Justin A. Goodbread - Your Babys Ugly: Maximize the Value of Your Business or Youll Have Nothing to Sell

Thoughts on Your Babys Ugly

Those who operate their own company, firm or practice typically plan for everything except success. Too often, business owners focus only on generating an income from their operations; they fail to realize that the real payoff comes from building an enterprise that has value beyond the income they annually earn. The result is a squandered opportunity to truly achieve the American Dream. If youre a business owner and you want to avoid that mistake, read Your Baby is Ugly. This could be the best book on entrepreneurship Ive ever read. It presents a highly realistic view of operating a business and offers practical advice that can make the difference between you selling your business one day for massive amounts of money or failing to get even a single offer. The sooner you read this in the life cycle of your enterprise, the better.

Ric Edelman, founder, Edelman Financial Engines, and author of The Truth About Your Future

To my team, I could not be here without you. I am so thankful for your commitment to helping me make finances simple.

ACKNOWLEDGMENTS

I d like to extend a special thank you to Corporate Value Metrics and the CVGA instructors, Ken Sanginario founder of Corporate Value Metrics, John Lawlor - founder of Practical Decisions, and Christine Hollinden founder of Hollinden Marketing. Without a doubt, the Certified Value Growth Advisor (CVGA) training program of Corporate Value Metrics and CVMs Value Opportunity Profile (VOP) software has shaped my view of how to grow lasting value in business. I credit my education in value growth to the exceptional instruction by the CVGA faculty.

Even after 25 years of growing and selling businesses, this course and software created new and inspirational content for business value growth.
If you are an advisor; I would highly encourage you to pursue the CVGA designation to further your own and your clients success. If you are a business owner, it is imperative to work with a CVGA licensed individual who understands the complexity and foundational importance of Value Growth.

The permissions granted to use CVGA and VOP copyrighted content extend to the inclusion of this book only. Any other use or reproduction of such content without the expressed written content of Corporate Value Metrics is prohibited.

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Foreword

A fter our owner-led tour of a large, machined-parts manufacturing facility, my business partner and I walked through the parking lot. We opened our car doors and, in sync, looked at one another. Well, my partner began, that baby was ugly.

I smiled back at him. I knew he was right. Yeah, youre right, I replied. But we need to remember that it is his ugly baby.

Imagine we are meeting for the first time. As we begin to share personal things about ourselves so that we can get to know each other, you tell me you have a daughter. You are so proud of your daughter. She is the light of your life. You tell me excitedly that she has just gotten married. You tell me how special the moment was when you escorted her down the center of the church to meet her future husband to exchange their vows. I empathize because I remember doing the same thing just a few years ago with my lovely daughter. We talk about what a wonderful mix of emotions we were feeling at that moment.

She was absolutely beautiful on her wedding day, you say to me. You ask me if I would like to see a picture of your daughter.

Of course, I enthusiastically respond.

You break out your phone, pop open your photos app, and tap the picture of your daughter in her wedding dress on her wedding day in the flower garden out in front of the church. Then you extend your arm toward my face to proudly show me your beautiful daughter.

Wow, she is really ugly, I respond.

How would you feel? You probably would want to punch me in the nose. You certainly would be annoyed and think of me as a very rude and insensitive human being. Even if it were true that your daughter is ugly, she is still your ugly baby. I figure that would likely be the end of our relationship. That is what it is like when a buyer takes a look at your business and tells you your baby is ugly.

When a buyer looks at your business, they are strictly thinking, should I be getting a discount (because your baby is ugly), or should I be paying a premium (because your baby is beautiful)? The buyer has no emotional attachment to your baby just yet. But to you, that emotional attachment is deeply rooted. You know how hard you have worked to raise your baby. The good times and bad times, the trials and tribulations. Unless you are a business owner yourself, it is impossible to grasp the significance of this. There is so much that goes into owning a business. Business ownership is not just a financial journey and business journey. Owning a business is personal. Although a buyer is looking at your business in a rational wayin other words, discount or premiummost business owners are taking the buyers evaluation of their business personally. This is my baby, and if it is a little ugly or even very ugly, you will show it some respect and show me some respect.

The machined-parts business my partner and I looked at was definitely ugly. Beginning with the financials, sales and profits had been down for three years in a row. Gross margins were low, forcing the owner to squeeze selling, general, and administrative expenses to eke out a profit. Receivables and payables were strung out as the owner tried to manage the cash flow. There was too much debt, and given the reduction in cash flow, the owner was having trouble balancing paying debt versus investing in the factory. The factory floor reflected this. It looked old and tired. It was messy, dirty, and unorganized. The raw materials were scattered. The warehouse was unorganized. Oh, and that pile of boxes back in the corner? Old, obsolete inventory the owner had not gotten around to getting rid of.

Is it at least written off the books? I asked.

No, answered the owner. Have not gotten around to that yet. The staff on the floor looked tired and unmotivated. Even the clothes they were wearing were dirty.

We are in a machined-parts factory, my partner said to me.

I realize that, I responded, but there is still a difference. I wonder what the customers and employees all think about this? Entering the owners office, we could see papers strewn about the office. This owner was not only the president but also the controller, scheduler, and floor manager. In fact, the business was completely dependent on him. The reality was he was stuck and was unable to handle all the things that needed handling. He was always so reluctant to give up control. Yet here he washe had almost completely lost control. Now granted, you are probably thinking right now that this is an extreme case. But is it?