Posted by: James Murray
business transition, Commercial loan, IT Consulting, Modern Network Architecture, network architects
I like working with business transition experts. The last 18 years my goal has been to be involved in interesting work. Business transition experts work with clients that have the most interesting and satisfying work.
The business transition expert is working with a company that is going through a major change. Often this means the sale of a business. In that case the transition expert(s) is a team of experts often headed by a business broker, attorneys and Commercial loan specialists. The broker is paid on commission based on the value of the business. Business brokers bring me in to assess if there is a quick way to boost the profitability of the company. My job then is to audit the technology of the business. When the audit is done I present a report that shows the risks and opportunities the company may be missing. Often by exploiting an ignored opportunity we can create a business efficiency that will quickly improve profitability.
Business brokers will also bring me in for the buyer. The IT infrastructure is an asset that the buyer wants to understand. Is the technology at risk of failure? By the same token are there opportunities that could be exploited by the buyer that the seller is unaware of? An IT audit can reveal to the buyer these types of opportunities that the owner wasn’t aware of. With this information the buyer can leverage this knowledge by re-negotiating the price.
One of the things I’m very excited about is the cloud and how this can affect the whole buying process. So let’s start with the buyer. Here are some statistics…
- 80% of businesses report IT failures
- 20% of a manager’s time is spent putting out “IT Fires”
- Most small and medium size businesses function on less than one “9″ of availability
- The cloud gives the business 99.9% availability
- Most small businesses are running at 85% availability.
So what does this mean in real world productivity? Let’s assume that the average employee makes about $30,000 per year or $14.42 per hour. If the network was functioning at one “9″ or 90% availability that works out to 36.5 days of down time per year or 16.8 hours of down time per week. Just counting the cost of salaries the company pays $242 / week / employee the network is unavailable. Multiply that by 10 employees and it works out to $2,420 / week (in wages paid to employees that are not able to work because the network is down.) Over a year’s period this is a loss for the business of $126,000 in salary payments made to employee who were not able to work due to network failure.
Compare this with three “9″s or 99.9% availability. For the same 10 employees the yearly loss would be $126.25 / year (compared with $126,000). Remember this doesn’t consider the productivity loss, only the cost of paying the salaries of employees when they are not working. Assume that each employee averages $1.30 for every dollar paid in salary that would mean the productivity of the same ten employees during the network down time would have been $163,800.00. So if there were three “9″s of availability, instead of losing the $126,600.00 in wages, the company with three “9″s makes an additional $163,800 per year. This is a difference of $289,800 / year that represents a reduction of expense and increased income that translates into increased profitability.
The savvy business buyer looking at this business realizes that there is an opportunity. The Buyer knows that by putting this same business infrastructure into the cloud the business could potentially increase overall profitability of the business by $290,000 / year.
The seller can use these same numbers to his/her own advantage as well. By placing the system in the cloud, bottom line income for the company increases by $290,000. In buying a business, profitability and cash flow determine price. Simply by putting the systems into the cloud, the seller has improved the productivity of the organization by 10 to 15%. The expenses are the same, so profitability is increase without making major changes to the business.
Looking at the network infrastructure in this way, the modern network architect can quickly see new ways to build profit for buyers or sellers in the midst of a business transition.