Sustain a healthy profit margin!
Is there an outdoor extreme sport you've participated in? Stop and think for a moment about the very first time you tried it out.
I have found, without exception, that entrepreneurs are risk takers. And I suppose I'm one of them. I went on my first whitewater rafting trip in 2011. But I took a huge risk in making this trip and participating in this type of outdoor activity--you see--
* * * I don't swim. * * *
To minimize my risk, I asked to sit closest to the guide, Lee. In addition, just to double-ensure my safety, I asked my daughter to go on the trip with me, because she's a Girl Scout certified in these types of extreme outdoor sports. She was my additional safety net.
We were on the Nantahala River, a well-known Olympic training site in North Carolina. The entire run was two hours on the water, through many heart-pounding rapids, extreme moments of excitement and getting splashed and soaking wet, along with much laughter. I even sustained a hard hit from a hanging tree branch along the riverbank. Lee (our guide) tried to warn me with a "Watch out!" just two seconds before I saw it, but it was too late. Luckily I did not get knocked out of the raft.
The objectives of the trip were to navigate safely to our destination of the 9-foot Nantahala Falls, stay in the boat, enjoy the trip and have FUN!
There were many watercrafts on the river that day, some without a Lee to guide their raft, and many of those rafts got stuck on the riverbank or hopelessly stranded on the rocks sticking out of the water. I asked Lee why these boats didn't have a rafting guide like him.
"People want to save money and go down this river on their own. Unfortunately, only the experienced guides know the river well enough to maneuver and navigate toward the finish line successfully," answered Lee.
Did you know that 60% of business owners feel challenged to maintain a healthy profit margin? Yet according to my Business Value Drivers, or BVD Study, many businesses receive their company financial statement an entire three months after the fact. How can you know you're consistently maintaining a healthy profit margin without having that information at anytime?
An Asian immigrant builds a successful company by focusing on quality, customer service and satisfied employees.
Many immigrants coming to this country have entered the restaurant business, for many different reasons, such as a lack of communication skills in English, a love for their own cultural foods, or they know or have friends who are in the business and make a decent living. As a result, people here are eating more Chinese food than fast food from McDonald's. The food industry is very competitive and the majority of businesses in this industry are not scalable. However, many immigrants find it gives them a satisfactory lifestyle.
Of course the Asian restaurant trend changed, many years ago, from an offering of traditional Chinese to either a buffet or Sushi bar presentation. And as a result, my friend and client Philip Maung decided to do something entirely different, about 13 years ago. He entered the wholesale market platform of the "Sushi box" business. For many Asians, this reminds us of home--the lunch, or bento box style is a comfort food for us--yet considered very trendy here in the U.S.
Philip started this business with his wife Kristina at their kitchen table. Today, Philip employees over 400 employees and contractors across the U.S. Philip sells his sushi boxes to upscale grocery chains such as Whole Foods, to corporate, university, and hospital cafés such as Carolinas Medical Center and to airports including Charlotte/Douglas International Airport. Philip's business, Hissho Sushi is one of the very few businesses in the U.S. named for three consecutive years by Inc. 5000 as one of the fastest growing private businesses.
Over the years of working with business owners, I've come to the conclusion there are three categories of entrepreneurs: Technician, Manager and Business Architect:
Technician--If you are a technician, your business provides you a salary of less than $100,000 a year. (Please make a note here; I said "salary" not "revenue.")
Manager--Typically, as a manager, you've managed to create a lifestyle in which the business provides you a salary of around $250,000 a year.
Business Architect--If you are a business architect, the business provides you an annual salary of greater than $250,000. There is usually also a minimum of three to five times of business value back to you as the owner.
Philip is the Business Architect that many privately owners aspire to become.
Navigating through today's turbulent business waters
Our study indicated that 67% of the business owners are in business because they want to make more money and become financially independent. So how do you begin to create equity value in your business to reward yourself for the risk you took in starting, building and maintaining your business?
Your business equity value changes due to varying factors and triggers. You must make sure all factors are working in your favor when considering a capital expansion or even cashing out.
Even if you cash out due to the need for capital to expand your business, you still must have the right guide. Why? As in my example of the whitewater rafting trip, with the right guide, I successfully reached my destination safely and claimed my reward for the day-- which in this case--was simply FUN.
Yes, think of the equity value in your business as your reward. Claim that reward and compensate yourself for the risk you took in creating and running your business. Don't wait too long or you could be faced with the triggers that might potentially decrease the equity value of your business.
In my BVD study, there are specific value creation methods that help owners gain insights on how to avoid unfavorable triggers. It helps owners proactively and intentionally build their business in equity value. It means knowing what investors and buyers are looking for. Then, you can build your business in value to create a win-win situation for you and all concerned parties.
Do yourself a favor--set a goal to be able to claim your reward anytime! Profitably! Make it a win-win for you, your families and your investors or buyers. Get the right guide on your team to navigate through today's turbulent business waters.
Chia-Li Chien, CFP®, PMP; Succession Strategist, Award-Winning Author & Speaker. She is CEO of Value Growth Institute dedicated to helping private business owners increase equity value of their firms. Her blog and newsletter was named a top small business resource by the New York Times. For a sample chapter, go to your Kindle to preview the first chapter for free, then enjoy the entire book digitally for just $9.99 http://amzn.to/QVoBTs
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