Tactics to Grow in 2016

Transcription

1 Tactics to Grow in

2 What is your definition of growth? Expansion Optimization Increasing in size Transition Maximizing returns and performance Moving to the next chapter 2

3 Why have a growth plan? Continuity Cohesion Objectivity Measurement Road map of growth efforts (how do things fit together) Early established goals stimulate cohesion in stakeholders Objective criteria for evaluation of target markets and acquisition candidates Comprehensive framework for measuring success 3

4 Different plans for different time horizons 3 Year Plan Tangible Accountable Dynamic Detailed 5 Year Plan Aggressive Difficult to predict Abstract Can change every year 1 Year Plan Measurable Tactical Accomplishable Clear 4

5 Building your growth plan Visit us at: For our growth plan template ur road map to growth/ 5

6 Your road map to growth Current business assessment! Risk considerations Goals identification Opportunity analysis Resource needs $ Capital constraints 6

7 Current business assessment Financially Healthy Operationally Excellent Sustainability Minded Stakeholder Supported Enterprise Focused Growth Oriented 7

8 What does it mean to be. Dreaming big Having a plan Maintaining focus Leveraging resources Getting things done 8

9 Who are you today? I am the CEO of a multi generational, family owned and agriculturally focused enterprise. Through our diverse business lines, we strive to achieve a 10% annual return to create a legacy for generations to come. We operate on the principles of triple bottom line profitability to ensure we leave things better than we found them. 9

10 Your road map to growth! Risk considerations $ 10

11 Risk analysis M&A failure rate: 70 80% Can you stomach this? 11

12 Risk analysis Can certain risks be eliminated? Can certain risks be transferred? Can certain risks be mitigated? Can certain risks be modeled? Are there deal breaker risks that you just aren't willing to assume? 12

13 Risk analysis Can I sleep at night? 13

14 Your road map to growth! Goals identification $ 14

15 Goals identification Begin with the end in mind. 15

16 Build a legacy for your family Revenue Growth Risk mitigation Cash flow FINANCIAL Achieve economies of scale Profitability Cash flow Job creation PERSONAL Overcome stand alone strategic disadvantages Market share Industry present strategic synergies Goals EXTERNAL Access land in tough markets Hold off competition 16

17 Goals identification How do you translate your goals to measurable indicators of success? 17

18 Goals identification These are your goals Investment Return Entity 1 Benchmark Year 1 Year 3 Year 5 Return On Equity 30% 122% 48% 31% Net Profit Margin 11% 25% 26% 26% Equity Multiple Asset Turnover These are your measurable outcomes 18

19 Your road map to growth! Opportunity analysis $ 19

20 Opportunity analysis Products and Services Geography What markets should you be in? What geographies should you operate in? Your opportunity. 20

21 Industry landscape INFLUENCING Regulations, standards, compliance What gets grown or raised: data Lenders, financing, comm. banks PRODUCTION Processing, packing, storing Growers, producers, feed yards Inputs, suppliers DISPERSAL Transportation Distributors, Wholesalers, Merchandisers 21

22 Market segment analysis Industry Characteristics Hydroponic Crop Farming Revenue Volatility: Low Capital Intensity: Medium Barriers to Entry: Medium Competition Level: Medium Regulation Level: Medium Technology Level: Medium Current Trends Future Trends Revenue: $554.5 million Profit: $78.7 million Profit Margin: 14% 22

23 Market segment analysis Hydroponic Crop Farming Supply Chain Key External Drivers Demand from fruit and vegetable markets Demand from supermarkets and grocery stores Price of vegetables Trade weighted index Natural disaster index Per capita fruit and vegetable consumption Key Success Factors Production of premium produce Ability to attract local support Automation reducing costs, particularly labor Ability to secure sales contracts with local markets Availability of irrigation water 23

24 Market segment analysis Hydroponic Crop Farming Most Important Key Factors to You Presence of synergies among existing staff and potential market Current client interest in new service Recommendation: Pursue Opportunities 24

25 Remember Strategy is as much about what you choose not to do as what you choose to do. 25

26 Geographical considerations What geographies are easy? Value of a brand name / reputation 26

27 Your road map to growth! $ Capital constraints 27

28 Capital constraints How much growth can you afford? 28 28

29 Calculating growth constraints The Sustainable Growth Rate: The maximum growth rate achievable without exhausting operating cash flows. Desires to grow outside of this requires changes to one of four financial levers 29

30 Sustainable growth rate levers Equity multiplier: Assets Equity Financial Leverage x Net profit margin: Net income Revenue Profitability x Asset Efficiency x Profit Retention Asset efficiency: Revenue Assets 1 Retention rate: Distributions Net income 30

31 Capital constraints Example of calculating purchase price capacity: Desired cash available for acquisition 4,000,000 Required debt service coverage ratio 1.25 Rate 5% Term (years) 10 Leverage Levels 50% 60% 70% 80% 90% Maximum Purchase Price 8,000,000 10,000,000 13,333,333 20,000,000 40,000,000 Resulting Debt Service 509, ,672 1,187,934 2,036,458 4,582,030 Minimum Cash Available for Debt Service Needed 636, ,590 1,484,917 2,545,572 5,727,538 31

32 Financing sources Traditional Traditional bank financing Friends and family Current operations Non Traditional Private equity Venture capital REITs Private placements Crowdfunding Hedge fund Economic development organizations Self directed IRA 32

33 What is a private placement? The sale of securities to a relatively small number of select investors by way of raising capital. Private placement is the opposite of public issue. 33

34 Where to look for private investors Professional service providers (attorneys, CPAs, insurance brokers) Local high net worth individuals Industry associations Investment bankers and business brokers Innovation groups Investment clubs 34

35 Things to think about Reputation Level of comfort with the individual Experience in other investments What else does investor bring to your business Legal/regulatory Valuation Active/passive Much more permanent than debt or F&F Could be giving up much more future value 35

36 Your road map to growth Resource needs! $ 36

37 Identify resources gaps Goals Current business assessment Resource gaps 37 37

38 Identify resources gaps Human capital and knowledge Products and technologies Identify your resource gap! Intangibles Natural resources 38

39 Building your growth plan Visit us at: For our growth plan template ur road map to growth/ 39

40 Common strategies Internal/ Organic Growth External Expansion Merger/acquisition Modernization Joint venture Diversification Strategic alliance 40

41 Growth pitfalls Poor communication with stakeholders Failure to have an integration plan No clear definition of success Emotional attachment 5 Common Pitfalls! Pressure to find a deal 41

42 @martinptm 42