Rick has over 37 years of unique business experience. He has financed and advised companies big and small, both public and private. Rick specializes in helping owners and management teams get a handle on cash flow and their individual roles in driving the profitability of their business. With those building blocks in place, Rick is able to help the business maximize its value when sold.
In his long career, Rick provided start-up capital and ongoing advice to companies whose market caps now exceed $3 billion CDN. He also co-founded a private equity firm and played a large role in raising investment capital and the acquisition of four portfolio companies. The first acquisition that Rick sourced won the 2017 Private Capital Market Association Deal of the Year award in Canada.
Rick is the author of the book Scale-Up to Sell. He is an accomplished speaker and contributor to Canadian SME Magazine and Business Edge Magazine.
Rick is a father of two and a devoted husband. He is a two-time Ironman Canada finisher and has competed in the New York and Chicago marathons.
You have over three decades of expert business experience having advised and financed companies of several different sizes, both in the public and private industry. What would you say is the biggest challenge that entrepreneurs face?
Sadly, the biggest challenge most entrepreneurs face is staying in business for longer than 2-3 years. The reasons are many why so many businesses fail, and many can be avoided with some simple steps in the beginning.
First, a business must have these traits to survive. You MUST have a product or service that people want. Next, the price they are willing to pay for it makes it profitable for you to do so with an outstanding level of customer satisfaction. If any element of this is missing, you DO NOT have a business. You must test and validate your offering early with the mindset to fail fast and pivot if necessary. If your idea has the attributes of success, then great, move forward. If not, do the steps above and repeat until you find what works or exhausts it as a viable concept.
What advice can you give to small business owners when it comes to implementing strategies that can contribute to increasing the profitability of their business?
The first thing that I want to see is that systems are in a place where the systems run the business and the employees run the systems. I always say that “Systems Will Set You Free” and by that, I mean that your employees will be able to effectively operate the day to day operations. They will know all of the aspects of what makes the business run effectively, they will know their roles in making it run that way. If staff changes, as it inevitably does, the systems allow for changes to flow smoothly without interruption. The by-product of this is that you, the owner can work on growing the business and are not mired in the day today. You also can take time away to enjoy the fruits of ownership. If you cannot do these things, then all you have done by taking the huge risk to start a business is to have bought yourself a job.
Having worked closely with entrepreneurs for several decades, what would you say is the most common mistake that business owners make that can seriously jeopardize the success of their business?
In my book “Scale-Up to Sell’ I talk extensively about the danger of an owner becoming too involved in the day to day running of the business. This results in what I call the “Owners Trap”. The signs you are in this trap are when every aspect of the business relies on your input, customers only want to deal with you, all problems and complaints come through you, you are the one required to close a sale and revenues plateau as a result. It stands to reason that you cannot take time off and have everything run smoothly. It is very difficult to grow this way. Where this really comes back to bite an owner is when they want to sell the business. Buyers are not interested in purchasing a company that relies on its owner to run it effectively day in and day out for the obvious reason that, as the main asset, you will not be around once you sell.
What business tip can you give to a small business owner who’s looking for an investor that can help them take their business to the next level?
The first thing I will say is to try to hold on to your equity ownership in your business. The first place most people look for investors is what I call “love money”. This comes from family and friends. It is easier to get and, because it is likely invested for personal reasons, it is often done without the rigor of due diligence that a normal investor would demand. This can mean that you may not actually have an investable business. The result of “love money” in a failed business is not so much that your friends and family will disown you, they most likely will not, but more so in the damage, it will do in how you feel about failing them. That can be a very tough position to be in. My answer is to first try to bootstrap the business, using the money you make to grow further. This involves a slower approach but ultimately results in owning your business outright, without the pressure of investors and bank debt hanging over you.
If you are taking on an investor you must hire the proper professionals to make sure you are getting a fair deal for the money invested. Make sure to retain the services of legal, accounting, finance and valuation experts to guide you on this. You may only need one of these or all depending on the complexity involved.
What are the top 3 mistakes that entrepreneurs often make when it comes to making financial decisions and how can they avoid them?
The first that comes to mind is growth for the sake of growth and revenue for the sake of revenue. If it is not profitable, and if it does not flow to the bottom line proportionately, then rising revenue numbers are just bravado. Do not sacrifice profit for rapid growth. The next is to be efficient with your labor costs. Make sure you are utilizing your workforce properly. Make sure your management team is being utilized fully and if not, look to them to fill any gaps required, before hiring more staff. Last is, unless you have a 10% pre-tax profit at a minimum you are on life support. This is what Greg Crabtree calls the new break-even. Once there, do what you can to get that number to 15%, without taking on more costs. When you get to 15%, you can afford to hire more and expand, taking the number back down to 10% and do it again. Slow and steady growth is the key. I would like to add a fourth and it is key. When it comes to your pre-tax profitability and ultimately your sale price, you as the owner must be paying yourself a market-based wage. If you do not, then your profit numbers are not valid and ultimately your sale price will suffer as a result.
What’s the best strategy that you believe all entrepreneurs should implement in their daily business habits to better manage the cash flow on their company?
Cash Flow is the oxygen of business. You cannot go a day without it. Revenue is vanity and profits only come when the business does not eat cash. The first place to look is at your working capital timelines. That is, the number of days between when you pay a supplier and your customer pays you. Cash-out vs. Cash in.
We often see that business owners pay the supplier right on time (as you should) but let accounts receivable drag on without the same diligence to the collection. A good place to start is by asking your suppliers to extend terms of payment by a few days. For your accounts receivable, get diligent about receiving prompt payment of the money you are owed. These can go a long way to improving your available cash to grow the business. Even a small 1% increases make a huge difference. Try looking at what a slight increase in your pricing or payable days or small decreases in receivables and inventory days, will do for your cash flow and profitability. I run a model and I would be happy to do so for any business that wants to see their results for themselves.
On a final note, what has been the biggest accomplishment of your professional career? What are you most proud of?
I am most proud of the fact that for my entire career I have believed in the dreams of entrepreneurs and business owners. I am very proud that I believed in them when others would not because they were to small or too early stage. I worked with them, helped them access capital and advised them along the way. To know that believing in them resulted in the creation of thousands of jobs in Canada and resulted in great products and services being provided to consumers around the globe is very gratifying. I continue to work tirelessly every day to help business owners and businesses improve their condition and have great outcomes. It is what I get up every day. I discuss all the points in this article in detail in my book Scale-Up to Sell. To order your FREE copy please go to www.scaleuptosellbook.ca