On November 17, 2015 we held our eighth Getting the Deal Done Breakfast Conference at the Bellevue Club (with co-sponsors PRK Law, Meridian Capital, Columbia Bank, Bashey Hutchinson & Walter, CPAs, and “Partner” On-Call/Martinka Consulting).
Over 140 people heard our featured speaker, Joe Whinney, founder of Theo Chocolate. Joe relayed his fascinating story about how he went from being a senior class president who left school one month short of graduating (to “stick it to the man” only to discover “the man” didn’t care), traveling the world, developing a passion for chocolate that allows farmers to be sustainable, and founding the worlds first bean-to-bar sustainable chocolate company.
Rather than the usual talk about best practices (nothing wrong with those talks) this talk was definitely from the heart, not the head. It showed what happens when a passion turns into a business. Obviously Theo is profitable, as they continue to be able to fund growth. All while making sure their suppliers, over 50% of which are in the Congo, earn enough to have a life above subsistence. Plus, they put out a fantastic product!
This event’s panel discussion was titled, “Your Company Isn’t Worth What You Think It Is, and How to Correct That.” With help from the audience we looked at two sample companies, which on the surface appear to be about the same with similar revenue, margins, and profits. However, it’s what makes those profits what they are now and how they will look in the future that creates a separation of value.
The panel compared and contrasted some of the key issues between the two companies and added general insights on items to look for, any of which can elevate or reduce a company’s value. In other words, you can’t just pull a number from air and say, “I’ll pay X times EBITDA (or free cash flow, aka profit) for a business. The seller could leave money on the table or the buyer could be in real trouble by using simple rules-of-thumb).
The issues covered by our panel included:
- What exactly is EBITDA after (normal) adjustments?
- Quality of earnings and how it’s affected by singular events, reserves, AR patterns, maintenance vs. growth capital expenditures, and more.
- Customer concentration, loyalty, the margins top customers pay, who pays and when.
- Data security in a world of hacking and breaches, with employees coming and going.
- IP protection, licenses (for all software), etc.
- Other non-financial factors including how the lease can derail an exit plan, managing the culture, key employee compensation and the dependency of the owner to the business.
The audience input was great, with a few people spotting things on the financial summaries that raised concerns. Pretty good for only having a few minutes to scan some small print.
I hope to see you at the next one.