million, but due to a 2x liquidity preference (common in those days), the founders essentially got nothing, just a few hundred thousand dollars to not block the deal.”

Arrington then went on to start the technology blogging website TechCrunch in 2005. This time Arrington wanted to grow the business, but not at the expense of his equity. Instead, they grew the company within their means and funded the business largely out of cash flow. Arrington still owned 80% of the company, according to Business Insider, when he sold it for approximately $30 million.

Apparently Arrington had learned his lesson—growth is good, but not at the expense of all else.

The Alternative to Growth at All Costs

The alternative is to sell to a strategic buyer. They will care less about your future profit stream and more about what your business is worth in their hands, typically calculating how much more of their product they can sell by owning your business. Strategic buyers are usually big companies, so the value of being able to sell more of their product or service because they own you can be substantial. This often leads strategic buyers to pay more for your business than a financial buyer ever would.

For example, Nick Kellet’s Next Action Technologies created a software application that takes a set of numbers and visually expresses them in a Venn diagram. Next Action Tech-nologies was generating approximately $1.5 million in revenue when they received their first acquisition offer; Kellet’s first valuation was for $1 million, a little less than revenue, which is a pretty typical from a financial buyer.

Kellet knew the business could be worth more to a strategic buyer, so he searched for a company that could profit by embedding his Venn diagram software into their product. Kel-let found Business Objects, a business intelligence software company looking to express their data more visually. Business Objects could see how owning Next Action Technologies would enable them to sell a whole lot more of their software, and they went on to acquire Kellet’s business for $8 million, more than five times revenue – an astronomical multiple.

Preparing For Every Eventuality

The alternative to focusing on sales growth as your primary objective is to focus on the value of your equity within your company. Growth will have a positive impact on your company’s value, but your growth rate is only one of the eight drivers that impact what your company is worth. As you build your business, you will be faced with many forks in the road where growth may come at the expense of both your company’s value, and your personal wealth. For example:

You may have to dilute your personal stake in the company by taking on outside capital. Depending on the return your investors are looking for, and the performance of your company after you take on outside investors, your smaller slice of the larger pie may be worth less than a larger slice of a smaller pie.

Cross selling your largest customer more products and services may be a relatively easy way to grow your top line, but if they already represent more than 15% of your sales, the extra revenue may dilute the value of your company because acquirers discount companies with too much customer concentration.

Giving lazy customers 90 days to pay may keep them buying, but those charitable payment terms may detract from the value of your business because an acquirer will have to fund your working capital.

You could choose to invest your sales and marketing resources into winning a big, one-time project that would boost your sales but this may not boost the value of your business, which may be more positively impacted by a smaller amount of recurring revenue.

Growth is important and how big your company can get is one of the eight drivers of your company’s value. But growth is only one of eight factors—to learn about the other seven, get your Value Builder Score.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Why Bother Doing It The Hard Way?

Republished with permission from Built to Sell Inc.

Whether you want to sell your business next year or a decade from now, you will have two basic options for an external sale: the financial or the strategic buyer.

The Financial Buyer

The financial buyer is buying the rights to your future profit stream, so the more profitable your business is expected to be, the more your company will be worth to them. Strategies that are key to driving up the value of your business in the eyes of this buyer include de-risking it as much as possible, creating recurring revenue, reducing reliance on one or two big customers, cultivating a team of leaders, etc.

The Strategic Buyer

The alternative is to sell to a strategic buyer. They will care less about your future profit stream and more about what your business is worth in their hands, typically calculating how much more of their product they can sell by owning your business. Strategic buyers are usually big companies, so the value of being able to sell more of their product or service because they own you can be substantial. This often leads strategic buyers to pay more for your business than a financial buyer ever would.

For example, Nick Kellet’s Next Action Technologies created a software application that takes a set of numbers and visually expresses them in a Venn diagram. Next Action Tech-nologies was generating approximately $1.5 million in revenue when they received their first acquisition offer; Kellet’s first valuation was for $1 million, a little less than revenue, which is a pretty typical from a financial buyer.

Kellet knew the business could be worth more to a strategic buyer, so he searched for a company that could profit by embedding his Venn diagram software into their product. Kel-let found Business Objects, a business intelligence software company looking to express their data more visually. Business Objects could see how owning Next Action Technologies would enable them to sell a whole lot more of their software, and they went on to acquire Kellet’s business for $8 million, more than five times revenue – an astronomical multiple.

Preparing For Every Eventuality

The question is: why bother making your business attractive to a financial buyer when the strategic buyer typically pays so much more?

The answer is that strategic acquisitions are very rare. Each industry usually only has a handful of strategic acquirers, so your buyer pool is small and subject to a number of varia-bles out of your control; the economy, interest rates, the competitive landscape and a whole raft of other variables can all impact a strategic acquirer’s appetite to buy your business.

Think of it this way: imagine your child is a promising young athlete who’s intent on going pro. You know that becoming a professional athlete is a long shot, fraught with unknown hurdles: injury, the wrong coach, or just not having what it takes to compete at the highest levels. Do you squash her dream? No, but you do make sure she does her homework, so if her dream fades she has her education; you make sure she has a back-up plan.

The same is true of positioning your company for an exit. Sure, you may want to sell your business to a strategic buyer in a spectacular exit, but a financial acquisition is much more likely, and financial buyers are looking for companies that have done their homework – companies that have worked to become reliable cash machines.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

You-proofing Your Business

Republished with permission from Built to Sell Inc.

Making your business less dependent on you has a number of benefits: you can scale your company more quickly if you’re not acting as a bottleneck; you get more time to enjoy life outside of your business; and a business less dependent on its owner is much more valuable to an acquirer.

Pulling yourself out of the day-to-day operations of your business is easier said than done. Here are three specific strategies for getting your company to run without you.

Think Like LEGO

Pre-school children can make a collection of generic looking pieces come together in a complex creation by following the detailed instruction booklet that comes with every box of LEGO. Your employees need LEGO-like instructions to execute the recurring tasks in your business without your input.

Ian Schoen is the co-founder of Two Tree International, a design and manufacturing firm that brings products directly from concept to customer. The company was started in 2008 with a $50,000 loan and had grown to sales of over $4 million and a staff of 15 employees when it was sold in 2015. Schoen credits his operating manual for allowing him to sell his business for a significant premium: “We started creating standard operating procedures in the business and had a set of documents that helped us run the business. Basically we could plug anyone into any position and have them understand it.”

Imagine Hosting Your Own AMA

Everyone from Barrack Obama to Madonna to Bill Gates has participated in an “Ask Me Anything” (AMA) forum where participants are encouraged to ask the featured guest anything that is on their mind.

Now imagine you invited your customers to an AMA. What questions would they ask you? What zingers would your most sceptical customers pose? These are the questions you need to document your responses to in a Frequently Asked Questions document that your employees can leverage in your absence.

Shine the Media Spotlight on Your Team

It’s tempting to take the call from a local reporter who wants to interview you about your company, but consider inviting an employee to take the interview instead.

Stephan Spencer founded Netconcepts in 1995 and grew it into a multinational Search Engine Optimization (SEO) agency before selling it to Covario in 2010. His first attempt to sell his business in the late 1990s failed because potential acquirers viewed Netconcepts to be too dependent on Spencer himself: “My personal name and my company name were too intermingled. If I didn’t go with the business, nobody was going to buy it.”

Spencer set out to reduce his company’s reliance on him personally and one of his strategies was to position his employees as SEO experts: “I encouraged key staff, various executives and top consultants within the company to speak and write articles, and I introduced them to the editors I knew.”

It can be tempting to run your company as your own personal fiefdom but the sooner you get it running without you, the faster it can scale into something irresistible to an acquirer.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Six Power Ratios to Start Tracking Now

Republished with permission from Built to Sell Inc.

Doctors in the developing world measure their progress not by the aggregate number of children who die in childbirth, but by the infant mortality rate – a ratio of the number of births to deaths.

Similarly, baseball’s leadoff batters measure their “on-base percentage” – the number of times they get on base – as a percentage of the number of times they get the chance to try.

Acquirers also like tracking ratios, and the more ratios you can provide a potential buyer, the more comfortable they will become with the idea of buying your business.

Better than the blunt measuring stick of an aggregate number, a ratio expresses the relationship between two numbers, which gives them their power.

If you’re planning to sell your company one day, here’s a list of six ratios to start tracking in your business now:

Employees per square foot

By calculating the number of square feet of office space you rent and dividing it by the number of employees you have, you can judge how efficiently you have designed your space. Commercial real estate agents use a general rule of 175–250 square feet of usable office space per employee.

Ratio of promoters and detractors

Fred Reichheld and his colleagues at Bain & Company and Satmetrix developed the Net Promoter Score® methodology.[1] It is based on asking customers a single question that is predictive of both repurchase and referral. Here’s how it works: survey your customers and ask them the question, “On a scale of 0 to 10, how likely are you to recommend <insert your company name> to a friend or colleague?” Figure out what percentage of the people surveyed give you a 9 or 10, and label that your ratio of “promoters.” Calculate your ratio of detractors by figuring out the percentage of people surveyed who gave you a score of 0 to 6. Then calculate your Net Promoter Score (NPS) by subtracting your percentage of detractors from your percentage of promoters.

The average company in the United States has a NPS of between 10 and 15 percent.  Reichheld found companies with an above-average NPS grow faster than average-scoring businesses.

Sales per square foot

By measuring your annual sales per square foot, you can get a sense of how efficiently you are translating your real estate into sales. Most industry associations have a benchmark. For example, annual sales per square foot for a respectable retailer might be $300. With real estate usually ranking just behind payroll as a business’s largest expenses, the more sales you can generate per square foot of real estate, the more profitable you are likely to be.

Revenue per employee

Payroll is the number one expense for most businesses, which explains why maximizing your revenue per employee can translate quickly to the bottom line. Google, for example, enjoyed a revenue per employee of more than one million dollars in 2015, whereas a more traditional people-dependent company may struggle to surpass $100,000 per employee.

Customers per account manager

How many customers do you ask your account managers to manage? Finding a balance can be tricky. Some bankers are forced to juggle more than 400 accounts, and therefore do not know each of their customers, whereas some high-end wealth managers may have just 50 clients to stay in contact with. It’s hard to say what the right ratio is because it is so highly dependent on your industry. Slowly increase your ratio of customers per account manager until you see the first signs of deterioration (slowing sales, drop in customer satisfaction). That’s when you know you have probably pushed it a little too far.

Prospects per visitor

What proportion of your website’s visitors “opt-in” by giving you permission to e-mail them in the future? Dr. Karl Blanks and Ben Jesson are the cofounders of Conversion Rate Experts, which advises companies like Google, Apple and Sony on how to convert more of their website traffic into customers. Dr. Blanks and Mr. Jesson state that there is no such thing as a typical opt-in rate, because so much depends on the source of traffic. They recommend that rather than benchmarking yourself against a competitor, you benchmark against yourself by carrying out tests to beat your site’s current opt-in rate.

Acquirers have a healthy appetite for data. The more data you can give them – in the ratio format they’re used to examining – the more attractive your business will be in their eyes.

[1] Net Promoter, Net Promoter Score, and NPS are trademarks of Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

How Your Age Shapes Your Exit Plan

Republished with permission from Built to Sell Inc.

Your age has a big impact on your attitude toward your business, and your feelings about one day getting out of it.

For example, one person who runs a boutique mergers and acquisitions business refuses to take assignments from business owners over the age of 70.

He has found that septuagenarians are so personally invested that they can rarely bring themselves to sell their business – frequently calling off the sale halfway through, claiming they just wouldn’t know what to do with themselves if it closed.

While it’s always dangerous to generalize – especially based on something as touchy as age – a few patterns emerged in the research for Built to Sell: Creating a Business That Can Thrive Without You.

Owners aged 25 to 46

Twenty- and thirty-something business owners grew up in an age when job security did not exist. They watched as their parents got downsized or packaged off into early retirement, and that resulted in a somewhat jaded attitude towards the role of a business in society.

Business owners in their twenties and thirties generally see their companies as a means to an end, and most expect to sell in the next 5 to 10 years.

Similar to their employed classmates, who move to a new job every 3 to 5 years, business owners in this age group often expect to start a few companies in their lifetime.

Aged 47 to 65

Baby boomers came of age in a time when the social contract between a company and an employee was sacrosanct. An employee agreed to be loyal to the company, and, in return, the company agreed to provide a decent living and a pension for a few golden years.

Many of the business owners in this generation think of their company as more than a profit center. They see their business as part of a community and, by extension, themselves as community leaders.

To many boomers, the idea of selling their company feels like selling out their employees and their community. That’s why so many chief executive officers in their fifties and sixties are torn: they know they need to sell to fund their retirement, but they agonize over where that will leave their loyal employees.

Sixty-five plus

Older business owners grew up in a time when hobbies were impractical and discouraged. You went to work while your wife tended to the kids (today, more than half of businesses are started by women, but those were different times), you ate dinner, you watched the news and you went to bed.

With few hobbies and little other than work to define them, business owners in their late sixties, seventies and eighties feel lost without their business – that’s why so many refuse to sell or experience depression after they do.

Of course, there will always be exceptions to general rules of thumb, but frequently – more than your industry, nationality, marital status or educational background – your birth certificate defines your exit plan.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Mike Flux – Market Update and Investment Alternatives Q4-2015

MichaelFlux_1000x1230

In this video, I speak with Mike Flux, Senior Vice President and Portfolio Manager of Connor Clark & Lunn Private Capital to chat about their investment outlook from Q4 of 2015. We also discuss how to interpret the current events, and how to properly position portfolios to take advantage of these market events.

In this second video, Mike gives an update on the alternative strategies that they are using in their portfolios to help reduce the effects of the current volatility without sacrificing returns.

IRONSHIELD Financial Planning’s “Fly On The Wall” update call.
These calls are recorded by Scott Plaskett and allow you to get a behind-the-scenes look at one of his professional update calls. Watch and listen as a “fly on the wall” and get some of the most valuable information you will find on the Internet.

Why “One” Is the Worst Number When It Comes to Financial Planning

“One” is usually the best number to be…except when it comes to financial planning.  Imagine if you only had one income stream, one investment, one insurance plan, etc.  As the saying goes, putting all your eggs in one basket is taking a big risk, and in the financial world, it doesn’t allow for what we call “diversification.” In today’s blog post, I’m going to talk about why I highly encourage you to avoid the number “one” and why it is the worst number when it comes to financial planning and wealth creation.

WHAT IF YOU HAD…
ONE Income Stream?
If you were reliant on only one source of income, you are adding a lot of risk to your retirement plan. The rules can change at any time, so it isn’t smart to rely on a single income stream. What you want to do is to look at the different types of income. Most people have one primary job, but consider looking for diversity in places other than your salary. Include your bonuses, pensions, RIFs, good dividend paying investments, rental income, etc. when you’re listing the variety of sources.

ONE Investment?
What if you had only one single security?  Sir John Templeton famously said, “The only investors who shouldn’t diversify are those who are right 100% of the time.” I cannot stress how important nor how true these words are. Don’t have a narrowly focused portfolio. Instead, build a globally diversified portfolio. Here’s a simplified four-step process for taking action against having a single investment:
1. Determine your mix of equities and fixed income, i.e. stocks and bonds
2. Determine your geographic mix of economic opportunities around the world
3. Identify, analyze and invest in the best opportunities of each component in your portfolio’s markets
4. Consider asset classes that have low correlation to one another. This refers to stocks, bonds, and alternative investments such as commercial real estate and private equity.

The most important tip to remember is that you must find the appropriate solutions for YOU. If your paperboy qualifies for the same type of investments that you are in, then you’re probably in the wrong place. Consider migrating your portfolio to a more appropriate investment solution that is better suited and priced for the threshold you are in. See here for more information on the four tiers of investment solutions.

ONE Education Plan?
In Canada, there are a number of options available that can help fund a child’s education: a) RESP, b) an in-trust account, and c) EPSP.

a) RESP—A Registered Education Savings Plan allows you to make contributions that are set aside for your child’s education.  A 20% Canada Education Savings Grant gives you 20% of the first $2,500 you put into your RESP each year. That’s an extra $500 that you can take advantage of, so it’s a fantastic return. Do remember, though, to hold off on putting in too much at once because you want to be able to receive that free $500 each year.
b) In-Trust Account—An informal in-trust account allows you to transfer any capital income to your child. The deferral nature of growth-oriented investments means that tax is deferred to the future and any tax on the capital gain income will be taxable in your child’s hand. There are no restrictions as to how or when your child takes out the money.
c) EPSP—An Employee Profit Sharing Plan is a great solution for business owners. This is a plan registered in advance with the Canada Revenue Agency (CRA) and allows you to share your income among your family members.  One big advantage lies in the ability for you to transfer the tax burden over to your child and take advantage of the lower marginal tax bracket. A second advantage of this solution is that you can avoid the kiddie tax (tax on a child’s income that is taxed at the highest federal tax rate of 29%) that you face when paying your kids a salary. With an EPSP, you can distribute the profits of the company to them and the money will flow from the business straight to your children to help pay for their education.

ONE Insurance Policy?
Our clients often say that they have group benefits, but group benefits don’t necessarily cover everything that you could be protecting.  What you need is a diversified insurance portfolio. The first rule of insurance planning is to solve temporary problems with temporary solutions, and permanent problems with permanent solutions.

a) Dependency Coverage—This is the period of time during which you have dependents, i.e. the time when your children are reliant on you. Typically, this will be the first 20-25 years of their lives. Since this dependency has an allocated time frame, it is therefore a temporary problem. The temporary solution = term life insurance, where one makes regular premium payments in exchange for protection.
b) Estate Erosion on Death of Second Spouse—After the death of the first spouse, assets get rolled over to the other spouse in what’s called a spousal rollover.  When the second spouse passes away, the CRA assumes you had liquidated all your assets and performs a calculation to tax you accordingly.  In insurance planning, this calculation is performed in advance by your advisor and is based on what you hope to have happened over the course of your life and your spouse’s.  Estate erosion is a permanent problem and requires a permanent solution: permanent life insurance.
*Consider adding a tax-sheltered investment account to your permanent life insurance policy.  The desire to tax shelter is a lifelong goal. Taking advantage of the only option in Canada that allows you to have tax-sheltered wealth accumulation on nonregistered investments in the insurance industry has one of the biggest benefits for your wealth and estate planning needs.
c) Accident or Sickness Affecting Income
This is another temporary problem since the risk of not being able to earn income occurs during your working years. Essentially, the only solution to this issue is long-term disability insurance.  Find out exactly what your long term disability insurance covers and whether or not you are adequately covered during your working years.
d) Risk of Cash Flow
We just mentioned the risk of losing income during your working years, but long term disability insurance isn’t enough sometimes, since it only covers you up to the age of 65. When a serious injury affects your ability to perform activities of daily living, e.g. showering and driving, you will need to find alternate ways to accomplish your tasks. Expenses such as hiring a helper will be paid from your cash flow and other investments, so secure a long-term care plan in place to take care of these costs.  Check out these dos and don’ts of long-term care insurance.

While “one” is usually the best number to be, it’s not the case in financial planning. As you transition into retirement and beyond, enjoy the advantages of diversification. Avoid the number “one” in your financial plan—you’ll be better off without it.