Jeremy Harbour
Okay. Now this is the fourth part of how to create massive shareholder value. Obviously we go into lots more details on the Harbor Club, but the final part is financial engineering.
Jeremy Harbour
So if you remember we had scale, how to make a business that’s bigger to add value. Liquidity, how to make it so you can buy and sell your shares to increase the shareholder value. The third one was redundancy, making sure that you’re not selling yourself, but you’re just selling the shares in the business.
Jeremy Harbour
And then the final one we’re going to talk about now is financial engineering. How would you increase the profit of the business so that the multiple of that profit is much bigger?
Jeremy Harbour
So if you think about it, we talked in the very first video about using scale. So we talked about adding two, two and a half million turnover companies together, each one having 10% margin, so £500,000 pounds worth of earnings, of profit.
Jeremy Harbour
We use a smart structure in the Harbor Club, which we go into in a lot more detail on the Harbor Club, but the smart structure is all about not having everything just shoved into one limited company and that actually you can use a couple of different entities in order to structure the balance sheets and the profit and loss and also take certain tax advantages that are available in the UK particularly to make sure you have the best financial engineering for the setup that you’re trying to exploit.
Jeremy Harbour
Now actually this financial engineering tactic that we teach adds between 10% and 15% of the turnover back to the bottom line of that business. So if you think about that five million turnover business it’s going to add at least £500,000 of additional profit to the bottom line. That’s going to double the bottom line profit of the business.
Jeremy Harbour
And another little tip I’ll just share, there’s seven of these on the actual Harbor Club by the way. And another little one I’ll share is using pricing. I tend to find that the price a company is charging relates to the age of the owner. And that quite often you can increase your prices by about 5% without having too much problem in terms of customer retention and things like that.
Jeremy Harbour
So if you could go through and increase all the prices in the business by 5%, you actually add about 40% back to the bottom line because that 5% increase in turnover is pure profit. There’s no additional cost associated with it. So if you think about that five million turnover company again, actually 5% of five million would be about £250,000 you’d add another £250,000 of profit.
Jeremy Harbour
So you would have started with £500,000. You would have doubled it to a million and you would have added another £250,000 using the price increase. So you then have a business that has £1.25 million turnover. That combined with the scale and the liquidity gives you a huge increase in shareholder value versus the original £2.5 million company turning over £250,000.
Jeremy Harbour
So there’s a lot of stuff we use on the Harbor Club about how you can exponentially increase your value and through all of these different steps you can do that. But I hope you found these four interesting and you can go and apply those in your business today. Thank you very much.
Speaker 2
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