Page 2 - Demo

2 | November 2023
Rockheads Group
Continued from page 1
Valuing, a Huge Advantage of Benchmarking
Katzmann went on to explain, that after all these metrics are compiled, big num- bers such as net profits and EBITDA (earn- ings before interest, taxes, depreciation and amortization) shows how each shop com- pares relative to the rest of the Rockheads and the importance of valuing. “If any of our shop owners are thinking about valu- ing their business, whether they are going to give it to their son or daughter, sell the business or for tax purposes, EBITDA is the number one factor in determining how much money the business is generating and what the business is worth. So we provide that EBITDA and net profit information. Additionally, at one of our live events, we had a few Rockheads members who reg- ularly purchased companies describe how they translate EBITDA to purchase price and what the companies can do to raise their value. This really helped everyone to figure out what these businesses are worth at the end of the day, because that’s what an acquiring company wants to know.”
Put in a simpler way: if a company’s cur- rent revenue is $5 million per year, and is currently making a million dollars per year in profit, multiples (other factors) will be applied to these numbers, offering clar- ity and a final dollar amount for an owner or investor to value that business. This is a huge advantage for a buyer or seller,
Jon Kaplan and Rich Katzmann present a benchmarking review at the recent Oklahoma City Rockheads conference. Benefits of benchmarking include Valuing and a built-in early warning system of market fluctuation.
Slippery Rock Gazette
was slowing down and getting indications of what the industry was going to look like in 2023. So if you own a company and you know where you’re sitting, you now know what you need to do during your strategic planning and budgeting, thinking, ‘Hmm, I’m too heavy into tract building. Maybe I need to hire a new sales person whose strong points are working with designers or multifamily construction.’ Our mem- bers can definitely use benchmarking for planning, and to match their business with what the environment is going to look like next year.”
Safety and Confidentiality
Katzmann finished our conversation by stressing that any and all supplied informa- tion by Rockheads members is privileged for his eyes only. “This data is so confiden- tial for these businesses, and rightly so. We deem this data classified, and it should not and never will get out to anybody. We’ve got firewalls and barriers set up, and I am the only one who sees their data with their names associated to it, and all kept locally by me. So even if there is a cyber attack, I am the only one who can put one and one together.”
In closing, the Rockheads’ benchmarking process has always been the cornerstone of what they offer, and certainly will continue to be in the future. For more information visit www.rockheadsusa.com or call Rich Katzmann at 815-210-1006.
but there’s another important factor called Top Heavy, Katzmann explained. “Say all of your business comes from just one big box store or just one or two major custom- ers. Well, that’s pretty darn scary for some- one looking at buying your company, and that’s going to push your multiple down, because if even just one of those custom- ers goes elsewhere, you’ve just lost a huge portion of your revenue, because so much of your business is tied-up in just a few companies. Conversely, if you’re diversi- fied, and only 15 to 20% of your revenue is lost, let’s say from a big box customer, that’s a great opportunity to make up the difference from another area, such as build- ers, remodelers or homeowners. We ask all the right questions, and because of this we can explain who our members are selling to
and at what percentage. So there’s a whole bunch of different factors that Rockheads can supply that can be used and imple- mented by shops to drive those multiples up. We capture all the breakdowns includ- ing material types, and share them back to each member.”
Growing Pains Eased Through Benchmarking?
Another major consideration in using benchmarking is growth; Should I stay, or should I grow? Do I have enough growth capitol, and is the timing and market ready? These questions and more are enough to keep even the most savvy shop owners up at night. But not to fear, the Rockheads are here, continued Katzmann. “Let’s say a shop wants to get to $10 million in sales per year. They have a 3 year plan, and then want to get to $20 million. What we can show them is this: you are currently a $5 million dollar company, and here’s how you compare against your peers across the metrics. You’re a pretty good shop at $5 million, but if you want to get to $10, holy cow! You better change this num- ber by 25%, because a specific metric is more expensive when you get to $10 mil- lion than it is at $5. So we can show them the financial path of how to get from 5 to 10 to 20, and that’s a huge benefit. When I hear back from our membership, this is one of the things that they bring up, and a clear path forward that they can see.”
An Early Warning System
There’s one more big benefit to bench- marking, explained Katzmann, called early warning detection. “In July of 2022, we were already hearing that tract building
“Thanksgiving Day is a jewel, to set in the hearts
of honest men;
but be careful that you do not take the day,
and leave out the gratitude.”
– E.P. Powell