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Brodsky addresses cooperative business leaders at National Press Club

Screen Shot 2017-05-05 at 9.51.46 AMWashington, D.C.—Howard Brodsky was the keynote speaker at a gathering of the nation’s top cooperative leaders at the National Press Club in Washington, D.C., May 3. Brodsky addressed more than 150 executives from multiple industries at the 2017 National Cooperative Issues Forum.

His keynote, “Lead With Our Co-Op Identity,” focused on helping entrepreneurs build successful businesses by providing the scale, resources and innovations needed for small businesses to compete against large-scale corporations that often dominate the business landscape. Brodsky’s speech offered cooperative business strategies that provide small and family businesses a lifeline for success in an increasingly competitive global economy.

“Consumer confidence in corporations has been shaken to the core thanks to the endless stream of stories like the Volkswagen, Wells Fargo and Mylan scandals,” Brodsky said following his keynote address. “Certainly, to succeed, any business needs to be profitable—but not at the expense of its stakeholders and its customers. Cooperatives are democratically run businesses whose members are its owners. That’s one of the key differentiators between publicly held corporations and cooperatives. Simply stated, cooperatives exist to serve the needs of people rather than maximize profits. When you put people’s needs first, the profits will always follow.”

With a spotlight on cooperative power, Brodsky’s speech focused on the co-op business model as a disruptor, differentiator and change agent in the way companies do business. Brodsky shared success stories on ways to leverage the co-op advantage, and outlined the Seven Key Principals for cooperation among cooperatives—voluntary and open membership, democratic member control, member’s economic participation, autonomy and independence, education, training and information, cooperation among cooperatives, and concern for community.

“Cooperatives truly are the better business model,” Brodsky said. “I have dedicated my life to spreading that message. Cooperatives have been the key to my success for many decades and I want it to work for millions of others and the good of their businesses.”

Brodsky and his colleague Alan Greenberg founded CCA Global Partners in 1984, establishing it as a cooperative, and launching Carpet One Floor & Home as its first business.

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Marketing Mastery: How a burned-out dealer got his life back

April 24/May 1, 2017: Volume 31, Issue 23

By Jim Augustus Armstrong

 

(Third of three parts)

Screen Shot 2017-03-06 at 10.45.16 AMIn part one I told the story of Earl Swalm, a dealer from Canada who increased his revenue by 50% and cut his work hours in half. In part two I covered some of the strategies he used to grow his revenue. In this section I’ll discuss how he was able to cut his work hours.

Overwork in the flooring industry is epidemic. It’s much more common for a dealer to work 60-plus hours per week than 40.

A one-store dealer who is putting in 60 hours per week generally can’t imagine opening a second store, let alone five or 10 more. They’ve put themselves in a position where if they don’t show up for all those hours things start to fall apart. Yet there are plenty of dealers who own five to 10 stores. It’s physically impossible for them to put in 60 hours at each store. So, what are they doing differently?

In a word: systems. A system is a written procedure, process, method or course of action designed to achieve a specific result.

A dealer with 10 stores has to be system-dependent, meaning his stores have written processes and procedures that can be taught, and which employees can be held accountable to follow.

An owner-dependent business is the opposite. If the owner doesn’t show up for any length of time, things quickly fall apart. This type of business usually has few—if any—written systems.

Over a period of about 12 months, Swalm made the transition from being owner-dependent to system-dependent. “It didn’t happen overnight,” he said. “It was a process where I systemized small chunks of my business at a time.”

Here is a partial list of the things for which Swalm created written systems:

  • Greeting customers
  • Opportunity tracking
  • Measure tracking
  • Material tracking
  • Sales presentation
  • Purchase ordering
  • Post-sale, pre-installation communication
  • Post-installation referral and testimonial gathering

Training for success
Swalm has regular training sessions to keep his team up to speed on the systems and to hold them accountable for following them. When something breaks down in the system, he doesn’t jump in and do the task himself; he fixes the system. “This is called working ‘on’ rather than ‘in’ my business,” Swalm said.

The role of software
“I am a big believer in software,” Swalm explained. “I used to try to keep everything in my head or in a job folder, but there is no replacement for ‘working software.’” I agree. However, software doesn’t replace systems. There are plenty of dealers using quality, industry-specific software who are stressed out, working 60-plus hours per week. Software is merely a tool to make your existing systems more efficient. For example, inventory tracking used to be done on paper. Now software can help you do it much more efficiently. But it doesn’t replace the need for an inventory system.

Transforming your business so it’s system-dependent may sound like a lot of work. It is. But what’s more work: implementing systems, or spending your life working over 60 hours per week?

If you have questions or need guidance on systemizing your business, I’d be happy to chat with you. Email me at support@FlooringSuccessSystems.com.

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Dear David: Grow your bottom line without increasing sales

April 24/May 1, 2017: Volume 31, Issue 23

By David Romano

 

Screen Shot 2017-03-06 at 10.37.51 AMDear David:
Every time I go to convention, read articles and talk to my membership consultant I hear that I am supposed to have a 10% bottom line. However, I am not even close and I feel I run a pretty tight ship. What is a good bottom line and how can I increase my performance?

Dear Owner,
Increasing your bottom line should be top of mind every day. Getting to that optimal level of performance requires constant monitoring and swift action. It also requires an intermediate understanding of financials, in-depth knowledge of your operating system and the desire to make changes.

A bottom line of 10% is simply a magical number. There is a small percentage of flooring dealers with that level of profitability and most are either very small (less than $1 million) or fairly large (over $15 million). In fact, the average flooring store generates just over $2.6 million in volume with a bottom line less than 1%. The silver lining is the small percentage of top performers generates a bottom line of nearly 12%.

What are the top performers doing differently from everyone else? They are just running a better business. Their sales volume is nearly identical to the average, their gross profit is less than two points greater, but where they really shine is how they control all their general operating expenses. If you want to make more money you need to have better controls/systems and a lot of discipline.

Here are some industry metrics to consider when analyzing your performance:

  • Personnel costs should be no more than 18% of net sales. Top performers show this cost just above 15%.
  • Occupancy costs should be less than 6% of net sales. Top performers show this cost just below 5%.
  • Advertising and promotions should be less than 2.5% of net sales. Top performers show this cost just above 1.5%.
  • Other general and administrative expenses should not be more than 8% of net sales. Top performers show this cost just above 5%.

I would venture to say that if you took all your expenses below the gross profit line and analyzed them, you would find a way to reduce many of those expenditures. Sure, sales and margins are important, but the real opportunity lies in squeezing as much juice from all areas of the business. Following are some places to start:

Telephone. Look at switching cell carriers, transition to a VOIP phone system and limit the amount of data for all cell lines.

Occupancy. Get Nest to help control the climate, look at reducing the frequency of your disposal pickup and reconcile inventory to the proper level to reduce property tax.

Personnel. Analyze your manpower plan to see if you are overstaffed. Do a market compensation audit to ensure you are not overpaying. Switch to a pay-for-performance plan for revenue generating positions, etc.

Advertising and promotions. Review your mix of traditional vs. online media to get the best return on your investment.

General and administrative. Look at those over 20 lines and shave a bit off each. Can you reduce your entertainment budget, office supplies, insurance policies, vehicles, etc.?

I also suggest you enroll in some basic financial and managerial accounting courses. Then spend time going line by line to determine what needs to be done, when and by whom.

 

 

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Guest column: Lack of action is the No. 1 impediment to success

April 24/May 1, 2017: Volume 31, Issue 23

By Vinnie Virga

 

Screen Shot 2017-03-06 at 10.51.13 AMIf you were able to ask Tony Robbins, Zig Ziglar, Jim Rohn or any other world-class personal performance speaker to identify the greatest inhibitor to success, they would probably say “fear of acting.” I would agree. When it comes to establishing and growing a successful business, every decision counts – even if you procrastinate and don’t take action, that is in its own way a decision.

Most barometers I’ve seen indicate the economy is growing, which means our businesses should all benefit. The question you must now ask yourself is this: Can you afford NOT to act? Competition is at an all-time high, and when these consumers are ready for remodeling of any kind are you confident they will call you? If you don’t know the answer with absolute certainty then read on.

In today’s ever-changing marketplace, the differentiating factor between businesses that succeed and those that don’t is the willingness to change, try new things and, most importantly, keep up with the times. What worked before won’t work now, and if you want to stay alive you’ve got to accept this notion and pivot accordingly. Consider the difference between McDonald’s and Howard Johnson’s. McDonald’s was willing to change with the times, even if every new product didn’t catch on. (Remember the McHot Dog?) Howard Johnson’s wasn’t willing to change even a modicum and, well, you know how that turned out.

Yesterday’s marketing plan cannot keep up with today’s consumers. If you do not have a plan that is aligned with current marketing methods, and if you are not looking at your plan daily, you are prolonging the inevitability of failure. Managing any successful and thriving business has an element of risk. Every entrepreneur faces the unknown and stumbling blocks along the way, but the successful ones have a support system and an effective strategy and are willing to step up to the plate. Oftentimes their risk is rewarded with increased revenue and a boost in customer acquisition.

Large leaps forward consist of smaller, focused steps. Concentrate your efforts in digital marketing. I have touched on this in the past, but it bears repeating because getting up to speed with your social media and other digital marketing strategies will be the biggest difference maker in attracting customers that traditional media might miss. A well-managed social media program is the most cost-effective marketing for your business, because it gets the right message to the right target consistently and frequently. Content is king and timely responses are vital. Remember, you are your brand. Don’t shy away from collaborating and promoting like-minded content to expand your audience and bolster your overall brand recognition.

Every choice you make is either a hindrance or a help to your business. Remember, failing to take action is still a choice—a costly one. If you want your business to thrive, think about what fears might be inhibiting you from achieving unparalleled success and formulate a plan for tackling them head on.

What’s stopping you from achieving the success for your business and quality of life you deserve? What’s stopping you from contacting Floors & More? Be bold and decisive and turn your dreams into reality. Better yet, let us help you do that.

 

Vinnie Virga is managing partner and president of Big Bob’s Flooring Outlet and Floors & More buying group. His experience includes management of various CCA Global Partner retail groups, including Flooring America.

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Marketing Mastery: Take control of business, get your life back

April 10/17, 2017: Volume 31, Issue 22

By Jim Augustus Armstrong

 

(Second of three parts)

Screen Shot 2017-03-06 at 10.45.16 AMIn the first installment (FCNews, March 27/April 3) you learned how Earl Swalm, a Canadian floor dealer, took control of his business and grew it by 50% in one year, while at the same time cutting his work hours to less than 35 per week.

In this part I’m going to cover the most important sales and marketing strategies Swalm used to achieve this impressive growth.

Mine your database for gold. Most flooring dealers ignore the only people on Earth who have proven they will give them money in exchange for flooring: their past customers. Instead, they opt to spend a king’s ransom on print or online advertising, chasing cold prospects who don’t know them, like them or trust them. If this describes you, don’t feel bad. A lot of the training in our industry focuses on cold advertising, which misleads a lot of dealers into thinking this is the best way to grow their business. There’s nothing wrong with cold advertising; in fact, I teach dealers effective print and online strategies for reaching strangers. However, it simply cannot deliver results that are comparable with marketing to past customers. I’ve seen dealers go from nearly closing their doors to opening their second store by marketing to past customers on a monthly basis.

This is what Swalm does. He uses a monthly newsletter that is full of fun, informative, entertaining content, so customers actually look forward to reading it even if they don’t need flooring right then. Swalm’s strategy creates total top-of-mind awareness, so when a customer needs flooring, or when she has the opportunity to refer someone in her sphere of influence, she thinks of him.

Email magic. Email marketing to your past customers can also be effective, as long as you don’t spam them with endless pitches to buy stuff. Swalm uses email content, which is similar to his printed newsletter: fun, engaging content that people will enjoy and forward to their friends.

Create a culture of referrals. This starts with the basics such as showing up on time, dressing professionally, returning calls on time, etc. It also means treating customers like royalty by impressing them with great service. Try offering beverages to prospects, wearing shoe covers while in their home, giving them free spotter or cleaning kits, etc. You should also ask for referrals. When you provide great service you’ve earned the right to ask.

Equip your team for success. Swalm uses a step-by-step selling system that impresses customers, positions his sales team as trusted advisors, differentiates his store from the competition, enables him to command premium prices and helps his team close more sales. He implements this system by having regular training sessions with his sales team.

Like Swalm, you should have a written, step-by-step sales process you can provide to your team. Make sure you train them on how to use it and hold them accountable.

By doing these things, Swalm is growing his business by attracting more repeat and referral customers. Some benefits of doing this include: dramatically improved sales closing rate, less time wasted on price shoppers, higher margins and increased referrals.

In part three I’ll cover the strategies Swalm used to cut his work hours in half.

 

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Marketing Online: 10 tips to help you create an effective social media strategy

March 27/April 3, 2017: Volume 31, Issue 21

By Lindsay Baillie

 

Screen Shot 2017-03-31 at 11.31.34 AMFor many retailers, jumping into social media is similar to exploring uncharted territory. It is unfamiliar, time consuming and poses the risk of failure/getting lost. However, now more than ever, social media has become a crucial part of the consumer’s search for products and services. If you are not maintaining your presence on social media, you run the risk of being buried by your competition, experts say.

FCNews recently spoke with three social media marketing experts to gather tips on how to create a social media strategy.

Tip #1: Make it mandatory. “The first thing retailers have to realize is social media is no longer just an option—it is a necessity,” said Paul Friederichsen, marketing expert and owner of BrandBiz. Retailers have to “understand it is a part of their overall marketing strategy. It is just as important as advertising and public relations.”

Tip #2: Align your social media efforts with your business strategy. Christine Whittemore, chief simplifier, Simple Marketing Now, encourages dealers to ask themselves a few questions when developing a social media strategy. “Why are you doing this? It takes a lot of time and effort to do social media correctly—just like anything else does—and you want to make sure those resources deliver value to the business.”

Tip #3: Start with your customers. After fitting social media into your business strategy you have to decide what platforms to join. For this, Whittemore suggests talking to your customers. “Find out where they hang out online. Ask them what they do there. Where do they go to find inspiration? That can help guide content and the kind of relationship building you do.” According to Whittemore, the time you spend on digital media is similar to what you would spend networking in person, so you also want to uncover where the majority of your customers look for new products.

Screen Shot 2017-03-31 at 11.29.35 AMTip #4: Learn about each platform. According to Friederichsen, retailers should learn the best roles for each platform and what kinds of social etiquette are required for each. Bottom line: Retailers should have a pretty good understanding of what each platform does and what the environment is on those platforms before joining.

Whittemore calls this understanding the “nature of the network,” so you can show up with the right kind of content and know how to say what you want to say. “It’s not just about sales,” she explained. “It’s about providing helpful information.”

Tip #5: Be selective. After talking with customers and learning about the different platforms, take the time to be selective about which platforms you actually join. Whittemore suggests retailers stay away from joining every social media site. Instead, maintain a presence on heavily populated sites such as Facebook and where your customers hang out such as Pinterest. She also recommends regularly Googling your business to see if any listings—such as Yelp—show up. If they do, make sure to claim them.

Tip #6: Start with one and then add on. If you are worried about maintaining multiple sites, experts advise starting small and concentrating your efforts on one. “Start with one and work on it,” said Lisbeth Calandrino, FCNews columnist and retail industry consultant. “Get a lot of customers on your page so then when you have good sense of that [platform] and people are replying to you, you’re ready to go to the next one.”

After you have successfully grown one social media account, try branching off to another site; however, make sure you do not take on too much to handle. “Retailers should be on as many sites as they can do well,” Friederichsen noted. “It’s better to do a few things well than many things poorly.”

Tip #7: Engage your customer. “This is the age of the consumer, and the consumer needs to talk,” Calandrino said. “What better way to get a referral than to have your customer be online and talk about a job you’ve done? You have to figure out how to engage the customer.”

Along the same vein, Friederichsen explained it’s not the place to push out your message as you would in an advertisement. “It’s the sharing of ideas; it’s an engagement [with others]. A lot of dealers feel like that is really not selling, when in fact it is because it creates a much broader view of your store and your brand so that you can attract the kind of customers you want.”

Screen Shot 2017-03-31 at 11.29.41 AMTip #8: Create a blog. In addition to communicating with your customers, social media helps call attention to your website. While social media platforms provide ample opportunity for customers to visit your site, Calandrino recommends creating and maintaining a blog. “It’s likely that your website is stagnant. If every time I go to your website it’s exactly the same then I am less likely to return. If you have a blog and it is up to date—you decide to post every week or every day—then whoever signs up for [the blog] will see your site.” She recommends retailers build content around their personality and strengths instead of buying posts.

Tip #9: Let social media buffer your other marketing outlets. Social media is an interconnected form of marketing and can easily complement a retailer’s overall marketing campaign. Friederichsen suggest retailers use their social media accounts to share when sales are occurring, when new products come in or when any seasonal promotions are going on in the store, etc. “Like advertising and public relations, social media plays an important role. They don’t all play the same role but they complement one another.”

Calandrino agrees, adding: “A social media strategy doesn’t stand by itself. It is not an isolated strategy. Rather, you need to work it into whatever else you’re doing. If you’re doing a contest you should move it to your social media so people have to respond.”

Tip #10: Be patient. Developing and maintaining a social media strategy requires time, but probably not as much time as you think. In order to maintain a couple of social media sites, experts say retailers should spend anywhere from 30 minutes to one hour every day, as time and effort are equally important.

Friederichsen warned retailers that building followers on social media doesn’t happen overnight and followers should never be purchased. His recommendation: “Build a following over time with good content and consistent posts—with proper etiquette.”

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CCA Global’s Howard Brodsky addresses international leaders in the UK

Howard Brodsky speaking in the UK.
Howard Brodsky speaking in the UK.

Manchester, N.H.—CCA Global’s Howard Brodsky traveled to the United Kingdom this week to give the keynote address to European business leaders at the annual Co-operative Retail Conference held at Stratford Manor in Stratford-Upon-Avon, UK. Brodsky was the only speaker from the United States to address the conference.

Brodsky’s presentation focused on the cooperative retail powerhouse he co-founded and established in 1984—CCA Global Partners. Through shared insights from over 30 years of successful business, Brodsky helped conference attendees find ways they can grow and improve their own companies.

In addition to sharing his story and perspective with the international attendees, Brodsky discussed his newest initiative, Cooperatives for a Better World, a non-profit which promotes the cooperative business model as a mode of sustainable job and wealth creation. According to the International Cooperative Alliance, the cooperative business model is proven to empower individuals and gives more people ownership in the businesses they use every day.

Brodsky’s presentation this week follows other international speeches he has recently given in Quebec, Panama, and Turkey. He encourages others to use the business model that has been so successful for his own company saying, “As business leaders who want to innovate and empower individuals, it is important for us to share our unique stories.” CCA Global Partners, a $10.8 billion company, has helped thousands of independent businesses thrive.

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Mohawk Industries takes top honors, earns Top Employer

mohawkCalhoun, Ga.—Mohawk Industries has received a new accolade from the Top Employer Institute for creating a great work environment for employees. Mohawk is the first and only flooring manufacturer to earn the Top Employer status in the Americas group.

“We are honored to be recognized by the Top Employer Institute and are proud to earn this certification that highlights our commitment to employees,” said Paul White, Mohawk senior director of talent acquisition. “An integral part of our culture at Mohawk is maintaining a safe, fair and respectful workplace where employees have opportunities to take advantage of learning opportunities and wellness programs.”

Based in the Netherlands, the Top Employer Institute is a global enterprise that conducts an objective certification process, beginning with a best practices survey that covers 600 HR topics to assess candidates on international standards including the following criteria:

  • Talent strategy
  • Workforce planning
  • On-boarding
  • Learning and development
  • Performance management
  • Leadership development
  • Career and succession management
  • Compensation and benefits
  • Culture

After the survey is completed, the answers are validated and documented by an independent third-party auditor to ensure the integrity of the procedures, processes, systems and data.

LogoTOPEmployerThus far, the Top Employer Institute has certified approximately 1,200 companies in 116 countries. Mohawk is the first and only flooring company in North or South America to be certified as a Top Employer, a distinction that White linked to the company’s core culture.

“At Mohawk, we consistently invest in our future, not only in product innovation, manufacturing and logistics, but also in our people, through training, professional development, safety programs, wellness initiatives and customizable benefits packages,” White said. “That sense of dedication and empowerment is echoed throughout the company in our drive for perpetual innovation, respectful teamwork and excellence in all processes.”

Community involvement, world-class safety standards, award-winning training, customizable benefits packages and a nationally recognized apprenticeship program are all part of Mohawk’s holistic value proposition for employees, which recently led to Forbes rating Mohawk as the top flooring manufacturer on the magazine’s annual list of America’s Best Large Employers.

To learn more about the company’s employment opportunities, visit mohawkcareers.com.

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Guest Column: Perform annual business checkups

January 30/February 6, 2017: Volume 31, Number 17

By Vinnie Virga

Once a year there is a process you can use to help ensure you are managing your expenses well, taking a fresh look at how you operate and maintaining a staff and showroom floor that reflects your changing business trends.

Step one: Take two days off in a row and don’t do anything related to your business. On the third day come back and, if possible, bring a female set of eyes. Don’t just pull in but drive by your business in every direction a customer can. How does your showroom look? Is she comfortable and attracted to your showroom? When she tells you what’s wrong just listen and write. Does it look clean and friendly from the outside? How is the paint, roof, signage, parking lot, etc.? Does your business name reflect what you actually sell? If you are ‘Joe’s Carpet Barn’ and you sell cabinets and hardwood you are already missing the boat. If you have lots of different signs you’re probably confusing the customer. Keep it short and consistent, i.e., Floor To Ceiling.

Now go inside and try to look at it from a new customer’s perspective. Is it professional, well organized and female friendly? Are there signs to explain department locations, or with customers walking on or using the products you sell? When she tells you what’s wrong, write it down. That should create a list of things you need to work on especially while business is slow.

Step two: Make a printout of how much you sell by category. As a percentage to your total sales, how much does each category represent? For example, if you are doing $3M per year, and you’re selling $300,000 in Vinyl, that would be 10% of your total business. Next take a laser and measure off how much square footage your allocating to each category in the showroom. Compare the percentage of square footage allocated to your total square footage by category. Then compare the percentage sales by category next to the square footage and ask yourself if it’s time to make some changes. Some quick tips would be to put the items you are trying to grow or that are most profitable at the front of your showroom. If you have a bullpen for your salespeople, get rid of it and have desks or closing tables spread throughout the showroom.

Step three: Look at your sales numbers per salesperson, and look at your customer base for the last 60 days. Do you have enough women and millennials on your sales floor? Is anyone a bad fit? Get rid of those unwilling to change or unproductive, and replace them with people who represent your customer base and are excited to be there.

Step four: Look at any expense you pay regularly on your P&L. Is it something you can eliminate or shift the cost to someone else? If it is five figures or more on an annual basis, get a minimum of two bids plus an updated bid from the person you currently get the service from, and pit them against each other to get the best deal. Any four figure or more items on an annual basis get at least one other competitive bid. Are you charging at least a $45 environmental fee to offset costs? Are you charging a minimum of $75, or $0.10 per square feet, whichever is greater for acclimation delivery for all hard surface products?

If you do this once a year you will be amazed how much money you will save, how much better your showroom will look and how much more productive your people will be.

 

screen-shot-2016-11-14-at-3-20-42-pmVinnie Virga is managing partner and president of Big Bob’s Flooring Outlet and Floors & More buying group. His experience includes management of various CCA Global Partner retail groups, including Flooring America. 

 

 

 

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Financial: Valuing your business

January 16/23, 2017: Volume 31, Number 16

By Roman Basi

(First of two parts)

Each year more business appraisals are being created. While statistics are unreliable on the matter, it seems as though the word is getting out. If you are a closely held business, there’s a need to have your business appraised. This article focuses on the what, who, when and how.

Many businesspeople are not familiar with what a valuation is, why they need it and how to get a valuation done. In fact, many businesspeople are more familiar with the value of their house or automobile as opposed to the value of their business. This is surprising because their business may be worth more or carry more equity than their house. In the business world, not knowing the value of a business can translate into the loss of a lifetime of work in value and dollars.

Following are some of the basics:

What is a valuation? There are many misperceptions about valuations. Many business owners believe a successful valuation can be calculated based on simple multiples. For instance, someone is always inquiring as to whether he or she can multiply the gross income or net profit by a certain number based upon some theoretical condition of the business to reach a value conclusion. Neither the IRS nor any potential buyer will accept these multiples as a sound valuation. Two decades of experience in this profession and a whole host of IRS letter rulings, memorandums, statutes and cases demand that a simple multiple in determining value cannot be used to arrive at a valid figure. Business valuations are much more sophisticated than what a multiple can determine.

A business valuation is a report written by a qualified appraiser for purposes including business succession, estate and tax planning, litigation, buy-sell situations and other purposes. A business valuation will reflect the value of a business a willing buyer would agree to pay in an arm’s length transaction. IRS Revenue Ruling 59-60 reflects much of the methodology used in a valuation. The value of a business tends to be different than the actual selling cost of the business in 99 out of 100 cases.

The ‘who’

By definition, the valuation must be in the form of a written report. Oral reports from a valuator simply will not suffice because buyers, sellers and the IRS will not see much credibility in an oral report. It is also impossible to remember every important detail of a thorough report. That is why a written report is highly recommended and in some cases, required.

Furthermore, the valuation must be done by a qualified appraiser. First, the appraiser must be someone who does not have a bias concerning the value of the company. Generally friends, relatives and employees are excluded automatically from the definition. Also, the company accountant should not conduct the valuation since he or she is not in a position to be objective.

Next, the appraiser must be an expert on the matter. Being a CPA or attorney is simply not enough to certify a person as a qualified appraiser. The appraiser, by definition, must have the experience and training in both the areas of valuation and in the industry in question. The IRS and the courts will disqualify individuals who try to value companies when the business appraiser does not, in actuality, know or understand the industry.

In part II I will talk about the times “when” a valuation is critical.

 

Screen Shot 2017-01-16 at 12.28.07 PMRoman Basi in an attorney and CPA with the firm of Basi, Basi, & Associates at The Center for Financial, Legal & Tax Planning, Inc. He writes frequently in issues facing business owners.