Corporate Social Responsibility and Preparing Your Business to Sell

Corporate Social Responsibility (CSR) is increasingly seen as something that companies of all sizes need to be aware of, so let’s take a closer look at a few of the finer points.

There are 4 basic pillars in CSR: the community, the environment, the marketplace and the workplace.  The community pillar of CSR refers to your company’s contribution to the local community; this contribution can take a variety of forms ranging from financial support to personal involvement. There are 4 basic pillars in CSR: the community, the environment, the marketplace and the workplace.  The community pillar of CSR refers to your company’s contribution to the local community; this contribution can take a variety of forms ranging from financial support to personal involvement. Millenials are especially interested in using their growing purchasing power to support companies that share their values.  According to Forbes, “75% of Millennials consider it fairly or very important that brands give back to society instead of just making a profit.” They  care that brands practice authenticity, local sourcing, ethical production, a great shopping experience, and giving back to society.

The second pillar of CSR is the environment.  The simple fact is that people around the world are becoming much more environmentally aware.  You can be quite certain that a percentage of your customers and/or clients have environmental concerns.

Increasingly, consumers want to know that the companies that they are purchasing from have good environmental practices.  There are many ways that businesses can show that they are environmentally aware.  They range from recycling and using low-emission and high-mileage vehicles whenever possible to adopting packaging and containers that are environmentally friendly.

The third pillar of CSR is the marketplace.  Proper corporate social responsibility includes the responsible utilization of advertising, public relations, and ethical business conduct.  Another key element in the marketplace pillar is adopting fair treatment policies towards suppliers and vendors, contractors and shareholders.  In other words, the marketplace aspect of CSR means rejecting exploitative business practices in favor of fairer and more equitable business practices.

The final pillar of CSR concerns the workplace.  In the workplace pillar, CSR encourages the implementation of fair and equitable treatment of employees, as well as observing workplace safety protocols and embracing equal opportunity employment and labor standards. We’ve written before about fostering a culture of employee engagement. Research shows that employee engagement tends to rise in response to a strong connection to a business’ vision and mission.

Adopting CSR practices in today’s business climate is a prudent decision, as it serves to increase both shareholder and investor interest, while simultaneously encouraging a company’s value.  Likewise, embracing CSR practices can make it easier to attract a buyer and that party may be willing to pay a higher selling price. CSR helps you to create and share a compelling narrative about your business. These stories are powerful vectors of brand awareness and loyalty.  It helps you to focus on what your stand for and reinforcing people’s association between you and those values.

Typically, buyers want a business that has many of the attributes supported by the four pillars of CSR.  Buyers want businesses that enjoy a high level of customer loyalty and have good overall relations with the local community.  Additionally, buyers want businesses that have quality relationships with their suppliers and vendors as well as loyal and dependable employees.

Sellers must realize that buyers want products, goods and services that are in line with the current trends of the marketplace and have an eye towards future trends.  Finally, buyers want as little “baggage” as possible.  You can be certain that buyers don’t want to find any skeletons lurking about in the company closet.  The proper utilization of CSR can address all of these concerns and, in the process, make your business more attractive to a potential buyer.

The Year to Come?

Heading into 2020, it feels like a good time to share this infographic tweeted by MIT’s Sloan Management Review and created by futurist Amy Webb. Is your business poised to seize the [next] day? This graphic provides an actionable step-by-step guide to forecasting changes in the social, cultural, and economic landscapes that impact your business and preparing to take advantage of them. Obviously no predictive system is perfect, but it can be a helpful exercise to alternate your approach from time to time. Even if you’re not in big tech, it can’t hurt to consider your business’ and clients’ potentially shifting needs with a fresh perspective. Happy New Year and best wishes for a prosperous 2020!

Encouraging Employee Engagement

Employee engagement is a hot topic in workplace research. According to a recent Gallup survey,

“The percentage of ‘engaged’ workers in the U.S. — those who are involved in, enthusiastic about, and committed to their work and workplace — is now 34%, tying its highest level since Gallup began reporting the national figure in 2000. The percentage who are ‘actively disengaged’ — workers who have miserable work experiences — is now at its lowest level (13%), making the current ratio of engaged to actively disengaged employees 2.6-to-1 — the highest ever in Gallup tracking. The remaining 53% of workers are in the ‘not engaged’ category. They may be generally satisfied but are not cognitively and emotionally connected to their work and workplace; they will usually show up to work and do the minimum required but will quickly leave their company for a slightly better offer.”

While the engagement increase is good news, it’s still quite likely that something like two thirds of your team is not at peak potential.

Does it matter?

Emphatically yes, according to Kevin Kruse, author of Employee Engagement 2.0. In this Forbes article, he presents arguments from 28 studies detailing the positive impacts of employee engagement. Employee engagement correlates positively to improvements in service, sales, quality, safety, retention, and profit and share holder return.

For instance,

A study of 64 organizations revealed that organizations with highly engaged employees achieve twice the annual net income of organizations whose employees lag behind on engagement. (Source: The Impact of Employee Engagement. Kenexa)

Gallup’s research finds that 70% of the variance between engaged and disengaged teams comes down to management and/or leadership. This has some big ramifications if you are a business owner. It’s probably worth your while to seriously consider the culture of your business and how to facilitate a sense of commitment and motivation in your team.

How to go about this?

Purpose emerges in the research as a crucial factor. Employees report far higher levels of engagement when they understand the mission of the company and feel their work advances the cause in a significant way. They also need to feel a pathway exists for them to learn, develop new skills, and advance personal goals. According to Deloitte,

We need to make sure jobs are meaningful, people have the tools and autonomy to succeed, and that we select the right people for the right job. This is anything but a simple undertaking…We each thrive on our ability to contribute to a greater good, and management’s job is to set goals, support people, coach for high performance, and provide feedback to continuously improve.

Training, trust (and the other side of its coin, accountability), team, and work-life balance all contribute to a sense of fulfillment as well.

Leadership strategy expert Brent Gleeson outlines these check point questions that your team should be able to answer positively:

  • I know what is expected of me and my work quality.
  • I have the resources and training to thrive in my role.
  • I have the opportunity to do what I do best – every day.
  • I frequently receive recognition, praise and constructive criticism.
  • I trust my manager and believe they have my best interests in mind.
  • My voice is heard and valued.
  • I clearly understand the mission and purpose and how I contribute to each.
  • I have opportunities to learn and grow both personally and professionally.

Onward and Upward

While valuable, facilitating change in your work culture is not a simple undertaking. Gleeson warns that leaders should be prepared for challenges in trying to cultivate work culture. “Change is hard, takes longer and usually has higher hard and soft costs than managers and leaders generally plan for. Change can be intensely personal for employees, causes fear and can actually reduce productivity when approached improperly,” he says.

But don’t be daunted, especially if you are planning to sell your business at some point. A well-developed team who will support the mission even when ownership conveys is a major selling point.

 

 

Find Work-Life Balance in Albuquerque

More accolades for Albuquerque! The Duke City ranks 11th for work-life balance in American cities. A recently published study compared cities across data representing work intensity, societal/institutional support, and city livability in order to determine where people do—and do not—enjoy well-rounded lifestyles. This is a handy compilation if you’re involved in site selection or debating where to buy a business.

The introduction to the study, by security company Kisi, states,

“We know first-hand how much of a difference it makes to work smarter rather than harder. Whether in or out of the office, we understand the value of time and believe that dedicating too much of it to your job interferes with life outside of work, and vice-versa. To explore this topic further, we conducted a study determining the cities whose residents have the most well-rounded work-life balance, in terms not only of work intensity, but also their livability and the well-being and rights of their inhabitants.”

According to the study, Albuquerque residents work an average of 42.3 hours a week, take 9.4 days of vacation per year, and start work relatively gently around 10 am. Burqueños’ Happiness Score is 90.7 out of 100. Not bad at all!

The top 5 American cities for work-life balance were: San Diego, Portland, San Francisco, Minneapolis, and New York.

The most overworked cities were Washington, DC, Houston, Atlanta, Seattle, and Chicago.

While Abq just missed the top ten for work-life balance (so close!), it’s worth noting the city did make the top ten for affordability in a recent study by Move.org. By comparison, many of the best rated work-life balance cities are in the top five most expensive.

Significantly, Albuquerque’s low cost of living contributes to its also being ranked one of the top five cities in which to build wealth by pay experts Salary.com. This ranking, “based on census data and Salary.com analysis, focused on local salaries, the cost of living, and unemployment. Secondary factors, such as diversity of the local economy, residents’ education, percentage of population below poverty level, and commute time were also measured,” according to CNN Money.

If you’re looking for the right place to buy a business, Albuquerque also offers an extremely supportive policy and economic environment.

“The Southwestern city is witnessing an entrepreneurial renaissance with the help of startup-friendly culture, excellent universities and a great cultural scene for that ever-elusive work-life balance [told ya!]. Albuquerque’s tech scene is so vibrant that even Facebook is setting up an outpost in the area, and the city has seen a nearly 10% increase in average salaries over the last four years. With STEM jobs galore, Albuquerque also earned a spot on our 2018 list of the Top 10 Best Cities for STEM Workers,” Claire Hannum reports for Livability.

Learn more about opportunities and Albuquerque businesses for sale here!

Multiples, Demystified

Multiples are tricky things to figure out when you’re valuing a business for sale. Lots of opinions are floating around, most stemming from imperfect information. Uncle Bob’s golf buddy sold his widget store for a million bucks based on a multiple of five! Such “buddy wisdom” can lead you astray. Unrealistic expectations can result in a price point that the market simply won’t support. Your business languishes with little to no buyer activity.

First Things First

So, what is a multiple to begin with? Basically, a multiple is a number by which you multiply the economic benefit enjoyed by the owner of a business. With large businesses, this benefit is frequently expressed as EBITDA, an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. While EBITDA makes sense in the M&A realm, where businesses generating $10 million or more in annual sales are exchanging hands, EBITDA isn’t always the best fit with for small businesses. Besides the difference in sheer size, the owners’ group frequently doesn’t play an active, hands-on role in the operation of these larger businesses. Think passive investors.

In contrast, Main Street businesses are frequently helmed by an owner/operator. It’s also relatively common for the owner/operator to run some personal expenses through the business. These could include their personal health and life insurance, the lease expense for a personal vehicle, which they don’t plan to convey with the sale of their business, or the cell phone plan for their family. After all, such practices are one of the benefits of being a small business owner. In essence, SDE (Sellers Discretionary Earnings, also known as Cash Flow) is EBITDA with a few adjustments, including owner’s compensation and personal, discretionary expenses.

There’s more to SDE than this, but that’s it in a nutshell. While multiples can also be applied to the business’ Gross Revenue, SDE shows how much income a new owner will have to live on and pay off pay debt service incurred by taking out a loan to secure the purchase. When done right, SDE is a buyer’s potential Return on Investment for a given business.

Multiples in Action

How is the multiple determined and used, besides Uncle Bob’s questionable tips? Let’s take a simplified example.

You would like to sell your small to medium-sized business, Widgets R Us. What price should you ask?

Ideally, there’s a lot of market data to inform this decision. In the field of comparable widget stores that have sold (based on sector, size, revenue, location, etc.) what is the average sales price? Say it’s $300,000.

Now, what’s the average SDE of those widget businesses that have sold? Say that is $100,000.

The multiple is the result of dividing the average price by the average SDE. In this case, $300,000/$100,000 = 3.

Let’s further say your business’ average SDE over the last three years comes out to $130,000 because your sales team is good at selling widgets. Nice! The price for your business would be $130,000 x 3 = $390,000.

Ze Plot Thickens

That is a pared down example. In real life, the process can be complicated by the quality (or lack thereof) of the financials, market trends, client concentration, how dependent the business is on you, and a host of other factors.

Keeping with the same example above, let’s say that you’re the genius behind your business’ eye-popping widget sales. Over the years, you’ve cultivated relationships with key clients who refuse to deal with anyone else at your widget shop. How does this effect the transferable value of your business? You’ll need to wrestle with such questions.

But Wait, There’s More…

Also keep in mind that multiples, no matter how fact-based, are not the end-all, be-all. A sophisticated buyer will also take into consideration the income they’ll be earning, after debt service, based on their down payment. This is known on as the Internal Rate of Return. An experienced broker can work with you to understand and interpret all this information. You can drastically help this process by having well organized, professionally-prepared financial records. At a minimum, we like to analyze the most recent three years of P&Ls, tax returns and a current balance sheet to get a clear picture of the performance of your business. Buyers want to study these in-depth, often bringing in their CPA or financial advisor, to understand what they’re potentially getting into!

If there isn’t a lot of useful data to go on, there are some tricks of the trade that are based on way more experience than Uncle Bob’s sample size of one or two stories. Brokers have access to information that isn’t available to the general public. They frequently have experience selling businesses similar to yours. The best sales data aggregates the actual sales price of businesses provided by financial institutions and certified business appraisers. They check and double-check the information that goes into making up the SDE number.

Onward!

It’s well worth your while to consult a knowledgeable expert to make sure you’re valuing your business at an optimal price to both sell the business and maximize your achievable profits.

ABQ Ranked in Top 10 for Affordable Cities and Cities to Build Wealth

Albuquerque was recently ranked America’s ninth most affordable city by Move.org. The comparison of 75 major U.S. cities considered the following factors:

  • Rent for a 1-bedroom apartment
  • Utilities (electricity, water, etc.)
  • Internet
  • Gasoline
  • Food (groceries plus occasional restaurant meals

Rounding out the top ten were El Paso, TX; Lincoln, NE; Toldeo, OH; Wichita, KS; Louisville, KY; Tulsa, OK; Memphis, TN;  Lexington, KY; Albuquerque, NM; and Mesa, AZ.

The top five most expensive cities were San Francisco, CA; New York, NY; San Jose, CA; Oakland, CA; and Boston, MA.

Significantly, Albuquerque’s low cost of living contributes to its also being ranked one of the top five cities in which to build wealth by pay experts Salary.com.  This ranking, “based on census data and Salary.com analysis, focused on local salaries, the cost of living, and unemployment. Secondary factors, such as diversity of the local economy, residents’ education, percentage of population below poverty level, and commute time were also measured,” according to CNN Money.

Learn about opportunities to buy a business in ABQ here.

(Infographic by Albuquerque Economic Development)

Tumbleweeds, Beloved Community Resource, on the Market

Tumbleweeds, an early and mid-childhood development magazine loved by parents and educators, is now on the market. Long-time owner Claudette Sutton is ready to move onto her next projects after decades of growing the publication into a staple resource for northern New Mexico families.

Listed at $95,000 with a cash flow of $50,000, this home-based business allows for a flexible, part time schedule and engagement with a passionate, grateful community. The publication enjoys an established advertising base, strong distribution, and a dedicated team of writers, designers, and editors.

A recent article in Santa Fe New Mexican highlights community appreciation for the publication’s helpful content:

“Where would parents and teachers be without Tumbleweeds?” said Joani Kennedy, who has operated the Wee Spirit Preschool in Santa Fe since 1984. She’s been a Tumbleweeds reader since the beginning [in 1995].

“There are profound articles for teachers and people to solve the wonderful problems that come with working with children,” Kennedy added.

Tumbleweeds grew out of a four-page newsletter, Tot’s Hot News, that Sutton started in 1991 focusing on early childhood. By 1995, it had grown to 16 or 20 pages and was addressing increasingly older children. Sutton upgraded to a magazine format with Tumbleweeds.

“I was realizing a lot of articles were not just for parents of young children but children in elementary school and approaching teens,” she said.

 

Albuquerque Ascendant: Ranks in Top Ten Cities for Economic Growth Potential

Albuquerque ranks in the top ten large-size metro areas in the country for economic development potential, according to site selector publication Business Facilities. It’s a great time to buy a business in Albuquerque—or sell a business and move on to the next Big Thing! Albuquerque was ranked ninth. Topping the list were Atlanta, GA and San Antonio, TX.

In a recent Albuquerque Business First article, reporter Collin Krabbe writes:

“‘Albuquerque has a foothold in very high-tech industries,’ including renewable energies, photonics, and information technology,’ said Business Facilities’ Editor in Chief Jack Rogers. ‘We think the up arrow is going to stay for a while.’

Rogers said targeted growth sectors and industries, the efforts to diversify those clusters, local demographics, and workforce development were factored into the analysis. He also praised the state economic development department’s Job Training Incentive Program, a government-funded incentive tool that pays for classroom and on-the-job training for new jobs at expanding or relocating businesses.”

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