Finance Master Class | Stuart Morley | Skillshare

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

38 Lessons (1h 26m)
    • 1. Finance Master Class

    • 2. Introduction to finance

    • 3. Module 1 Cash To Survive

    • 4. Module 2 Direction

    • 5. Module 3 Early Adopters

    • 6. Module 4 Value Capture

    • 7. Module 5 Owner's Time

    • 8. Module 6 Your Story

    • 9. Module 7 Debt

    • 10. Module 8 Risk

    • 11. Module 9 Liquidity

    • 12. Module 10 Assets

    • 13. Module 11 Intangibles

    • 14. Module 12 Talent

    • 15. Module 13 Budgets

    • 16. Module 14 Incentives

    • 17. Module 15 Scheduling & Tracking

    • 18. Module 16 Margins

    • 19. Module 17 Competition

    • 20. Module 18 Door Knocking

    • 21. Module 19 Scenarios

    • 22. Module 21 Customers

    • 23. Module 22 Fortune

    • 24. Module 23 Freedom

    • 25. Module 24 Fame

    • 26. Case Study Moneyball

    • 27. Examples of how large companies make profit

    • 28. How do I know where I am in the peaks and valleys of business

    • 29. How do you increase the value of the business 10x

    • 30. How many different ways can you increase the value 10x

    • 31. How monopolies work

    • 32. How to maximize value

    • 33. What are the typical valley of death levels in a business

    • 34. What is EBITDA

    • 35. What is the practical use for the 24 modules

    • 36. What is the unfair advantage your master class has in the marketplace

    • 37. Why are private businesses so valuable

    • 38. Why does it pay to take on debt to buy a business

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About This Class

Take the next step in your business finance educational journey by signing up for Stuart Morley's Finance Master Class.  This comprehensive 24 module course includes topics that can help take your business to the next level.    This includes a bonus section with 13 case study, and real world examples of how to take your business to the next level.

Topics include:

Cash to survive


Early Adopters

Venture Capital





And more....

Meet Your Teacher

Teacher Profile Image

Stuart Morley

Strategic mentoring


Hello, I'm Stuart.

See full profile

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1. Finance Master Class: Hi, I'm Stewart Morley, and I'm teaching finance masterclass. I got involved in projects where I realized there was much more to finance than the numbers . You really needed to understand the psychology behind people, that thinking and how they wait about the world where you work, how you come at things is much more than just running of the numbers. The 24 modules that were you covering in this master class, each one of them can add some value to your business or detract from it. If you ignore them, we will break this down into bite size chunks. The four elements are three of these modules that talk about getting started in survival mode. Then there are nine of these modules that talk about building a sustainable business, another nine modules that talk about how to bridge to the next higher level or sustainable base, and then three modules that talk about how to exit the business. I hope you're going to find this course fun. Interesting had an opportunity to see the world in a different way because I've had such a diverse experience. I can bring that and share that with you, and I like to work in a way that you also share your experiences. This is a journey. We travel together. This is not me lecturing you. This is us together sharing knowledge and learning from each other. So this should be fun. Come and join us on the journey. Hope you enjoy it. 2. Introduction to finance: welcome to the finance monster class. This is a Siris of videos where we are trying to help you learn any time from anywhere at your own pace. The research shows that about 68% of people who take a finance course who are business owners, they really see the benefit, and they don't regret the time and effort it takes to do this. One of the difficulties is if you look at the courses out there and I've done extensive ordered, of course is that are out. There is too much jargon. A lot of the material they teach you is not relevant for a business owner. A lot of it's for big public companies. A lot of it is designed for accountants. A lot of it is an attempt to dive into a county jargon or get lost in the minutia of financial analysis. It's difficult for business owners, defined finance experts. They aren't trained. They're not trained like accountants are trained to do the flow of money. They're not trained in finance. So what is finance finances? About surfacing value in the business? One of the difficulties is if you look at all the books and what the academics do. They really focus on investing the excess flow of funds from large companies, typically public companies, which is only a small part of finance. They ignore the role of finance and helping grow business of different stages and surfacing the value between the business. So there are large businesses that are not very valuable and their small businesses that extremely valuable so the value of business is irrespective of its size. The academics also assume, because the stock price is really available in the stock market, that the stock price is a good proxy for the value. The value of something is linked to the price. But it's not the same thing. You won't buy something if you're going to pay more than what it's worth to you by the value the value needs to be more than the price. Also, most of these textbooks are focused on running numbers based on financial statements. This master class has very few numbers. It's or about the thinking behind it business related perspectives rather than getting caught in my new sure of accounting. I worked for a very large accounting firm for years on their consulting side and I know the complaints that most business owners had because they went to their accountants toe. Ask them financial questions. Counts are not trained in finance. I used to teach finance two accountants accounting and finance a two different things. Finances about surfacing, value and accounting is about tracking the flow of money there late, but they're not the same thing. So accountants in their training are trained for compliance, which means their whole focus is on making sure you need rules. You meet regulations, you meet laws, you need standards, and their focus is to produce your financial statements for you. They want to do it on a consistent basis. They're less worried about trying to make them accurate. Consistency is more important than accuracy, and completeness is more important than timeliness. Business owners one an accurate insight, and they wanted quickly, and they wanted often and accounting systems not set up to provide that. And often business owners have frustrated when they try and force the accounting system to do what they need For financial reasons, however, accounts very good when it comes to compiling the information for the tax man or if you getting information that a banker wants, and many accountants know their own limitations. So they will introduce you to experts like myself and others to handle these particular issues. When do business owners get an interest in finance? Typically only when they have a problem? You don't see the businessman saying I have nothing to do this week, Instead of playing golf, I'm going to read a book on the theory of finance. They will call you up and say I typically have a problem with cash or I need to get my taxes paid or help me get a bank loan or in some cases, I need to sell my business. I want to retire those often the tricking events at which times the value of the business now becomes critical and can no longer be a neglected. That's when the business ANA is starting to look around for financial help. So, as we said finances to help businesses surface value. Also, when you read the textbooks, there he look a value off a large public company that's well developed finances needed it all stages, whether you getting started with the business, with you growing the business with you, shrinking the business with you in survival mode, like covered 19 issues many businesses are facing now. And also when you want to get a bridge to the next level, when you want to take the business to a whole new level and part about courses helping you not only taking next level on a small scale but on a grand scale, we'll show you how to increase the value of your business tenfold, not 10% tenfold on also when it's time to retire and making sure your business is in the best shape for exit so classically when we ask a business owner, how do you plan to exit the business? Many have never given it some thought, but the best way to help in terms of value because value is not only based on what you've done in the past, but what's your plans for the future? Classic financial questions ask things like what part of your business adds value and what is did Wait, what part of your business did you get rid off? Are you making money? There's an amazing number. Businesses fairly large ones that don't make money. How do you capture value? How do you even find the value. The marketplace. How do you capture and keep some of that value is profit. These are important questions, which accountants don't often ask these questions. Your banker doesn't ask these questions. Only you is the business owner. Need to know until such time as you want to sell or e financial business. The classic solution for a business honor. When they go to the accountants can't find any help there. When they go to the bankers realize they can't help they go find. I will get some help by hiring an accountant, a manage of financial manager or a chief financial officer. And then they find that often these folks don't last very long because they don't know how to surface value. They're not trained in the art and science of surfacing value the difficulty for somebody who is a chief financial officers. They've either done MBA within a little bit of financial theory, which is good for public companies for their own account. And they know about compliance or their accosting person. And they know how to do all the costing details in a manufacturing environment, or they've come from an investment banking world where they know how to sell a business and how to package it up. But none of these skills is enough to surface value across the whole spectrum of your business, whether you're in start up mode, whether you getting ready for the exit. And so there's a huge disappointment for business owners when they're looking for a chief financial officers to help them with finance and the disappointed finances. More than looking at the numbers in this diagram, you see a iceberg, an iceberg, and above the iceberg, you can see are the financial statements. So when you hit an iceberg, we hit problems. The first response of a financial officer in the company or an accountant is let's look at the financial information. The traditional accounting information is not gonna help you in a crisis. What we'll do is understanding the actions you take, and you employees and your customers take the thinking that goes into the way you run your business in the way people behave and the emotions and how you make decisions. Those are the things that are under the water in a nice book to take you through the 24 modules that were you covering in this master class, Each one of them can add some value to your business or detract from it. If you ignore them, we will break this down into bite size chunks. The four elements are There are three of these modules that talk about getting started in survival mode. Then there are nine of these modules that talk about building a sustainable business. Then there are another nine modules that talk about how to bridge to the next higher level or sustainable base, and then three modules that talk about how to exit the business. 3. Module 1 Cash To Survive: each of these modules will have a diagram to help you remember what it is. When I normally teach this course, I have essentially a cook record full met. And I have these symbols hanging down in the audience picks which symbol they want me to talk about. And so we go through the modules in the order in which the audience ex those symbols. So in the first symbol, we're talking about the cash to survive. This is whether you're big company or a small company. All companies typically go through periods when they have tight times with cash, with covert 19 happening currently, While we're doing some of these discussions, this is a big issue. So how do we look at this? Cash to survive has a number of elements. One. It's important to understand that all businesses, a French, are we've seen better heart, bigger business. They can fail. We've seen ah, accounting firms that a huge fell. We've seen big tech companies fail. Any of these things are possible and usually because they run out of cash. One of the other pieces of the puzzle of thinking about cash is to think about the organization in a whole different way. One of the important elements when you think about cash to survive is to think about businesses in a totally different way and think about it in terms of games. If you play a finite game, then you've got rules and you've got players, competitors and there's a winner. Lose hockey games, sports, games, whatever. If you plan infinite game, an infinite game is very different because an infinite game is where you just want to survive. There are virtually no rules. There are no real competitors per se, and so infinite games are very different in a military context. When I was, uh, left school in Africa where I grew up, you were conscripted into the army and they're in Zimbabwe where I grew up. You were fighting a guerrilla war and what was interesting back then as a girl, what was an unusual way of fighting a war? In the old days, you fight a war. You knew where the anymore Iwas there were different uniform. You'd line up on the battle, shoot each other and declare a winner. It was run like a finite game and had fun rules that each side understood it had a starting a finish and somebody declared victory and off you went in a guerrilla warfare. Your only objective off a gorilla is to survive, so you would shoot at the enemy and then run away. You would do whatever you could to stay alive so you would constantly annoy, irritates, shoot, kill, intimidate whatever your enemy. And so a lot of the traditional military was not set up to fight infinite games. They had a mindset of fighting finance games, and that's why Vietnam and all these kinds of things were a terrible failure for a lot of these traditional military ideas. So what happens is many business owners started business and only worry about the cash for they play an infinite game. They don't really worry about when I made a profit or not. They don't really worry about financial statements other than to keep the tax man happy. And so they haven't infinite game mindset. When you have now accountants and you have bankers and tax people, they are trained in fine at games, so they are extremely frustrated dealing with a business owner who's playing an infinite game. The infinite game is this business on as long as good cash there will keep going. So this is important difference, and it'll come out in a number of different ways. In the module I've shown you with infinite games, you can be a little more specific. The Infinite Game could have some specific rules, will be very vague with the rules, but not rules. The goals that the objective at the end, the specific objectives to stay alive or the objective is I'm just going to keep avoiding the enemy. But with fine at games, you can have many rules or few rules. And these combinations tell you whether you've dealing with a simple problem. Ethical problem. Ah, hard problem work, Eric problem. And a lot of the time we're dealing in tough times with what's called chaotic or wicked problems. Your goals is a business owner may be very vague that you're finding that there are a lot of rules when you get into trouble with your business there a lot of rules, their rules of what you can and can't do that the society has put on you, and so you have what they call a wicked problem. Wicked problem is, there is no easy answer. Whatever you do will make the thing better or worse, but it won't solve the problem. This is a dilemma that a lot of business owners are not comfortable with. They either, like an infinite game with a few specific goals, which is stay alive. And they like to work in sectors of the economy of very few rules. So simply a business where most employees after stack shelves or they have to pour concrete and you collect your money and off you go. That's where a lot of business owners are more comfortable, however, and once they make a lot of money to get in the stock market, what happens there? Goals may be very vague, and there's not a lot of rules in the stock market. And so playing the stock market like trying to predict the way that can be extremely difficult. It's a very different mindset, and in the same way, if you're building a spaceship or a skyscraper, the goals have to be very, very specific, and you need to have very specific rules and lots off them. So each of these are gonna tax your mind in terms of thinking. Remember a little icon in the bottom, right? Thinking so cash to survive involves a lot of thinking around the issues or playing infant games. Some other examples of cash to survive. One of the cheapest ways to get money is to get customers to give you money, cause they don't charge you interest. Typically often if customers give you money in advance, that's the best way to run your business a great ways. If you have a business on the Internet with people, pay up front of the credit card or whatever, you you get your money and then you delivery services. Over time. However, one of the issues that you often face in the business is the money is coming in in peaks and valleys in not a steady flow, and your expenses are going out in peaks and valleys and not a steady flow. And so what we like to encourage folks to do and they get into a cash flow crunch is to think about 13 week cash flows. 13 week magical. It's about three months. It allows you to figure out for the next 13 weeks. Most times we can't think more than 13 weeks out or anticipate 13 weeks out. How's the cash? We're going to come in each week over the next 13 weeks? What cash is going to go out the door each week over the next 30 weeks, and then overall, will we have enough cash in the bank to get through the week or not? Often, businesses have their financial people prepare all these spreadsheets with lots of numbers . A lot of business owners glaze over with too many numbers. So in the module that we're looking at, you have an opportunity to make this very simple. Either you doing it or have your financial people doing it. Put it in a simple graph. The green is money coming in the door. The Raiders money going out the door on the blue is how much cash is left over, and the little black daughter line gives you overall. Cumulatively, how much cash to make sure that you can time the cash going out so that it doesn't go out foster than the cash coming in and put you out of business. You cannot survive in business unless you have an unfair bunch. Your business needs to have something that is unique In the past, it was often location. You were the only store in town that had it. You were the only business that had a particular type of product offered a particular type of service or the only one in this geography that could do it all, the only one that had particular elements that people wanted. Without that, you're deemed to be a commodity, And if prices you're only advantage, then the chances are you're going to be in a situation where it's a race to the cheapest price. So when you get into cash crunch, you should be able to put your prices up. If you can't, then you probably got a business you shouldn't be in, because if the annual wages advised to keep cutting your prices, the chances are your life as a business will be very lumped. This is one. I have a lot of arguments with business on us. The first reaction is an emotional reaction, which is if I put my prices up, I'll lose all my customers. This is one where you've got to get beyond the emotional thinking. You've got a the emotional reaction and get into logical thinking. The chances are. People are not going to switch at the rate you are askew. Increase your prices. The chances are they're going to stay with you because they need you. The only reason they're buying from you is because they need you. You're solving a pain problem that they need soft. The next element to look at and cash to survive is cheap, is expensive. It's amazing. Often a business owner will come to an accountant. Say, I had this bookkeeper. They were really cheap. But guess on what I'm in them. I'm in trouble now with CR A. I'm in trouble with my bank, etcetera. So it's classic. You, you don't know experience a cheap person is until things go wrong. And so part of this is being able to persuade you that just because somebody's cheap doesn't mean they're going to be the right answer. Most times they're cheap because they're not very good. All the products, not very good. And so it's a real challenge to figure out what is a reasonable price in the market place and being prepared to pay for that to take the risk out of it. When it comes to survival and looking off to your cash. There are a lot of hidden costs, and some of these costs really surfaced when you try to do too much. When a business is offering customers good service, fast service and cheap service, all of one, it doesn't exist. If you're the cheapest and claim you the the best in the fastest, you gonna go out of business. The best you can do for clients is give them to. I'm either the fastest in the best or I'm the cheapest and the Fosters. But I'm not very good or I'm good and I'm cheap. But I'm not fast. I'll get to your stuff whenever I have time. It's when you break this little triangle that you get into your biggest trouble on a lot of your hidden costs. Start climbing. If you've got a customer that wants all three run a mile, those customers will bleed you dry 4. Module 2 Direction: Now let's go into direction in direction. This is when you're in survival mode or when you're ah, small business. You often have to change direction quite frequently because the direction that you're in may, you're at the whim of the environment. It's almost like being in a storm. You have to keep changing direction until you can find a way out. When we talk about direction, we're thinking more emotional decision making here, as opposed to thinking from a rational point of view, with the emotional perspective, emotions about making decisions in direction. The emotional temptation is to put no emotion and not make a decision. What would Too much emotion and you change decision too often in this particular one, it's very important when you picking direction to decide what's your in game? What do you trying to achieve at the end of the day? So in the case of this diagram here of a Swiss Army knife kind of idea, you sit out to have a little pocket knife, but you can also have it with a home key and a milky and an office key, and you can have flash drives and pains and all kinds of things allocated to at the end of day, when times a tough and you need to change direction. What is the most important thing? Do you go back to being a basic pocket knife? Or do you say, Forget this? I'm just gonna be a holder of keys or is the sun. I'm going to just be a flash drive, so it's very important when you have all these different opportunities, and it's tempting to go into all of these different directions at once. You're not going to duel well, if you get a good pocket knife, you name may not be a good flash drive holder. You you may not be out for a good pain that goes with it. So it's being very important to pick your focus, getting everybody else on the same page. Because if you're selling a Swiss Army knife with lots of gadgets and all your customer wants is a pocket knife or if you're training employees that you just want to do a pocket knife, but they keep finding ways to turn it into a flash drive, you're gonna have problems. This is one of my favorite slides, because the temptation is when you are changing direction, it's like delaying you tracks for your train. The difficulty is, if you were a business out of this very hands on, you're used to keeping the trains running on time. So if you used to keeping the rains trains running on time and now you have this at a job, you have to change direction, which is the lame or railway track. Trying to lay railway track and keep the train on time, as this little cartoon shows is ludicrous. So if you in a situation where you have to lay more railway track, the key thing is to stop trying to keep the trains running in time. Get somebody else to do that. Delegate, delegate, Delegate the final one on the direction one. When you're changing direction, it's important to look at things through the eye of the customer with for the IRA employees or the eyes of your community. In this example. Here, you've got the fellow on the island think he's be saved because you can see a boat coming to save him, and the flip side of that is the guy on the boat thinks he's gonna be saved because you could see a man on the island, neither, which is going to be suitable 5. Module 3 Early Adopters: the last piece off the survival getting started module is early adopters. When you're getting started, you need to find customers, and you need to get things organized. The key model that I like to use with this is a model was developed for the technology world, which is who are your early adopters? Who will try out people one of your 1st 50 customers? What will they do? How will they accept your products and services even if they're not completely finished? They're not presented in his professional ways you want. As you get more and more of these earlier doctors, you may be in hitter. A roadblock were suddenly business look dries up and you hit a valley. Often that's values because the early adopters they're prepared to put up with product that's not well packaged or not well delivered that the rest the market once it fully done in terms of early adopters. Part of this is trying to figure out how to surface the value here. What we've done is provide you with this little box where you look at business value versus complexity. So if something is probably going to give you very little business value has not very complex. You're probably better toe park it. Don't do it. If it's something, it's going to give you a high business value, but it's not very complex. It's a way to win customers easy, then put it on your urgent list. If something has very low business value and it's very complex to do, then don't do it. It's probably not worth it. Drop it. And finally, the things that you want to do first are both business value and complex. What you want to do. These are things that other people can't duplicate these air, something that are very strategic, and these are things that will give you the best bang for your buck. These are the kinds of things that you need to do in sorting out which kind of problems you want to solve. For customers to get these early adopters, as it's a your races to typically get your first rustic 50 customers, and this is a way to think through how get how to get there quickly. A lot of folks that are very keen at developing products, but they would rather die than pick up the phone and find a customer, or they don't see the merits of putting up a website and advertising what they do and using social media and investing in Google and all these other kinds of tools to find customers. When you're in that early stage, you have got a knock on a lot of doors because very few people want to be your early adopters. They're very small percentage of the marketplace, and they very few employees that want to help you get a company started and whipped for very low wages, and you may outgrow those customers and you may outgrow those employees. But at this stage, when you need to be knocking a lot of doors and doing a lot of actors. 6. Module 4 Value Capture: 1st 1 is value capture value captured talks about how you going to get more off the value that you offer into your pocket enlace into the pocket off the customer. This is very much of a thinking module. This is one where the importance off trying to test how higher price you could charge and what does the customer sees value, and not all customers see the same value to you. You may be selling one service of one product, but for two different customers, they would see it as value that is different in each case. The classic Example. If you go and buy a soft drink or a Coke from a vending machine, you may pay 50 cents or a dollar that if you are buying a Coke and you're sitting in a restaurant, you may be paying $2 for that. You at the end of the day are buying the cook if you think of it from purely a price point of view. But it's more than that. Your customer, who's paying $2 for the coke in the restaurant is also buying fact. They can sit down. You put ice in the glass and What have you was the customer that's bought the Coke from, or soft drink from vending machine doesn't have all those enhancements. One of the tools that is very helpful is trying to figure out the total value of what you offer. And are you taking half the value in the form of a price or you taking 80% of value in the form of the price or something less so when somebody is in a middle man? This is one of the best ways to illustrate this in the pharmaceutical business in the pill that the customer buys costs $10. The pharmacy that selling those pills at $5 you is the pharmaceutical company, making them for a dollar and selling them to the retailer for $5. That pill is with $10 to the Korean customer, but your intermediary, the pharmacists will only pay you $5. So the bias capturing half the value and passing it on to the customer at $10 keeping the $5 you are remaining with the other $5. You may be happy with that cause it only costs you a dollar to make it so you still making a good profit? This is the kind of discussion that is ongoing all the time, and it's the discussion that's worth taking the time to get your pencil and paper out and do some calculations. When you're capturing value because the value to different people is different, you could be offering a fairly generic service at different prices. So the illustration here is somebody that offers something for $29 all the way up time in 75 $79. It depends on how much you use it are how many features you do incorporate with it those kinds of things. This is a way that you can segment your market and are for virtually the same core product , but with different add ons or different timing or different elements. They allow you to go across a wider range of pricing and give you a better idea of what the value ranges and how much of that value you can capture. 7. Module 5 Owner's Time: The next element is the time the owner spins and the energy they spend in the business. The owners time again. This is a very emotional based discussion, a lot of business owners, very proud that they work 50 60 hours a week. They keep an eye on everything their very hands on. The problem is in most businesses, wherever the owner spends their time, if it is with most values created, sometimes we will get an owner to calculate what the time is worth. If you're the main owner and you're bringing most the business and the revenues you bring in our A 1,000,000 or $2 million of the business, then your time that you allocate divided by into the number of dollars will give you dollars per hour. So if you're working 2000 hours a year in your business and your bringing in $2 million then your time is worth $1000 an hour. Each hour you spend is correlating to roughly another $1000. Our business for every are so it's It's very important for the business honor to be careful how they spend their time. This becomes particularly noticeable when you want to sell abundance because the business you're selling the bio wants to buy business with the management intact. If you are the management, then you're essentially selling yourself so you may get some dollars for your business, but they really want you to stay and run it on the other extreme, if you being a business owner, that has delegated enough that managers run the business and you're hardly ever there, or you can run it from your cottage or from your holiday home. And you need to Moses occasionally, almost like an absentee landlord thin. The business is worth a lot more to the buyer because they don't need you. They just need to buy control from you, so segmenting the difference between control and being in terms of ownership is very important. There are various charts and analyses that you can do, but basically they all boy down to the same thing. How much of what you are interested in is just being on owner of a money machine thinking for businesses of money machine how easily you would be prepared to buy and sell the shares of your business, how easily you would be able to put in you managers in or this is a business that you want to do. It's your love. It's your child. Your family's in that you want to leave. The buzz is to members of the family. Those are the two dynamics that your first faced with between running a business as a family legacy and just owning shares in the business and treating it more like a money machine. And so a lot of our discussion is around the letter. The business owner that really is so involved in running the business. They've got Children in the business, and yet they hope to sell the business for a big premium one day. And you, you can't have it both ways. Most business owners will admit they're not good with time management. The honest time is not just about the time. Management is also about how they focus. Dan Sullivan runs a very interesting program called Strategic Coach, and he spends a lot of time with this element, where he explains to a business idea that if you pick a day when you only focus on what you do best without interruption, and then you pick a day where you have a vacation or every day where you have no interruptions from the business. You don't look at your cell phone or whatever, and then the in between that you have days where you clean up days when you sorting stuff out and have lots interruption that when you can divide your life into those segments, your productivity goes through the roof. Your business goes to the roof because you is the business owner. And where you focus, your energy typically drives what happens in the business, even on big deals. So if you think of Amazon Jeff Bozo's, he will sit on every Big $100 million meeting that he wants it. In every small meeting where they're dealing with people, he will pick its spots. If you look it. Articles written by Warren Buffett He got his time carefully. He'll spend five or six hours a day analyzing the financial information, which is what he does best. And so the MAWR your business is worth. The higher your business value goes, the more you need to protect your time because the time that you dedicate the business is extremely valuable. 8. Module 6 Your Story: the six module we're dealing with is your story. There are two points I would like to make. One is is a very well written book on branding by Donald Miller, and he talks about thinking about doing your story, the story of your business that you tell the others as a movie script or a way of telling a story in movie form. First of all, the movie you need a character, I your customer. They need to have a problem. Number two. They need to meet the guide. That's you that's going to get them a plan, which is number four and number five you going to give them? That plan allows them to rush off and other chief, we'll fail. This is the key storyline for your business when you're doing your marketing materials. When you're doing any kind of explanation, you don't want to put you in all your business as the hero you need to be. Positioning yourself is the guide that's helping the customer to become the hero for the second point we want to make under stories. Number six is because this is an action focused discussion. What is the perfect business is a great discussion to have with colleagues. When you look at y Combinator in these other accelerators, where they have very fast growing companies, they come up with a couple things such as, Well, if you look at the founders, they probably one of the top 10 in the world in whatever the especial two years. So you would have found a need to have some kind of specialist expertise. If you want an age trying to build above perfect business, revenues need to grow at least 20% a year or more. Three. You need to have very high margins for acquiring customers need to be almost close to zero . Ideally five. Whatever you're doing needs to be an urgent need that you're solving and customers are willing to pay for it. What's Virgin needs people are not willing to pay, and you want to make sure there's a large number of customers wanting to pay that. Six. You gotta have that unfair advantage. You gotta have something nobody else has. Number seven. Ideally, you want customers who pay in advance that keeps you cash flows right, and number eight. You want something that's low risk. They're probably more to that. But those are some of the elements. So in your business, check off of those eight up there. How many of these boxes can you take for your business? 9. Module 7 Debt: module seven is about it, and as that symbol shows its put like a boat anchor or a weight that will weigh you down, we find that most business owners of one of two schools that they don't want any digital they consider just son. They will go to incredible lengths to avoid having you need it or any obligation to other parties. And then there's the other extreme who loved to live on the edge. They'll take a much Dida's they can get because they believe they're invincible, or they believe that if something goes wrong, they will bounce back. If you're really interested in finance, you will take the time to figure out that zero did is not good, and too much debt is not good either. But like ET no, food is a problem. Too much foods. The problem is the right balance, and so financial people will help you think through that balance, and that balance will change over time. So typically you want to make sure the debt you take on is probably somewhere around 1/3 off what you could afford. If you look at credit, scores of business owners or other people, your credit school is very high if you're not using more than 1/3 of your credit card, if you're not using more than 1/3 of your bank line. But for businesses that right up against the bank line or they max out their credit cards, these are warning signs because unless in exceptional circumstances, your business is at risk because one or two things going wrong can put you under. And, as you know in business is always half a dozen things going wrong at any one time. One other point on Dimension with DIT is a classic mistake business owners make when they're smaller is they will buy an asset that has a long term value. And there were you short term money you need to balance the assets with the time that the assets worth with the money. So if you use your operating line, which should turn over every 30 60 90 days to buy a truck that last five years, that's not a good idea. If you buy a track and you put it on a five year lease because the truck will last five years, that's Amore saying way to go. But it's amazing half and people don't understand the importance of matching the length of the debt to the length of the value of the assets. 10. Module 8 Risk: moving on to modulate now, which is risk in terms of risk. There's no risk without reward, or there's no reward without risk. So you need to take some risk in your business. The trick is how much in one of the best ways of doing this is to do a little matrix from this matrix You're trying to look at. The reward. Is it low high? And the risk is at Lowell High. And ideally, if you want to do something with high reward, you could probably absorb a high risk. But if you want to do something with a very high risk, low reward, you're probably going to get into trouble. So it's looking at your various products and services and making a judgment cool on the risk. This is not a thinking thing. This is an emotional thing. This is where decision making is key because there's a lot of things you can't quantify. So this is a risk reward system of accountants conquered the head around. But financial people can because understanding risk is an important part of finance 11. Module 9 Liquidity: the quantity here, we mean, is about paying yourself first. Most financial statements are designed that he has the revenue at the top of the line, and then I have some expenses that are directly related to that. And then I have a margin and I have my own beds. And then there's some profit at the end and hopefully is enough profit that I can pay myself either a salary or a bonus or dividend. And I've got enough money to pay my taxes and that that's the traditional accounting way in finance. What we suggest you do is you pay yourself first. So for every dollar of revenue comes in the door, you put us some of that aside in a savings account for you. So, for example, if you say I want to keep $10.10 out of every dollar for myself as a dollar comes in the door, put that 10 cents in the savings account right away. That affects you now to say I only have 90 cents to pay expenses. All the other experience need to fit into that 90 cents. That, psychologically changed, is the way you do business because what happens is you need to deal with the peaks and valleys. The first element we want to talk about in terms of equity is that your income, which is the dotted line in this chart, tends to go up and down. Where's your expenses? Tend to be steady and in normally increasing, so that's very quickly gives you cash for issues. So this is something where it's important for you to consider paying yourself first in the second diagram in order to pay yourself first. What you want to do is chase all the money coming in from customers from receivables, bank loans, shareholders etcetera, and put aside a percentage of that revenue for you in your own personal savings account. Take that out first, then look at what the money you have left and have that money allocated to pay taxes, suppliers, loans, etcetera, peril so that you are looked after first. That way it will help you psychologically spend less and also hold on to as much money as you can so that you have money for a rainy day for investments and keep your bank balance with a healthy balance in it. A little times 12. Module 10 Assets: number 10 is talking about assets and way a finance person talks about an asset on the way and accountant talks about assets is not the same thing. One of the best ways to explain this was done in a book called Rich Dad. Poor Debt, and in this book, the author basically explains how If you have a house that you own and you live in it and you pay rent or mortgage giant, Oh, if you own a June pay rent, you pay mortgage. Then that is a liability. Most people think of the house as an asset because one day they will sell it for more than they bought it. But on a rich dad, Poor dad's model is. If you moved out of your house and you rented it to somebody and earned rent from it, your house moved from would move from being a liability to be an asset. In other words, a finance person only thinks of an asset is something that generates cash flow for the business or for you personally. If it doesn't or doesn't generate enough cash flow, it's no longer an asset. It's a liability. But if you have a building, for example, You buy a big building for your factory and you put your your workers in there and you're running it. And it's not earning. Revenue for ports per se on the balance sheet is deemed an acid by your accountant, but essentially, it's a liability as far as the rich dad. Poor dad model works. However, if you rent out space to other tenants and it covers more than the costs around the building, you've not turned that factory from a liability into an asset. This was the accountants are concerned. It never changed. It was always an asset, even though wasn't making money for you. And now it's an asset is making money for it. They still don't change that on your financial statements. Now, a key part of this is a thinking part. We're using the thinking module here because a lot of this type of work that needs you to get a pencil on paper out so the other types of assets are Should you buy something, or should you lease it, you need to do a calculation there because in some cases it pays you to buy something. In some cases, it pays you to lease it. Another one does doesn't pay you to outsource the work to a contractor or to hire employees . To do the other is to get involved in unique models like Airbnb. They're very clever because they don't onal these rooms that people range from A, B and B. These are people's private houses that have spare rooms so they don't even own the assets. They really have a platform where they're renting out that taking your asset, your house, that or rooms that you're not using. And they're renting it out to customers who then come and stay. Part of this looking for is an acid really in asset? Or how can I turn assets that are not productive? Into productive is a very important part of surfacing value. Some that classic ones as you may have some inventory that you is old. Should you just leave it in the warehouse or sell it well, there's a cost to keeping stuff in the way house. The White House has hydro costs. It has least cost its ebbs, and also you've tied up cash flows sitting in your inventory that would otherwise be used in the bosoms. So Clearly this is an important area where getting clear idea of what assets and how you can leverage your assets is very important. 13. Module 11 Intangibles: number 11 is about intangibles, and intangibles can be things like a brand name. It can be a patent. It can be. Things that counts can put on the financial statements will have terrible trouble showing on your financial statements. Some of the intangibles are the team of people you have in the company. You lose a key. Tell a person that can have a huge impact on your value. When some of the venture capital people value a company, they look at who the founders are and when the founders leave. That can have a huge positive or negative impact on the value of the company. It can be on the relationships that you have that a valuable. The reason your businesses gets a higher values because you have key customers or key relationships or key suppliers nobody else can have access to. Calculating the intangible investment is very much in the emotional space. This is not something the accountants can calculate, but as a financial person, this is something that's very important to look into again. Looking at the public companies, you'll see very few of the big public companies like the Apple's and Amazon's, have very few physical assets compared to their value on the stock market. A lot of the value is also on the future. Hard, good, a future you are projecting again that goes back to an earlier one talking about your story . If you have a good story about what you're gonna do in the future, because when people buy your business, they're not buying the history, they're buying the future. They're buying the fact that you will achieve a better future and hints of better catch from the future, and therefore they prepared a pay a higher price. 14. Module 12 Talent: number 12 is talent and talent is also another one of these action focused opportunities. One of the key ways of showing her value bill your talent is is to calculate the revenue per employee. This is where you take whatever your revenue yourselves number is for the year you divided by the account number, or average number of employees. This is an important part of comparing with a Europe business like a Wal Mart, which has value, which is because they have lots of employees that are not terribly profitable or not high revenue per employee. But they have so many of them. It adds value that way, or you more like an apple, which has two minutes revenues per employee, but not as many employees. When I show a chart like this to private companies is usually a shock. How's it possible that Apple could have a 1,000,000 or $2 million of revenue per employee? These are the kinds of huge numbers you can get when you have a company which has technology is part of it. But as a smaller business, there's no reason why you can't move into that space. There's no reason why you can't sell more in line once you start selling products on services online. Being able to do use more of the technology. You can get higher revenues per employee, and invariably there's translate into higher profits per employee and hence help you increase the value of your business. So continuing our discussion on talent, which is number 12 of our modules, the chart I'm putting up here's a pretty busy one, but I would like to spend some time on this. We can each where four different hats and depending on the circumstance, which hat you're wearing is critical. The way we get to the four hats is we're dividing up between people that we rather fight off or flights in the case of a situation. Or there's a problem. People fight with TV, tell you what to do, as opposed to people who would in the flight mode would ask questions and in between those that are much more emotionally controlled or focus on tasks. And most are much more open, emotional and all people focused gives us at four boxes. So if we go through, those are top hat that we could wear the e hat, the expressive hat. This is at the intersection where we're essentially appointing people. First. We we connect emotionally, but we really want to get things done. And we want to tell people what to do. An express of is typically a person that would be a great networker, would be happy to Drayton drop names and is the kind of person that is very helpful and hoping up you network. So when you're wearing that hat in that personality, you're being very helpful in terms of growing new networks and new relationships in the business. If you go down to the hats, if you wearing the D hat, the red de hat for the driver there you really are in a situation where you're trying to get stuff done. You're the driver. You want to tell people what to do. You very much want to focus on the task. You don't spend a lot of time on the emotional elements in this kind of environment. This is a great head to wear when stuff is just got to get done. Yeah, it's gonna gonna be perfect. But we've got to get out the door or yeah, we got to make tough decisions we're gonna do him. And when you're wearing that hat, typically your employees need to be careful not to tell you what to do. They really need to give you options. And in that mindset, you wanna pick options and you need to be ruthless about what you will add and subtract from circumstance. Then, if we move along to the bottom, left the purple hat, this is when we were the analyst hat. This is when we need to essentially ask questions. Look at the task. This is our homework. This is doing the numbers. This is doing the paperwork. This is doing research online. This is kind of figuring out what makes sense. And then the fourth hat is the sociable hat, the blue hat. This is where we really want to connect with people we want to ask. Make sure everybody's happy Boys on the same page is sort of the theme analogy. These things really come into sharp focus when there's a crisis. Or were you getting started when you got an established business? You often forget or neglect some of these elements. You just assume they're taken care off. Has your organization gets bigger, you're gonna hire people that where one off more of those hats more frequently yourselves, people will tend to have more of a green hat. Your operational people or your accounting people may have much more of a driver or analogic at your human resource. Are those kinds of relationship People were more more of the blue head. So this is a key one in terms of growing your business for surfacing values, making sure you're wearing the right hats at the right time. And you, enough people, they have a dominant hat that fits the role. 15. Module 13 Budgets: number 13 years. Budgets. This is often a dirty word to business owners. They don't like the word planning. They don't like the word budgets. These kinds of things conjure up extra work. They conjure up pretending that you are some kind of mind reader or you know better than the economists predicting the economy or the way the man trying to predict the weather for the next umpteen months. However, budgets are very helpful because they get your base thoughts down on paper and they allow you to think through the implications off where you're going and make sure and as you thinking this through ahead of time, you're maximizing the value for your business if you go online. There are many models by different industries where you can find out how people in the industry allocating the budgets. The model here shows three author, publisher model and what percentage of the money is allocated for marketing or editing or design etcetera. There's some rules of thumb that you can learn from the marketplace in developing your budgets. Also, in developing a budgets, probably one of the biggest mistakes folks make when they're doing this is to project one revenue number. The key here is revenue is not entirely predictable, so it's best to predict a high in a low range. And hopefully, reality advances around some of junior high and low range. So we call it scenarios with budget. A best case, worst case budgets. These are things that are very important if you want to maximize the value of your business . And as always with this element, we're really asking you to weigh your thinking. Had much emotional, had much action hat. This is time to really get in the country, you know, Go fishing, play golf whatever. Do something completely different before sitting down To do this, get away from the business because when you might in the detail, it's it's It's seldom that you have the uninterrupted hours that you need to focus on doing this. One of the most important things, really is what assumptions you're making. And can you list the assumptions you made when you develop their models. Once you develop them, put them on paper. First draft. A lot of people can help you. Financial people can help you, but the first draft is really getting that those key assumptions. Other business owners here on paper 16. Module 14 Incentives: number 14 is incentives. This is a an area that can make a huge difference, good or bad for your business. If the incentives that you use are positive and lined with the business, you can have see tremendous value between his growth. If they're not, you land up having people working against you because what's good for the incentive may be bad for the business. Incentives actually come from an emotional space, not from a thinking space. What you want to be able to do is know what events into scheme you put in your employees, for example, sales people that commission structures. People are smart. It's only a matter of time before they will beat the system. There is no system you can't be if it's too complicated. It what work needs to be very simple, and as a result, you need to keep changing it because as fast as they come up with the loopholes, you need to refresh and reframe how you develop your incentive schemes. This is a whole world on its own, but it's something will with paying attention to a lot of businesses delay doing this, and it costs 17. Module 15 Scheduling & Tracking: scheduling and tracking. This is very much of an action step. This is where you need to get stuff done. This is about to do lists. I'm amazed how many business owners don't sit down. Be the day. Just put a simple to do list. I've got 10 things to do and putting the top three things that are most important. If the other stuff can wait another day, so be a thief. Very simple way off, being organized and scheduled. Also being able to block off your calendars ahead of time, booking meetings and stuff these air fairly routine. But these are things that need to be done, and I need to be done in an organized fashion. One of the best books in the space is called the E Meth Revisited. What this book does is it takes that whole planning scheduling thing and asks you to think it would business more like a franchise. Why is it that franchise to do so well? Well, they took the time to document the hell out of everything. So is a procedure for everything. A lot of employees are really effective once they have very clear instructions. If you think of McDonnell's. It runs $1,000,000,000 Corporation around the world, based on 17 year olds come in for part time work or seniors Air coming in for part time work. They have figured out every job done to the last detail. Documented, trained, retrained, retrained. And that's what allows you to grow the business to the next level. A lot of business owners hate the step because doing procedures of documenting procedures thes are bureaucratic. These a cumbersome, but these are what you need to get your business to the next level. 18. Module 16 Margins: margins are a very important part of the business. One of the key things that I look for when I go into a business is whether they've got high enough margins again. A lot of small businesses look at big company margins. Big companies can work on smaller margins and small companies because typically the overheads of large companies as a percentage of their revenues, much smaller. A lot of the overheads of a small business or high. So often and most small businesses, the overheads come to up upto half your revenue, so that means you need a margin that gives you more than half more than 50% so that you've got enough money left over to pay yourself. If you look across this table of margins, we've got Amazon Costco Alphabet, which is the new name for Google, Apple and Microsoft. This is in, you know, billions of dollars, basically, their profit margins. Amazon, 27%. Costco, 13 alphabet, 55 Apple 38 Microsoft 68. They can be very successful because their overheads are much smaller. So, for example, Costco only has a margin of 13% but they can still make 2% off their driven you profit because their overheads are only 11%. They're very few small businesses that can run with an overhead of only 11%. Likewise, very profitable ones like Apple, they can survive on 38% margins because their overheads a small enough that still leaves the 22% profit. The key here is margins is really a way of measuring the cost of doing business, and your overhead is the cost of being in business. So you're overhead. You got this crossed. Even if another customer doesn't walk in the door, that's cost a 1,000,000,000 business. Your margin is one more customer comes in the door. How much that across me to serve that extra customer Now? A lot of businesses operating its small market issues, and the problem is to get that extra customer you may have to cut. Your margins will cut your prices that actually destroys valuing the business. It only makes sense if your business is growing at increasing Largent's. In other words, you want a business where every additional customer, for some reason, can pay more or the cost to help that a traditional customer gives getting less and less. This is possible when you have online systems. It's a lot easier than when you have essentially a business selling product. 19. Module 17 Competition: It's amazing when we go into businesses, half few businesses really know who their competitors are. When I was involved in the venture capital world and we were looking at selling off or buying businesses, we were took to all the competitors. We would go to each competitive say we may want to buy you one day or we may want to sell the business we buy to youth. So there's marriage in having a chair. We're not asking for your secrets, but we want to know a little bit about you. It's amazing what you can find out about the competitors if you take the time, so competition is in the emotional space again. This is trying to figure out how you can be different from your competitors. Somebody is pretty obvious. I'm a higher price than my competitive or I have a lower quality. But there are many hidden emotional triggers some people will buy from a certain brand, even though they're paying more. You go to the grocery store, you will look at certain brand products that are much higher, and then the grocery store may have its own in house brand, the same stuff packaged by the same company behind the scenes with a different label. And there's some people. Well, in spite of knowing this, keep buying the brand name. 20. Module 18 Door Knocking: number 18 is Dornoch E for one of better word. This is going up. Finding customs and door knocking is a very action or intended world. But we find is when he goes to most companies, we tell them essentially yourselves. Men are born on Monday, die on Friday and they will often agree, cause every Monday morning they gotta pump him up, get him all excited, give them targets. They give them targets longer than a week. They don't seem to be able to do them. A really good salesman's like a good hunter. They will get out there. They will go and hunt down the animal hunt down the game. We're hunt down what the target is, and once they've got it, they want to relax. Problem is, with a lot of the sales things is you can't always made a measure with. They will find enough animals to hunt in the analogy. But what you can do is make sure they make enough phone calls. That's something you can measure or they're not going enough doors. This enough via meals, etcetera. Where businesses will tell you is, if yourselves people regularly not going enough doors a day At some point it will start to flow. The second part of this is being able to figure out what's happening in our marketplace. There are very few businesses thes days that have a product that costs less than $10,000. That is worth having a salesman knocking on doors. In the old days, the margins were higher and salaries will lower. You could have a salesman knocking on the door to sell you 1000 or $2000 project. Those days are long gone, so typically products under 10,000 are being sold iron, bigger bundles or being sold by some online, online or some marketing or some third party the mechanism. And this is what's happening more and more is as we become more electronics, we cut out more of the middleman. The role of the sales person is to move upmarket and be selling bigger and bigger price points. 21. Module 19 Scenarios: in the 19 years scenarios. This is something we find very few business on this we'll do on their own initiative now. Scenario is, what if this happens? What if that happens when we take clients through scenario planning? There are really two ways of looking at this. The two ways of looking at scenario planning is one. Here we are today, and we want to move forward, but we don't know which way we're going. We have a general idea, but we don't have a clear endgame in sight. It's a bit like a plane taking off, hoping to find a place to land some way. Somehow the other type of scenario is, well, we're going to take a trip from one city to another, and all we're trying to figure out is which road we should drive along which pathway or which side detour, which a different route we should get them. Both of them are part of scenario. Both have different starting points. Each of those are very important to think through, and it's very helpful to use your thinking hat when you do this. This is you know, I think he had means get out in the country go for will play golf, get away from the place, you know, have a retreat, whatever, Somewhere where you can do the scenario planning and look at these different options and think them through very carefully and not be distracted by the day to day business operations. 22. Module 21 Customers: 21 is customers know Hey, debated long and hard. Why should put this so long? It's so late in the package because the definition of a business is you gotta have paying customers without paying customers. You don't have a business, and this is being one of my particular complaints with the financial sector. A lot of the investment folks of decided the most important thing for a public company is to maximize the value to shareholders. Well, if you do that and you have no customers, there is no value for the shareholders. Without customers, you don't have a business. So taking care of customers is number one. How you do that. Whether you do it through employees or whether you do it directly, that's a key part of it. The other part of it is knowing which customers to work with this customer profitability type thinking is, I've shown in this diagram. Here is one of the most powerful tools in our kid. What we do is we go look through all your big and small customers, and we try to figure out which of your big customers are making money and which your big customers losing you money. Most of your small customers are pretty much they make a little bit all they lose a little bit, but they're not the biggest problem. Well, we typically find the company's. About 2/3 of your customers are really good customers. They're not very needy, and you make good money. But there's 1/3 that suck on awful lot of the profits out of your business because they are needy. The problem is, your accounting system doesn't track these folks in a way that's useful. So what happens is the's a cost that get hidden in your overheads. Thes does the needy customer keeps changing orders, keeps changing demands, keeps changing things and wanting more and more and help and wanting it urgently disrupting your flow, your routines, etcetera. And what happens is you tend to bend over backwards for these folks, and it messes up your whole system. What we what really is the key here is to find out who those are re priced them so that they really pay a premium. So in some cases, every time is a change that change is a cost to them, not a cost to use the business every time they want to be moved up the line in terms of urgency. They pay a premium for that. So this is a way that you can buy pricing, get rid of them or get them price such that your profitability or hidden profitability is not eroded by these very needy customs. 23. Module 22 Fortune: 22 is the fortune. How do you make a fortune? What is a fortune? Me to you? One of the big disconnects that I find is when business owners took to investment advisors . The Investment Advisors talks about bonds and stocks. They talk about the pool of money that they wanna have. Business owners don't care about that they care about Will. I have enough money to live the lifestyle I want each year, each month for the rest of my life. For the investment folks, that's very difficult for them. Unless there's a pension. If you are signed up for a pension, you know exactly what you're going to get. And that's really what our mindset is. We each want the equivalent of a pension. So how much money do we need to set aside so I can live like a very comfortable pension? This looks like a fairly complicated shot that what we really trying to show is in the yellow. At the bottom is the experiences from the time you start your business all the way till you die, and along the way you may sell your business and in that time, the green areas. How much money you've saved and put aside for your retirement. And in the top of the blue box is how much you got for selling your business for a premium . That's where we are focused. We're trying to help you sell your business for 10 times what you think it would be worth by getting it and shake long before you have to sell it. Oh, exit. That premium gives you a far higher wealth level to start from, and it may leave you enough money to live on and enough money for your future generations if you wish. 24. Module 23 Freedom: 23 years freedom. One of the things that business owners went into business for is to have more freedom to work with customers they want, not customers. They don't like to work with employees that they like, not employees. They don't like to have time off at their discretion, not at the discretion of some arbitrary bus to be able to do what they want, when they want, how they want within reason and the more freedom they want, the more it costs. Freedom is not something that's cheap. It is expensive. I have included under here similar shot, but this is the chart of a big company employees. How does the big company employees get freedom? What they do is their freedom doesn't come until they retire. Typically, when they've got a job, they're at the mercy of shareholders. The bosses, customers, etcetera. They have a certain lifestyle, but they contribute to a pension fund, and if it's a really good pension fund, when they retire, they have enough to live on. Ideally, they want enough to where they can move to where they live, where they want to live. Taken by the car they want. They have They don't have to have a car that looks corporate. They can hang out with people they want. They don't have to hang out with corporate people anymore. They can travel wherever they want, have enough money for that. These are the similar kinds of things that business owners want to have that kind of freedom, but they don't want to have spent 20 or 30 years of their life locked in a corporate jungle be able to do that. 25. Module 24 Fame: this is I've left for lost. This is the 24th module. This is our final module. What you want fame, whether we want admitted not. We define fame in many different ways, but it's something it may be in the form of a family legacy. It may be that we helped our community or it may be much more obvious. He has some examples of why people want to be famous for some of them. They just want the recognition. They don't care what it takes to get there. They just want to be acknowledges. Being someone who was famous, Some of them have sort of insecurities in their life, and this is a way to overcome them. Psychologists been a lot of time talking about that. Some of them just want to be celebrities. Some of them want to be working very hard. They want to be seen as driven they wanna have. That is kind of the image of their fame, and some of them think they have the potential, and I've just wanting to test themselves and their those who really need the fame. It'll to help community there. They're not looking for fame for themselves. they're looking for it to be something that's an acid in the kit bag. So this action orientated box is really about. What are you doing to build something, to get awards or to compete to get recognition? And it's very important we in the business owner is on this that they acknowledge this is what they want because if they're looking to get that famous part of what the business and where they're doing it, they were like, Oh, it doesn't. Still, they've achieved that level of fame that they want that legacy they want without recognition. So we've got this far. Now what? Well, when you need to pull us all together in the workbook at the back, we have this chart, and what we've done is we take in each of those traffic lights. We've taken each of the 24 modules. We've linked them up with a thinking emotional action focused, and we've left some space for you to write what effort you're going to do in that area and what impact that would have. So the opportunity here is for you to circle for each of those where you're at on the traffic light is a green. I'm doing well. Not to worry. Is it Amber I'm working on? It is a dreaded its real problem, and then, under the value impact on the far side, is yeah, it's it's not going well, but it's not important or it's going quite well. But actually it's very important. So where where should I spend my time when we get the biggest value impact? And so this is designed that you regularly revisit thes modules and score yourself in the same ways. When you're competing in our Olympics, you're constantly trying to improve different elements. If you're a swimmer, you want to prove your hand stroke or you're turning in the in the semi pool or your technique in other ways. It's the same with this. If you want to maximize the value of business, we've got a regularly go through the 24 point checkpoint checklist and see how you're doing . Well, hopefully you've enjoyed this course. What this has done is to really which your appetite to join our next course, which is the peer group where we go through this in a lot more detail with a number of peers and we have discussion groups. We take a module at the time on. Look at how it applies to your business. How it applies to the businesses of your other peers allow you to dig really deep for some of you. You may find you can do some of this work on your own based on the videos. If so, good for you and keep going. For those of you who want more, please sign up for our course and it's on the website. Thank you, and hopefully enjoyed it. 26. Case Study Moneyball: for those who view that have asked for other things to read or learn, in addition to trying to read it. These one business book a week. That's what Bill Gates does. He reads a book a week. Not all of us could do that, but it's certainly an instant gold to try and see if you can get closer to a book a week. The other is to watch really good movies that give you insight into business. If you've seen the movie Moneyball, there are a number of lessons that reinforced with our modules. Number one is pick talent That was key in that in that movie, not people that look good or look pretty. It was really pick people that had good numbers. They were trying to solve the fundamental problem. They weren't just trying to enjoy the game, that we're trying to win the game with very limited dollars. They developed an approach which is to play the game their way, not the way it was currently played by everybody else. So they wanted to use statistics, not spotting talent scouts as their key dirt driver. They were looking at raw talent and not just experience because somebody being around long time was not enough paper. Sir, it was a lovely comment at the time. We're charging you to for the soda pop in the in the hallway and they got a way to get that pays. Get on base. With most businesses, there's one key number you have to look for. I know there's a great story when client this client is a very successful restaurant, and he got to the stage where he could drive past his restaurant at 8 30 every night. And judging by the line up, he knew how much money he was going to make that night. That's the only number he needed. Number seven. When you make the change, it doesn't go well for quite a while. Day one of the first week you need patients in the movie. They went through hell before the results suddenly started to improve. They had everybody doubting. They paid for performance. That was key, and they changed the way the game was played At the end. Near the end, where built that Brad Pitt has offered a lot of money to go to the the Red Sox, they were surprises and take it because every other team had learned from what had happened . And even though they didn't win, they had a model which was so powerful that they had changed the way the game would be played for in future. These are some of the powerful tools that illustrate more and more importance of surfacing value in your business and how, even if you know large business in the same way they were in a large team, you can change the whole industry. 27. Examples of how large companies make profit: some examples of many ways that large companies make their profits, revenues and profits. So if we take McDonald's, for example, a franchise E is essentially rating from a building that McDonnell zones there, the landlord. So they pair into McDonnell's. They pay royalties and fees directly to make dolls. They buy supplies to McDonald's, and McDonald's takes a piece of that pie. And so the fees of the franchise e $2 million of revenue. By the time all the fees have taken off their left with about $150,000 McDonald's brings in about $11 billion from the franchisees. That only cost them about $2 billion to run. Ah, very profitable kind of model. So they make money off real estate. They made plenty off fees. They make money off mark ups on supplies. These are the different ways that they are using to create additional value from McDonald's . If we now look at McDonnell's, how productive they are with the corporate stores versus their franchisees, they get about $21 billion of revenue. 10 comes from their company stores, and it gives them a gross margin, or about 1.7 billion so that's about 17% off the franchisees. They collect two billion pay, collect 11 billion. They pay two billion, so they're only nine out of the 11 billion huge leverage. Another interesting model is Costco's. They have revenues of 154 William direct costs of 1 34 gross margin of 20 overheads of 16.3 , leaving a net profit of 3.7 million. This 3.7 is only 2% of revenues. This income is almost the same as their membership fees were lock in their profits. First, they pay themselves first. If you remember the modules, we talked about paying yourself. First. They do that. Your membership fees are paid upfront. That allows them to also keep their costs very low. Costco also tries to have his little human touch as possible, so they get their produce in big crates. They bring it on four cliffs. They try not to touch the product. Everything is mechanized and to reduce the cost so they can keep their overheads very low and essentially passed on a lot of that benefit to the customer and hints keep the compote competition away 28. How do I know where I am in the peaks and valleys of business: one of the ways that you can use as a technique to see where you are in terms of the peaks and valleys of these many peaks and valleys you negotiate with business is to use a curve like this where you starting with optimism and things are getting too excitement to get to the thrill. At the peak, you're at euphoria. Then things start to fall off, but you get anxiety. Then there's denial. Thin this fear, desperation, panic. At this point, you pretty much ready to throw in the towel. Here you're in a state of serious depression, and then finally, there's a bit of hope. At the end of the tunnel, there's relief, and you back up the optimism curve for you persons owners who have been through this many times. You'll recognize many of these kinds of emotions, and what is helpful is being able to put a chart like this together and get you and your stuff to say how far we along these continued part. What this does is it gives some framing and a language to where you're at, and it gives you a chance to see who's still at the anxiety level who's already at the capitulation level, etcetera, and how soon you can start to build hope and relief to get you up for the out of the cycle for the next climb. 29. How do you increase the value of the business 10x: the way you increase the value of the business tenfold. In this example was a client, which was selling $10 million worth of revenue through retailers, and his product was costing him 7.5 $1,000,000 which left him a margin of 2.5 minutes. Remember, we talked about margins is one of the modules in our program. Then he had overheads of 2.2 million, which left him a profit of 0.3 million. He, instead of selling through retailers, he started to sell online, although his revenues dropped in half his costs. Direct expenses were only a 1,000,000 instead of 7.5 men. And because he didn't have to pay the intermediary retail anything, which gives him a full moon in dollar margin instead of a tuna half $1,000,000 march, his overheads are still the same. Two million, giving him now a profit of two motor, you may say well from 20.3 profit to $2 million profit. That's not a tenfold increase. What happens here is that a business that is this mediocre typically sells for a multiple of its profits of three times, which means if we were into the marketplace to sell that. Based on the adjusted profit, it be worth three times, which is 0.9 million. But because this business has a high margin, this business could be sold for five times the margin, which is $10 million. There is a way we can increase the value of the business tenfold, even though the revenues dropped in half. 30. How many different ways can you increase the value 10x: There are many different ways you can increase the value of a business tenfold. Let me give you a few examples. The platform was one of them. So if you selling online often you can sell 10 times the volume business like an Amazon than you can through one retail store. So being able to have a platform is one way of doing another one is price, so you may have a lot of value to say, $100. What could you do that's worth $1000 to your customers? So, for example, if you'd live from Toronto to Vancouver, there are some people that may be on that flight paying, say, $200 for the flight. On that same flight, you may have some people pay $2000. They're both going from A to B. But some people paint in times of price while they paint. In times the price well, some of them are paying first class instead of economy. Some have booked well in advance, got a special price. Some of them are flying at a midnight flight, which is a different price than flying during premium time. So opportunities here in your pricing, and virtually every company can offer something that's 10 times the price of their lowest price item or the lowest price service talent is another one. You may have an opportunity if you in this business, to have some talent that you can charge out at 10 times the rate at which you charge out some of your lower intel it another one is the classic business units like franchises. Just add it more and more stores, we add more and more franchisees. There are many different ways that you can increase the value of a business tenfold. 31. How monopolies work: when we take an unfair advantage to the extreme you have a monopoly on. And if we look at this model of value creation low and high against value, capture low and high if you capturing a lot of value. But you don't create a lot of value. You're in a monopoly situation Microsoft of being like that for the longest time they essentially. But everybody had to buy their software their platform. And so when they had a monopoly, they didn't have to be that good because they had a situation where you had no other choice . That's a dream world for them to be in on private. Unfortunately, as competitors movie and you move into hell, where you're not only can capture a very small amount of value but you're not creating a lot of value in the cycle tends to go this way. New people come into the market with very high value, but they haven't captured a lot. This is the nightmare because these now are going to take you out. What you want to do is get beyond them so that you Kenbrell oath create a lot of value and captured This is the ideal spot to be in that it's very hard to stay there. Gravity pulls and eventually you start coming down. So there's this constant cycle and yes, you want to be is close to the monopoly kind of situation without the negative connotations , but this gives you the most power. 32. How to maximize value: most of the academics and the financial advisers to public companies only focused on three things. They're trying to maximize the value of the business with only three tools. The investment decision. And they come up with theoretical hurdle rates and theoretical returns that you need to get few money. They come up with the financial situations of how much didn't equities the business should have on matching the debt to the assets in terms off, making sure long term assets have long term debt against them. On then the dividend decision. Do we pay cash back to the owners of reinvestment? That's the only piece of the finance part of the show that most academics and most financial people are trained in. That's what the textbooks on. They don't cover most of what we cover in our course in terms of all our modules. 33. What are the typical valley of death levels in a business: those of you who are larger clients, you will remember the various levels off value of death that you went through. So there's a couple on before you get about a 1,000,000 of sales. But somehow around that devil being seemed to stabilize for well, then you go through a value of death to get you to five million of revenues or sales, and then that sort of stabilized. And then when you want to get to 10 you've got another value of death to get through. And then from tain up to 50 you've got another devalue. And so it goes on and below the 1,000,000 there's probably two or three valleys that one has to go through. These a critical points where your business is not big enough to be stable at the next level needs a big investment to get there. You gotta take some things away in order to reposition to get to the next level. These are the times when you're under stress, and if the economy goes south on you when you're in these valleys, it's a lot more stressful than when you're at the high point. When the economy turns down 34. What is EBITDA: One of the ways I want to show you is that when financial people value your business, they look at not the net profits. They look at a number higher up. They called earnings before your interest before your depreciation before your taxes earnings before interest appreciation taxes, It's called EBITDA. That's this number here and the way you get to it. We have revenues of 100. You have direct costs of 50. You'd have a margin of 50 Your over heads of 30 leaving your computer 20 if you then take off your interest payments for your loan, you take off depreciation, which is allocated for the body accountants to slowly write down the value of your assets of four. You take off your taxes. You left with a net profit of 10. Why do financial people use this number? Because your interest, depreciation and taxes are driven by your balance sheet and everybody can have a different balance sheet. And so, if I was buying your business, I made by your business. But I'm not gonna have the same interest payments you had. I'm not gonna have the same depreciation cause at different assets. We're gonna have the same tax structure. So I will look at this number here as a proxy for what the rial operating profits of the business are the EBITA and that is a multiple on which are by the business. 35. What is the practical use for the 24 modules: the sheet at the end, where you have 24 modules A practical way that you can use this for diagnosing. What you need to do new cousins is to go through an assessable 24 see where you're at or do it with your team or with your advisors. In one particular case, we found that the owners time, the budgeting and the customers were his top three. These were the three most important things. Once we fixed these, it would take the value of the business to a whole new level once those were in good shape . It was then time to redo this and figure out what are the next three items that we should focus on. So over time, you bringing all 24 items up to maximize the value of business. 36. What is the unfair advantage your master class has in the marketplace: master class has an unfair advantage because when you look at two businesses, let's assume this business does. Revenue of 100 million has Anne Petar of a 1,000,000 therefore is valued at three times a 1,000,000 assault for $3 million. And this business, which has 10 revenue a 1,000,000 of you Betar it sold for 10 times. That is with 10 minute. Why would a business that has any 10 minute of revenue compared to $100 million business be worth 10 million versus three months? The secret is we look at helping you increase that multiplier from 3 to 10 as well as getting that Ebert does highest possible in emergen acquisition firm, they only worry about the but this $1 million ebita. They don't worry about the multiple, they don't have 24 elements that we have to boost this multiply, which is important, is having a good EBITA 37. Why are private businesses so valuable: private businesses are incredibly valuable. Most people don't know this because when it comes to retirement of the retirement pie for a business owner, 65% of their wealth is in artists, peace and investments in the stock market. And you know what can happen in the stock market. About 18% is in various other investments, but 17% of it is the business that they intend to sell. So 17% of the value. And this is for smaller businesses. What's happening in the marketplace is we can help you make this a bigger percentage so that you have a bigger pie. And this business can be sold privately without having the impact of the stock market on. And this is an opportunity that it becomes a bigger part of your pie in terms of retirement . 38. Why does it pay to take on debt to buy a business: when you're buying a business. In some cases you want to pay cash, and in some cases you want toe borrow some money, not put doling cash. So in this example, say you're buying a business for $10 million you put Tim a native Kachin. That's a straightforward transaction, but number two here he buys the same business for 10 million, but the only puts up $5 million in cash, and he borrows $5 million at what happens. Scenario one say five years down the road. He sells the business for twice what he paid for it, so he sells it for 20. He gets back his 10 money put in it originally, and essentially, he's doubled his money. In that period of time, the business may have thrown off profits. Number two. He also sells the business for 20 million, but he only put up five minutes, so he had a margin of 15 minutes. But he's been slowly paying off dead but say has a $1,000,000 still to pay off, so he will pay off the last $1,000,000 keep $14 million. So he used $5 million to get to 14 million. This guy used 10 million to get to 10. So he doubled his money. He almost trembled his money 2.8 times. So providing you had a business where you know it's good cash flow. You know, the business may not deteriorate significantly. It can pay a lot of dead off, then it pays you to consider buying it with it.