Increasing Profitability for a Successful Exit: Marcia Riner’s Key Insights

Welcome to the podcast that’s dedicated to helping business owners prepare for exit so you can maximise value and exit like a boss. This is the Exit Insights podcast presented by Succession Plus I’m Darryl Bates-Brownsword, and today I’m talking to Marcia Riner. Now, Marcia runs a business called Infinite Profit Consultants, which I love that title, and she’s based out of Vegas. So welcome, Marcia. Thanks for joining us today.

All right, Darryl, thanks so much for having me. I appreciate being able to help a fellow podcaster out.

Excellent. Now, Marcia, the thing that we had a bit of a conversation about and really excites me is that as an exit planner, I guess as an industry, it’s pretty new. And because it’s new that I guess a lot of business owners aren’t sure what to expect when they talk to an exit planner and what they’re going to do and what sort of impact they’re going to have on their business and what sort of difference they’re going to make. And you de-risk that beautifully by making a bit of a guarantee to business owners and making it a whole lot easier to work with you. So I won’t steal your thunder. What do you call that? And let’s dig into that. And that’s what we’re going to talk about today.

Absolutely. Well, first thing I want to suggest is to business owners out there, if you wait too long to plan for your exit, you’re not going to get anything for it. You’re going to lose a lot of money. You’re going to leave it on the table. And unless you have that time to prepare for your future exit, then you’re really hurting yourself. And what I mean, prepare prepare like five years out, ten years out, the day you start your business, start preparing on how you’re going to exit. Do not think that you’re going to be able to secure a large amount of money for your business if you go, all right, next year, I’m done. I want to sell it now. Right. It’s way too late past that time. I think that that’s really important for people to hear because when we talk about exit strategies, oftentimes the business owners already got 1ft out the door and. It’s way too late. So I’ll get off my soapbox.

Well, we might do that a couple of times today. And we meet a lot of business owners who they just love their business. They’ve created their business around something they love, and they just sometimes they say, Darryl, I’m never leaving my business. And I go, I’ve got news for you. At some point, whether you like it or not, whether you plan it or not, you’re going to leave your business, whether it’s just you just run out or you get hit by a bus. So what you need to do is the first part is you need to make sure that those left behind, whether they be family employees or fellow shareholders, whatever happens, happens in the way that you want it to happen, so that they are taken care of in the way that you want. So there’s the first.

Exactly.

But on the other hand, I think I don’t have any stats on this one, but a number of business exits come unexpected. 

More than the planned ones.

Yeah, more than the business. It’s attractive and someone comes and knocks on the door and makes an offer, if we’re not ready, we’re not on the front foot, that deal is going to slip by. So 3,5,10 years begin with the end in mind. I love it.

I’m glad I got to do my public service statement on that one. I think it is really truly important for that. But now, to go back to your original questions. So some of the things that are super important for making a business attractive, as you just said, right, that you’ve got your first foot forward. You’re thinking about, well, how do I make my business really sale ready? And the first thing that I do with every one of my private clients is to go through and do a review on their costs, right? And so I have this three step strategy that I work on and I call it my 30-day profit booster. And it can be done as easily as 30 days if we’re ready to get going. Or sometimes it takes 90 days to get going because you’re running your business at the same time. But if you focus and put your heart into it, you can really get this going. And it’s some of the stuff that is often forgotten by business owners because they’re chasing clients and putting out fires and they’re running the day to day operations of their business and they’re forgetting to look back at the important pieces. And so I have three steps that I go through. I’ll highlight the three steps and then you probably dig it out of me. My secret sauce as we go along. But the first one is to understand and really review your cost of goods sold. Now, this is the cost that it takes to put your widget out there. Whether it’s a product or a service, there are still costs to put that product out there. And if you could trim those costs, you’re going to really improve your bottom line. The second one we look at is operating costs. These are your fixed costs. That whether you sell one widget or not, these costs are important for your business. And it’s your lights, your lease, your employees that don’t produce the results that you’re looking for, but help support everything. And then finally, this is my secret. One and this is the one that everybody freaks out on. But we’re talking about your prices. So, pricing and this is my, what do you call it, the triple whammy, that when it’s stacked up nicely, it could really boost your bottom line and your profit. And also when you’re thinking about it, your profit is what business owners goes into your pocket at the end of the month, or it can be reinvested back into your business to help you grow again. So instead of just looking at sales, sales, but looking at profit, profit, profit, it’s a different mindset that makes your business super attractive.

Absolutely. Let me get those again. The first one was let’s trim the cost that are just cost of running your business and cost of being in business. Let’s explore how we can trim those.

Absolutely. So those are called fixed costs. Those are operating costs. Those are things that occur every single month, and oftentimes they’re fixed. Right. You know what they are? You plan for them, they occur every month. No matter if you sell a widget or you sell a million widgets, it’s still going to be the same cost. And some of the places that I like to look at to trim those costs, I always like to start with negotiation, right? There’s always a time it doesn’t matter whether you’re in a long term agreement like your lease, your building lease, or your office suite or not, there’s always room for negotiation. So I suggest you look at where you’re housing your business, right? That’s the first place to go. Even though you’ve got a three year lease on, it doesn’t mean it can’t be renegotiated. So I’d say, hey, what can I do to reduce my cost? What can I do to improve the business? Right? Maybe I need new carpeting or new paint. Maybe I need a sign out front. These are things that we can negotiate to get us either more for less or cut the cost down for less. And I think that that’s really a fantastic place to start. And again, you could always go in, depending on where the market is. If the market’s down, you can go in and say, hey, if I extend this lease to five years or I extend this lease to three years, can you adjust the pricing for me? I know the market’s right here and you got to come in and negotiate with them. So that’s one place to look at. The other place to look at is. Hold on to your seat salaries. You got people working for you, there’s market opportunities. How can we figure out, is that person working to maximise their salary? Can we cut those costs? Right? Do we really need three people doing the job? That two take. Could they telecommute? Could I reduce space size? I mean, there’s so many different areas that we can look at when we’re looking at operating costs for us to trim the sales. And that’s really what we want to do, is cut costs. One more little piece here before you go on. I’m not talking huge costs. I’m talking can you narrow yourself down 5%? That’s not a lot. When we’re talking about, don’t you agree?

Yes. We’re not looking about let’s cut people’s individual salaries. We’re looking at employee costs as a whole because we don’t want to demotivate the workforce. But we’ve got to look at everything in context, right, and make sure that we’re paying the right people, that they’re getting a fair day’s work for a fair day’s pay, that we’re doing things efficiently. I think you mentioned have we got three people when two would be fine. Where are they located? Can we cut the costs in other ways that keep the salaries higher? Because I think all the research I’ve said found is that the businesses that actually pay above average end up with a much better leverage point, if you like. They get more out of their employees than what they’re paying for in above salaries. So it’s not just about cutting cost 5% across the board for cost sake, is it? By the sound?

No.

You’re going to have a look at where we can because things come into our expenses, like subscriptions that just sneak in every month and they stay there and all of a sudden we got all of our monthly expenses and we just take it for granted. And what I’m hearing is you go, let’s take a time to go through everything and have a look at everything that we’re spending money on and just, is it necessary? And has it somehow slipped and crept out of control?

Exactly. Look at loan interest, look at your utilities, look at maintenance and repairs. You can look at supplies that you have coming through your business. The T word taxes, you can look at ways to trim taxes. These are things that sometimes just get passed by and accepted. Right? I went for the two jugulars of your biggest expenses of human resources and your property that you’re in. But you know what? There’s also little itty bitty things that you can do. And I suggest that the best thing to do is sit down with your books, right? Sit down, print out everything that you spend on and look at it. When was the last time that you were able to see? Did it get you a new client? Did it keep a client or did it increase the lifetime value of a client? If it doesn’t do all of these things or one of these things here, then it’s time to maybe get rid of it. So there’s your subscription model. If that subscription isn’t getting a client, keeping a client, or increasing the lifetime value of that client, maybe it’s time to cut.

So we’re exploring about the opportunity to reduce costs. And as you were saying, it’s not a case of just slashing across the board, it’s going, let’s take the opportunity. We’re doing a review. We probably don’t do this very often, but let’s go through all of our expenses, all of our suppliers, what’s changed since we first engaged with them? And how do we? Is there an opportunity? The economy’s change. The markets change. Is there an opportunity to review these? And as we said, it’s not strip costs for strip cost sake, but just explore what’s so the first thing I think you said there’s three areas you look at. The first one is the fixed cost. Let’s explore where we can trim some of our fixed costs and save some money there. What’s the second one, Marcia?

The second one is costs of goods sold. This is the area that you’re looking at or the costs that are involved when you’re producing your product or even your service. So when we’re looking at sorry. Blanking on this. When we’re looking at supplies and pieces that come in and help us to make this product. So we take three items that put it together and make our new product. Those three items that we have are actually costs of goods sold. Well, there’s also other costs of goods sold, right? There’s the manufacturing. If we’re building it. There’s the equipment that we’re using if we’re building it. There’s the labor that we’re using as we’re building it. There’s so many different pieces that come into place. So anything that makes the product or delivers the service is a cost of goods sold. Does that make sense?

Yes. Okay. All the things that you’ve got your fixed costs, which you talked about, which are just locked in there, the costs of running your business. Then you’ve got the costs that are directly related to producing your product or delivering your service. And now we’re on the second one, right? We’re looking at the things that are directly related to the building of our product and service. So how can we fine tune those?

Sure. So one of the greatest places that gets overlooked is efficiency on quality or defects. Right. Those are often felt in returns that come back. Right. So they don’t like that. That actually cost me money to make it, to ship it, to bring it back and put it back into inventory or throw it away. So that’s one place that we could really look at to make sure that we’re delivering a high quality product with no defects. A second place that we can look at is maybe energy. The cost it is to run the manufacturing or delivering or making the products. So if we can run more efficiently using maybe solar or maybe some energy tricks or running during nighttime versus daytime, so there are little tricks that we can work on there to cut.

Another side on the service that you might not realise is we’ll go back to the original one that I talked about with employees. Are you running lean enough where you have instead of three people, maybe you have two people. Right. This is a for profit business we would love to keep employees on, but it’s really important to think about having those employees be really super efficient and effective during their day and producing the number of products or sales or servicing the client in a way that’s the most efficient and effective way.

Okay, so we’ve now looked at our fixed cost. We’ve looked at our variable costs, and we’re pretty comfy that we’ve got all of our costs fine tuned. We’re running lean, we’re running efficient. There’s nothing surplus to requirements there. We’re getting a fair deal on everything.Our employees are happy and motivated. They’re not feeling that they’re being underpaid. They’re feeling that they’re paid well and doing a good job and it’s a good culture and environment. So there’s two of the three things. What’s the third thing you look at where you come in and make an immediate impact?

All right. So hold on to your pocketbooks here because this is the one that makes the business owner most uncomfortable, right? And again, we’re talking about small incremental changes here. Like 5% is all I’m asking you to look at. And so the third piece in there. Is to raise your prices. What? Raise your prices. People freak out because they’re going to lose customers. We might be in an uncomfortable time in the economy, and business owners don’t want to increase prices. But I have to tell you, you’re wrong. Most consumers expect a regular increase in prices that match inflation. And if you are not keeping up with those little changes every year to increase your prices, then it’s actually affecting you a lot more by keeping them low because your cost of goods sold have increased, your labor costs have increased, your rent has increased, everything’s increasing around you. And if you don’t increase your prices to your consumer, then you’re leaving a lot of money on the table. And studies show that when you do increase your price, the probability of losing customers, unless you’re in a very highly commoditised product, is like less than 2%. It’s very small because the consumer expects it, especially if it’s not a huge jump. If 5% increase is just going to blow your mind and make you lose. Sleep, then try 2%. And then try 2% again next year until you start to feel comfortable and you’ve trained your customers that you’re going to have to increase prices because everything else is increasing.

And I guess you don’t have to increase prices. Absolutely. You could explore some sort of pricing and packaging and bundling of your services and your products and restructuring prices and create a happy meal type of equivalent, to use the McDonald’s example.

Absolutely. Customers want to know that they’re getting value, right? That they feel like you are delivering a superior product than your competition. And I use the word product pretty across the board, that’s product and service. So when you can deliver a superior product compared to your competition and you know your customer and your customer feels like they’re getting value, then it doesn’t matter what price they’re paying. They’re going to pay because you’re solving their problem. You’re supplying the need that they want. And so pricing is really truly important for businesses to continue to grow. And when you stack them with cutting operating costs and cutting your cost of goods sold and you increase the price, guess what? That has calculated out to a 45% increase in net profitability.

Hey, say that again. Are you saying that if you cut 5% from the fixed cost, let’s just average it across the board, 5% across fixed costs, 5% across variable cost, and increase pricing by 5%. The compound effect of that is like a 45% boost in profits.

Yes. It’s insane. Run the numbers if you don’t believe me. Run the numbers. It is an insane snowball cocktail that it’s stacked up on each other and it explodes. I know it’s hard to believe.

Yeah. Well, it’s an interesting math’s problem, isn’t it? You’re now engaging with a potential new client, and you’re saying, hey, look, let’s look at your business. We need to look at these three areas. I’ll cover my cost because I can do this. And you’ll get a 45% increase in your net profit or as a gross profit. How hard do you find it to convince them? And what do you do to help them get over the line?

Well, the funny thing is it doesn’t. Work for companies that have just started, right? So you have to have momentum in your business, and you have to be an active, growing business. And so that’s kind of the caveat. But what I’ve done is because I believe wholeheartedly that if you do the work that I tell you to do, we look at the dozen different ways that we can increase or cut costs and cost of goods sold and fixed operating costs and looking at what works for the customer and can work through and dig these. Oftentimes it’s like forgotten things that are sitting on the books that really shouldn’t be there. But then we can go in and we can increase the pricing that they’re charging for their goods. And when we do that in there, if I can get the customer to walk through this strategy with me and really sit down and see the impact of it, then it gets done. And I’m so confident with my customers when I do this that I offer them a guarantee. And I tell them, hey, if you can’t do this, then I’m either going to work with you until it’s done and it’s proven, or I’m going to give you your money back. Because if you’re not going to do the work, then it’s not going to make either of us happy. But I’m so confident in doing this that I do this with every one of my private clients right out of the gate because it gets them that immediate win, right? They’re seeing momentum. They’re seeing effects of their business, and it pays for me. So I become free.

Absolutely. So, Marcy, do you get in and do you jump into their accounts and help them do this work? Or do you just educate them and say, this is what you need to do? What’s it like working with you?

Thank you. Well, I have several different methods that we can do, because not everybody wants to spin out a large amount of money to do all this. So there are three ways to do it. And I’m not expensive, but I’m not cheap either. So we can do it. I can give you the ideas, you can run with it. Good luck to you. That’d be great. Here’s some really good ideas. Go do it. Then. There’s other ways that if you want to work with me, I can help you do it. We can sit down shoulder to shoulder, go through line by line, get these items fixed out, right? Or if you want to work in a group of people doing it, then it’s a little bit more cost effective. So I work with how the customer wants to do it, right? Because it is really important that you do it. However you do it, just do it. Look at your cost, look at your spending and your pricing at least every six months. Sit down, pour yourself a glass of wine. If you need to spread out your financials on your table, look for items that you can trim, because you are a profit-based business and this is. Where the profit gets hit. Because we have our lifestyle, we run through our business, right? We got our car, our cell phone, our wife or husband’s car, cell phone. We run all these things through the. Business that maybe shouldn’t be there. And as soon as you can lean out your business, look at it effectively and efficiently, then you’re going to start to see the more profit coming into your pocket at the end of the month. Now, one thing, many people, many business owners go, oh, I just rely on my accountant to do this for me. I rely on my CPA to do this for me. Are you telling your CPA to do this? Are you paying extra to have your CPA do this? And do they know the business the way you know your business? Chances are they don’t, and they’re not, because most accountants and CPAs are looking backwards to say, how can we reduce taxes and make sure you’re taking advantage of all the tax laws? Great, but bad. If you ever want to have a profitable business that looks very attractive to business owners or other buyers coming in, and if you’re washing everything through your company, which all the laws allow you to do, you’re affecting the bottom line profit.

And at the end of the day, when we’re thinking about getting our business in shape to exit it, we want the cleanest set of accounts as possible.

Yes.

Profit is going to help our valuation, so we need to clean things up. If we’re only running the things through that are legit for the business, for the business expenses, we’re not running it from a tax perspective, then it makes it a whole lot easier for the inquirer the buyer to start looking at our business and seeing where the real value is, because profit is half the equation. Then we got all those intangible assets that boost or de-risk the future revenue coming in and so we want to boost those as well. That will help increase the valuation.

You’re so correct. There’s so many different things that come in.

Yeah. And you work on this and you’re working with someone, did you say two, three years? Because ultimately we want at least three years of nice, clean accounts before we go to exit.

Three years back is what they’re actually looking for.

Yeah. So you’re working with the client for this. You’ve done this a number of times. Have you got a couple of quick stories that you can share with us to go, hey, here’s an example of something we did with a client and we achieved and we got what sort of results? What were some of the gotchas that you found in their accounts? Where the things that had just been slipping through?

Well, that’s the funny thing, is that there’s so many different stories that I can share about them, but what happens in general is that they go through and their eyes open up, right? They’re like, oh, well, my accountant said. I needed to run this through, right? And I’m like, yeah, sure, run it through. Here’s the minor savings that you got in taxes, but here’s the effect that it took out. So the reality was they opened their eyes to it’s either coming out of my right pocket or it’s coming out of my left pocket. Which pocket do you want it to come out with? Do you want to get a minute, incremental little change over here that you’re getting from a tax advantage? Or do you want to have more money that you can write a check to pay for taxes, right? And the effects that you have on there. So it is a balancing act when you’re looking at how you’re going to run your business for the appearance phases. And funny enough, there’s really three sets of books. They’re all the same numbers, but there’s three sets of books. There’s the good, the bad and the ugly, right? The good is what it looks like when you’re going to sell your company. Your books look good, all the numbers look good, you haven’t over depreciated things, you’ve really done a good job and the books look fantastic for a potential buyer. The bad is what you want to show the IRS, right? Oh, I didn’t make much money. I’ve got all these deductions and removals and let’s amortise this out and we’re going to buy a new truck so I don’t have to pay for taxes. On it. So that’s the bad view. And then the ugly is your daily journal that shows all the in and out and in and out. So it’s all the same books, but you can highlight the books in a way that make it look attractive to the buyer. And what I found is that a combination of the accounting team, the tax team, the running of the business team, as the owner, you have to think about what are you trying to do with this business, right? Where are you trying to go with the business? And when you can use that forward thinking, you can get everybody else in the books in align with you, so that when you’re ready to sell, it looks attractive to buyers, and you’re going to get the most for all the effort, energy, blood, sweat, tears that you’ve put into your business.

And Marcia, you’ve just reminded me of some of the conversations we’ve had with accountants on previous episodes where they’ve said, hey, look, clients came to us 20 years ago and the brief they gave us was, let’s set this up so it’s tax efficient. I run it, and I can make a good income and save tax. And they’ve set their business up like that and done a fantastic job. The client needs to go back to their accountant. Business owners who are starting to think about exit need to go back to your accountant and update the brief to your accountant and go, look, no longer in tax saving mode, I’m now starting to get this baby ready for exit in the next three to five years. What changes do I need to make for my accounts? Is there anything we need to do? But we got to inform our accountant and give them a new brief.

Exactly.

So that’s where we’re at. We know that what you’re sharing with us is just one of the things that you do when you start helping a business prepare. The thing you do to get the ball rolling is go, well, one way is, let’s just pay for ourselves. Let’s boost your profitability. We can do it in 45 to 90 days. We can have a huge impact, and that’ll just make it a whole lot easier and make it a lot more comfortable for you to work with me. You build some credibility and the business owners go, there’s a real valuation kicker straight off the bat.

Can I give you an immediate win? It does two things for you. It gives you a great boost for. When you want to sell it, but. It also makes a great, profitable company now. So you’re getting two for one by doing this energy and this work. Right. You’re getting more money now and a windfall later when it’s time to let go.

Yeah, you get two bites of the cherry every year. You get an increased profit, and then you get a multiple of that profit on exit, which is. Even sweeter, isn’t it?

Exactly.

So, Marcia, look here’s. The one question I ask everyone who comes on the podcast is, yes, we’ll share all your details in the show notes for people if they want to find you. But what’s the one key message that you want listeners from this show today? To walk away understanding.

Wow, that’s a big one. That’s a big one. I think I started off by saying plan early, right? It’s never too early to plan for your exit. You should actually start planning day one. And create a business that you love. Right, that makes you the money that you want, that gives you the time and energy, freedoms that you so desired when you started the company and making the money that you needed to make so you could live the lifestyle that you want. And it’s all like one thing does the other, right? If you run a profitable business, then you’re going to have the time and money, financial freedoms that you so desire, and it’s also going to give you that exit when you want to leave. So start working on your business instead of so much being in your business if that wasn’t like a whole bunch of things rolled into one, I don’t know.

And a profitable business is easier to sell as well. So, Marcia, thanks for sharing your exit insights with us today.

Thanks, Darryl.

About Marcia Riner