If you permanently left your company today, would it continue with little effect on cash flow? If so, would you consider this a transferable value? Transferable value is a driver that is critical for business growth.
A company management team is instrumental in growing cash flow and business value. When a business has the capabilities of having little disruption with its cash flow when an owner leaves, you have a valuable transferable value. A key component of building transferable value is Next-Level Managers. Usually they are experienced working for larger companies. They know how to grow companies and know how to attract people with experience and the skill to help run a company. This level of management will demand more money, perhaps ownership as a condition of employment.
Next level management (NLM) and future changes!
- To attract NLM, it involves training and coaching for the existing management. When adding NLM it may involve replacing current managers who underperform.
- The decision to replace existing management is difficult and hard for many owners, as current management members have been loyal to the company. However, they may be moved to another position with the same type of responsibility. They are good employees, but NLM do a much better job in the management position.
- Engage management consultants and outside resources to create more growth. NLM work well with these professionals.
- Owners provide leadership and motivation for management. Owners should design plans that provide strong incentives to management to remain with the company beyond the owner’s exit.
- Motivate employees to perform at higher levels, create a culture.
- Financial incentives designed to grow cash flow or business value is more likely to achieve the value or cash flow necessary to support the owners’ exit goals and value growth of the company.
- Top management must stay in the business when owners leave, or they don’t have a transferable value and will not achieve the goals when the owner exits. Incentive benefit plans help keep top management employees involved after the exit of the owner.
- The use of a “non-qualified deferred compensation plan” or NQDC Plan which involves a benefit formula and vesting schedule, highly motivates management to stay on.
- When you cobble the benefit formula to a performance benchmark it is possible to increase cash flow and profitability for the company.
- The vesting schedule in the benefit it makes it hard for the top management person to leave. They will leave too much on the table. The vesting schedule give the employer the benefit of keeping a top level management. The employee benefits as the company can offer a richer benefit knowing the reward the employee receives is tied into the company’s profitability.
- The appeal of incentive plans for key employees (management) is understandable: To create transferable value, someone other than the owner must be similarly motivated to grow value and the cash flow necessary to achieve the owner’s exit goals and continue the company beyond the owner’s exit.
Operating Systems That Enhance The Transferable Value Of A Company!
“Let systems run the business and people run the systems”. (Michael Gerber’s E-Myth). This is great advice for large and small companies alike.
The experience is shared by vendors, employees, and customers each time. It’s like McDonald’s French fries. They always taste the same no matter what McDonalds you buy them at. The transactions can be measured and understood. Data is extracted from the consistent systems, so management can improve them.
The business needs to grow rapidly to attain the cash flow and value which the owner needs for their own timetable of events. The owner needs reliable growth systems as the system run the business while the management team runs the systems. Having great processes means customers, vendors, and employees enjoy the same experience each time they interact with a company. It also means that the data surrounding each interaction can be measured, interpreted, and mined. Using that data, next-level management teams continually modify and improve those experiences.
Successful businesses use systems to manage the activities related to the marketing, hiring and training, operations accounting and order fulfillment, naming just a few. The question is; Are they as effective and efficient as they can be?
Systems are complicated and are ever-changing. It is not realistic to expect owners to stay on top of the essential systems and processes, but it is realistic for owners to expect the management teams to do so. It is entirely possible to harness the power of systems to take advantage of the systems.
In today’s world state-of-the-art software systems can give a company a competitive advantage. Small companies can compete with larger companies with this technology. Owners and the management team must be aware of this and find ways of training employees and implementing these systems into the company. A company needs to grow rapidly, to attain the cash flow and value. For the owner to have a viable exit plan for the future. The owner’s ability alone is limited, unless of course, owners free their businesses from over-reliance on them by creating superior, properly managed systems. “Let your systems run the business and [your management team manage] the people who run the systems.”
Another tool for company success would be the value of consultants!
Consultants cost money and owners are hesitant to add this expense. However, the consultants can keep the owner focused on the end results. Finding the right consultants is the key. Once the project is defined and set in motion, the consultants will help the NLM create other ideas to use their systems, expand the systems while creating more systems. All leading to better cash flow and company value.
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