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What Ancient Rockers Can Teach You About Making Profit

At an age when they should (or we just wish they would) hang up their leather trousers and retire disgracefully, more and more ancient rockers are embarking on yet another tour.

This year alone, the Rolling Stones (of course!), Madonna, The Who, Neil Young, Rod Stewart, Pearl Jam, Queen and even Ringo Starr are performing on stages around the globe. Given that many of them are nearing or way past grandparent-age, you might wonder why they’re still bothering so many years after their first taste of fame.

The performers will say it’s because they love it and that they ‘don’t want to let the fans down.’ But there’s another hard-nosed reason to get their weary old bones back on the tour bus. And it’s this: touring boosts their profits in a way that digital music sales and royalties can no longer do.

Digital music generates very little return. Peter Tschmuck, a professor at the University of Music and Performing Arts in Vienna told Business Insider’s Rob Wile that the return on investment from selling a digital copy of a song is 12% compared with about 36% for CDs. That’s before the revenue is shared between various title holders.

“With digital music so freely and widely available, hardly anyone makes money off sales or royalties these days,” reported Mike Rowell in an article for Forbes and Zocalopublicsquare.org.

“Often, these bands seem to approach nostalgic tours as the most expedient way to make bank; choice seats for top acts—Fleetwood Mac, Elton John, the Rolling Stones, and Stevie Wonder—can run in the hundreds of dollars,” he said.

Top concert draws can take home 35% of the night’s gate sales and up to 50% of the money made from merchandise sales sold at the show, according to Forbes’ journalist, Peter Kafka. Their record labels are likely to receive none of that.

That means the stars—including Paul McCartney, the Rolling Stones, Neil Young, The Who and Roger Waters—of what has been billed as a ‘once-in-a-lifetime’ mega-concert this October are likely to receive a whopping payout for their performances. Tickets for the concerts (taking place over two weekends) were snapped up within hours of going on sale and topped a hefty $150 million, according to Billboard sources. Think how many downloads those artists would have to sell to get anywhere near that kind of money!

Singing aside, what can you learn from the likes of Mick Jagger and Keith Richards when it comes to your business?

To focus on the part of your business that brings the most profits. The Rolling Stones could have retired decades ago and waited for the income from album sales and royalties to trickle in. Instead, they made the decision to continue to tour and have generated many millions as a result. In just under three years, for example, the band’s overall concert grosses topped $401 million, according to Billboard.

If you would like to read our brand new report on how companies can greatly increase their profit through detailed analysis of the numbers you can do so by clicking here.

The following story illustrates why it makes sense to focus on the most profitable part of your business. A major US direct marketing company with over $1 billion in annual sales recently reviewed its database to determine where its profits were coming from, B2B or B2C. At that time, 50% of its sales were to consumers and 50% to businesses. It was shocked to discover that the profits on the business sales were 500% better than those to consumers. Most consumer sales weren’t even profitable even though they represented the majority of customers, transactions, and expenses.

The decision was made to focus on B2B sales. It required a significant turnaround in the business: at that time, the company employed 500 people taking inbound calls from customers and only 100 people making outbound calls to businesses.

The change took two years. By the end of that period, 95% of its sales were to businesses and only 5% to consumers. Sales flourished. They had been growing at 21% before the turnaround but by the end of the two years averaged 50%. Profit growth was equally dramatic.

So what can you do to boost your profits besides cutting costs? For a start, identify your most profitable customers and then do everything possible to increase sales to that segment of your business. Focus on attracting more customers like them.

Fortunately, it’s not something you have to do alone. A part-time Finance Director (FD) or CFO will help you to accomplish a more profitable company with less stress and hassle than if you were to try to do it on your own. You can watch our 3 minute video here which explains the part-time FD/CFO model.

Make it easy on yourself: book your free one-to-one call with one of our part-time CFOs now to learn how your company can become more profitable. Just click here now.

Warning: Without Exit Planning, You Could Be Left With Nothing

Do you dream of selling your business for a very tidy profit so you can retire and spend your days on luxury cruises or working on your golf handicap?

Well, without an exit plan, your dream may be just that, a dream that never comes to fruition.

Sell at the wrong time or without thinking about the impact of taxation, for example, and you really could be left with nothing to show for your years of hard work.

Every tax adviser that we meet agrees that without appropriate planning, business owners could pay far more tax than necessary when exiting the company. With the correct planning of your exit, at least one year ahead, preferably far sooner, you can minimize, or sometimes even eliminate both capital gains and income tax.

You may also need to consider your partners, directors and managers as incentivising them with shares or options may be a way of aligning them with your goals on the sale of your business.

That said, it’s important to realise that selling the company is not your only exit option. You can also:

  • Transfer ownership to your children
  • Sell to management
  • Take your company public by listing on the stock market
  • Liquidate the assets and take the cash that is realised

Even if your dream is to pass the company on to the next generation of your family, you still need to plan how to maximise the value of the business so they inherit something worthwhile rather than burdensome. Otherwise, you’ll be lumbering them with something closer to a millstone than a prize worth having.

The same principle applies to liquidating or publicly launching the company. Your plan should be to maximise its value and therefore maximize your options for an exit.

An exit plan allows you as the owner to remain in control of the sale (or succession) process and focus the business on the most critical value-enhancing strategies before your exit.

You might think you’re too busy right now to create an exit strategy but time really is of the essence if you want to get the business in shape to exit.

You’ll need time to develop unique sustainable selling points so you can show prospective owners that the business will enjoy continued growth, you are selling the future, not the past.

When you talk about the company’s medium and long-term prospects to potential buyers, being able to demonstrate that you’ve already made inroads into new geographical markets or new product ranges or services will help strengthen your case. That will take time which again is why you need to develop your exit strategy sooner rather than later.

Equally important is to consider the possible threats to your business which could have an impact on the attractiveness and therefore value of your business. Such threats might include an adverse change in legislation or new and competing technology in your existing markets. You and your management team need to develop a strategy to defend the business against such threats where possible and that again will take time to design and implement.

Your potential buyers will expect at least two years’ of accurate information including monthly management accounts, margin analysis and tax position before they make any sort of offer. They should then conduct extensive due diligence into all aspects of the business in order to identify potential liabilities, risks and management expertise.

Fortunately, you don’t have to do this alone. In fact, it could be an expensive false economy to undertake any of this without first consulting exit planning experts. They can help you to:

  • Explore the exit strategies that will best serve your goals for the business and yourself
  • Evaluate the business’ current value and its key value drivers
  • Compare the business’ current value with the desired sale value (for individual owners this will be the amount of capital you need to underpin your future lifestyle needs)
  • Understand the future prospects for the business
  • Identify who the business will appeal to and why
  • Identify what may make the business unappealing to potential buyers and so restrict or negatively affect exit value
  • Clarify what you and your management team need to do in the short and medium term to improve the key value drivers and minimise the unappealing aspects to potential trade buyers, institutional investors or the existing management team

If you would like to read our exit planning guide, which explains the entire exit planning process and the considerations required of an SME leading up to and during an exit, you can do so by clicking here.

If you plan to sell, your team of advisors will also help you find the right buyer, ensure the buyer has the right finance in place to pay for the transaction, optimise your net of tax cash receipt after the sale and help you to plan your new post-sale life.

Planning a profitable exit doesn’t have to cost a fortune and nor does it have to take you away from running your business day to day. A part-time FD or CFO can help with exit planning strategies and advise you on the most suitable route forward. It’s what one of our part-time CFOs did for the original owners of Kiddicare, enabling them to sell to the supermarket giant Morrisons for £70 million (at a remarkable 20x profit multiple).

With the right exit planning, you too can realise some significant personal goals, create a retirement nest egg for you and your family and secure your future. But for that to happen, you need to take action today.

To find out how you can take on one of the country’s top Chief Financial Officers, but on a part-time basis, to help get your business into shape in advance of a potential exit you can watch our 3 minute video which explains the CFO Centre service.

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