“The Richcession” Actionable Guidance

Ephor Newsletter Q1 - Actions

Our Strategic Practice Leader Garry Meier communicated and defined a "RICHCESSION" approximately two weeks ago in our Q1 2023 Newsletter and at a high level outlined the effects these "RICHCESSIONARY" pressures will have on our small businesses and entrepreneurship. Most importantly at a high level, he provided the appropriate business model and "corrective" actions that we must make to offset these disruptive "RICHCESSION" challenges.

Ever since the early January newsletter distribution: we have been overwhelmed with inquiries (approximately 200 in two weeks) from CEO/Entrepreneurs just like you. Your peers have asked us to provide more tactical and precise guidance. As such the below guidance and "corrective action" items are provided to assist you in Revenue Growth, Lower New Client Acquisition Costs, Improve Gross Profit, and improving EBITDA Performance.

As Ephor’s Fractional CFO Practice Lead and as a result of my 8+ years working with Technology Enabled/BPO businesses: below I am providing you some very tactical guidance and corrective actions you can implement in your business to offset the current and near-term "RICHCESSIONARY" challenges:

Revenue Growth & Lowering New Client Acquisition $:

Integrate the Business Development Functions/Processes of Marketing including Channel & Partner Distribution and Direct Sales

  • Disenfranchised functions in this area lead to "event-oriented selling" and "high customer acquisition costs" which only add to the RICHSESSION vicissitudes.

  • As such we have experienced that Chief Revenue Officer (CRO) concepts have been effective in integrating the Revenue Generating Function into a "holistic" business process. It is vital that the Revenue Stream and Revenue Growth are definable, predictable, and repeatable.

  • i.e., In a recent transaction that we were involved in the institutional buyer increased the enterprise value (EV) of the company by ~15% (resulting in an additional $5M dollars of value distributed to the shareholders, all a result of the implementation of the CRO function over the previous 18 months)

Gross Profit Performance Improvement:

Scalability Process & Productivity Enhancements Initiatives

  • Over our 22+ years of experience working and improving the performance of service businesses, we have proven that a majority of service businesses can "materially" increase the Gross Profit % Margins by focusing & implementing more scalable business processes and implementing productivity and margin enhancements programs.

  • Items such as productivity variable compensation incentives have proven to be quite effective. Increasing & enhancing your KPIs and measurement systems with a focus on productivity and process effectiveness is a lot more important than "financial measurements".

  • It is our best guidance that 1 executive in the business needs to own these initiatives and be held accountable for the outcomes of these programs.

Convert Fixed Costs to Variable Costs:

Outsource Non-Mission Critical Functions: Functions such as Human Resource/Work Force Management: Accounting functions such as AR/AP and general ledger functions Marketing program execution: Inbound level one customer service and CFO functions.

  • Outsourcing on a "Variable Costs" basis, especially for those functions that can be "nearshored", we have seen on numerous examples provided us and our clients an average of 12% to a high of 22% of cost savings.

  • Do not pass up the opportunity the increase your "Recurring EBITDA" by greater than 12%. If ‘’you’re just not sure" how to? Or who you should outsource to? Please contact us, we maintain a database of "proven" outsourcers for "emerging" and labor-intensive entities just like yours.

  • Negotiate and Restructure Vendor Relationships: Have an executive reach out to your entire vendor community and ask for volume discounts, early pay discounts, and other concessions that will lower your costs in the near term; We often suggest that you ask for 5%-10% discounts for the near term with an agreement to revert to "normal" pricing as the RICHCESSION pressures diminish.

  • Set a goal of 15% cost reduction: in a typical $15M revenue service business with 20% SG&A costs: history has proven to us that one can save ~$300K to $500K annually ("Free EBITDA")

In closing: it is difficult for us to "fine tune" all the tactical actions and provide specific actions required for your business. However, what we can tell you is that it is imperative that you lower the risk profiles of your business by taking all "corrective" actions required to ensure that your business illustrates a scalable and productive business model, which leads to the fundamentals of "Recurring EBITDA & Recurring Revenue Performance".

Regards and best to you as you navigate your businesses through these disruptive and challenging times. If you would like to chat further please feel free to contact us

Jose V. Garza

Strategic CFO Practice Lead

Ephor Group, Inc