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| A Reference of Key Terms in Value Assessment |
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Assets
Something owned by and having continuing value to its owner or a business. The economic resources of an entity.
Balance Sheet
A report showing the financial position or condition of a business at a given date. Also called the statement of financial position or statement of financial condition. Always balances because Assets = Equities (liabilities + owner's equity).
Business case
A document and/or presentation that advocates a solution based on its ability to improve the customer's business, and framed according to the executive decision making criteria. Typically includes tangible benefits, intangible benefits, risk assessment and financial analysis, while achieving a strong sense of strategic alignment.
Cash flow/cash flow analysis
The comparison of benefits and costs over the life of the investment. The most commonly used investment analysis measures are: Payback, Simple ROI, Discounted Payback, Net Present Value (NPV), and Internal Rate of Return (IRR).
CI8
The 8 Critical Information Areas, all business focused, that should be in every profiling tool. The CI8 is essential for effective value assessment.
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Cost of Sales
The cost of goods or services sold.
Credibility story
A story used by sales and/or marketing that documents specifically how your company has helped a customer(s) achieve business results. The more quantified and verifiable the results the better.
Decision making paradigm
The overall business condition or paradigm that affects how companies make investment decisions. The paradigms are: cost, strategy, operations, and restructuring.
Discounted Payback
The time it takes to recover the amount invested, based on discounted incoming cash flows. Expressed in months or years.
Earnings Per Share, EPS
Net income reduced by preferred dividends and divided by the average outstanding number of common shares during the accounting period.
Equities
Claims of various parties against assets. The two types of equities are 1) liabilities - claims of the creditors and 2) owner's equity - claims of the owners of the business (called shareholder's equity for an incorporated business).
Executive decision making criteria
The criteria that executives use to make investment decisions. They are: financial return, strategic alignment, risk assessment, political effects, and intuition.
Executive dialogue question
Incorporates a premise containing one or more industry trends, then references a possible implication of that trend on the business, and is followed by a question that makes the executive think and reflect before answering. Often used as a platform to begin a high level conversation.
Fixed Costs
Items of cost that, in total, do not vary at all with volume. Examples are building rent, property taxes, and management salaries.
Gross Margin
The difference between net sales and cost of sales, or the profit from sales before considering operating, general and other expenses. Also called gross profit or product profit.
Gross Sales
The total invoice price of the goods shipped or services rendered during the period. Usually does not include sales taxes or excise taxes that may be charged to the customer.
Income Statement
Report summarizing the revenues and expenses and reporting the net income (loss) of a business for an entire accounting period. Also called Statement of Earnings, Statement of Profit and Loss, P & L or Operating Statement.
Initial value message
A statement of value you could bring to a prospect based on prior experience and success in a particular market segment with similar companies. Used early in your sales process to generate interest in a discussion.
Intangible benefit
A benefit that cannot be quantified in money, or is simply too difficult to quantify.
Internal Rate of Return, IRR
IRR weighs the investment relative to the cost of money or interest rate, which herein is an unknown. IRR assumes that NPV is zero, in other words, asking us to determine the rate of interest that would cause the discounted net benefits to be equal to the initial investment.
Key Performance Indicator (KPI)
Metrics that companies use to measure their business - most are operational in nature and vertical industry specific.
Liabilities
An obligation to pay for assets or goods or services acquired, or to repay borrowed funds.
Logical linkage
A story that logically links your solution to the business benefit gained and articulates how your solution produces that benefit.
Management benefits
Benefits of your solution that helps the management team of a company perform their duties more effectively.
Net Income/Loss
The final result of all revenue and expense items for the period. Also called net profit, net earnings. If negative, net loss. Often referred to as the bottom line.
Net Present Value, NPV
NPV weighs the investment in absolute dollars against its return in discounted cash. It is defined as the value, in today's dollars, of a stream of net benefits received over time.
Net Sales
Gross sales minus returns and allowances and sales discounts for prompt payment. Also called Net Sales Revenue.
Operational benefits
Benefits of your solution that positively impact the operations of a client company. These benefits are typically quantified and the Key Performance Indicator (KPI) impact can be documented.
Payback
The time it takes to recover the amount invested, commonly expressed in months or years.
Price-to-Earnings Ratio, P/E
The comparison of the market price of a share of stock to the earnings per share of that stock, expressed as a ratio. Also called the P/E ratio.
Return on Assets, ROA
Net income for the period divided by the assets, expressed as a percentage.
Return on Equity, ROE
Net income for the period expressed as a percentage of average shareholders equity for the period.
Return on Investment
Broadly defined as net income divided by investment. Often used in a general sense referring to the overall return on investment of a project or initiative, and sometimes used in place of Simple ROI.
Simple ROI
The return an investment provides over a defined period of time. The formula is net benefit (benefit - cost) of the investment divided by the cost, expressed as a percentage.
Specific value message
A statement of value you are confident your solution can deliver in your prospect's organization. It is based on your involvement with them through the sales process and contains expected benefits and quantifies them where possible. Used later in the sales process and is incorporated into the business case.
Strategic alignment
Aligning your solution with the strategic direction of your client.
Strategic benefits
Benefits of your solution that are strategic in nature because they align with your client's strategy, strengthen the existing strategy or allow them to pursue alternate strategies.
Tangible benefit
A benefit that can be monetarily quantified.
Value assessment
The consultative process of identifying the business impact of an investment, according to the buyer's decision making criteria, and assembling the business case that explains it.
Value Assessment Methodology
A methodology for selling that focuses on how you produce value for customers. The five phases are: profiling, executive introduction, discovery, executive feedback session, and business case presentation.
Variable Costs
An item of cost whose total amount varies proportionally with volume. An example is materials cost in a production setting.
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