Allen Harris, founder and CEO of Berkshire Money Management and 10,001 Hours, shares three crucial pieces of advice for business owners. Operate at the top of your license, get a formal valuation of your company, and change or improve your revenue structure to something recurring.
Transcript
Hello fellow business owners. I am Allen Harris, owner of Berkshire Money Management, and advisor for 10,001 Hours. I am also the seller of a previously owned business, and author of the book Build It, Sell It, Profit – “taking care of businesses today to get top dollar when you retire”.
Right off the bat, I want to provide you with some immediacy and brevity. I want to share with you my three favorite pieces of advice that have helped some of the most successful businesses outperform their competition.
Number 1: “Operate at the top of your license.” Take your annual income. Divide that amount by the number of hours you work per year. That’s your effective hourly rate. Let’s say it’s $300 per hour. Or even $100. Whatever the number is, it’s not what you would pay someone to do non-C-suite tasks. You’ve got to learn how to smartly delegate. Here’s something that works for other business owners – touch paper once. Well, I learned that one before e-mail, but the concept applies. If you get a text or an e-mail, and it’s something to be done, but it’s not important enough for you to do at that moment, pass it on to someone else and don’t touch it again. A tip there – almost none of it is important enough for YOU to do it yourself. It’s why you hire employees
Number 2: “Get a formal valuation of your company.” Heuristics, or rules of thumb, are not that useful. They’re not bad for measuring the average firm, but by the definition of averages, almost no company is really average. And even if the result, the bottom line number, is average, there tend to be a great deal of variation among the triggers which affected that number, and you should know how each of those contribute to, or subtract from, for your business’s worth. You don’t have to spend ten or $20,000 for a valuation. We have a free tool right on the business owners section of our website. Valuations are important because you can’t get to where you want to be without knowing where you start. And a valuation will show you your company through new eyes – the eyes of a buyer. That will get you out of your bubble and help you focus on improving those less than average spots.
Number 3: “Change or improve your revenue structure to something recurring.” And if it’s already recurring, strengthen that type of recurrence. I’m a strong believer that any type of company can figure out how to move at least some of their transaction sales to something automatic. And guess what? Not only does that make your income more predictable and make your business more valuable, but it’s how your customers want to conduct business. Your customers are paying for all sorts of new products and services on a subscription-type of basis. They want it, and you need to provide it to them.
A bonus bullet point here– “A-level talent is free.” If you have the right employees, you should pay them so much that salary is never part of the conversation. There are lots of places for you to cut costs, but your best employees are an asset, not an expense. And you need to defend your assets.