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Episode Summary
You’re heading into the 2024 offsite. The leadership team is bringing rocks. Someone’s pushing the ERP, someone else wants the new sales hire, and you have no idea what you can actually afford or whether any of it will move the needle on what the business is worth. This is part two of the annual planning series. I roll solo and walk through how to reverse-engineer the year from a target equity valuation. Pick your point B (target normalized EBITDA, target multiple, target debt), back into available distributions and reinvestment dollars, then run a real budget month by month with all three financial statements so you can see cash, not just income. I get into why strategic planning is not the same as a business operating system like EOS, why the eight functional areas stop you from picking rocks based on who complains the loudest, and why net income is the tax-game number that hides every owner perk and one-time add-back. Real numbers from a $1M-to-$2M EBITDA example, lessons from my old copier business, and the honest version of how to hand this to your CFO without doing the math yourself.
Watch on YouTube
## Top 10 Takeaways- Without a target equity valuation, you’re funding growth that may or may not create value. That’s just spending.
- Three levers run the game: normalized EBITDA, the multiple, and debt load. Build the plan around all three.
- After taxes and partner distributions, what’s left is your real reinvestment budget, not revenue.
- The eight functional areas keep you from picking rocks based on who complains the loudest at the offsite.
- Strategic planning challenges your thinking. EOS executes. Put garbage into the OS and you get garbage out.
- One-time investments are add-backs. They grow normalized EBITDA and the multiple even when net income drops.
- Project the income statement alone and you’re flying blind on cash. You need all three statements.
- Build the budget month by month. Annual averages can’t tell you what’s in the bank in June.
- A real budget is a 50/50 shot. Layup means you’re sandbagging. Impossible means a riff in May.
- Sales sets the revenue line. Ops owns the margins. Finance ties the three statements together.
Sound Bites
“If we don’t have that valuation as an actual target, we could literally be funding growth that doesn’t create value, and that’s just wasting money that you could be putting in your pocket.” (@TBD) — Ryan Tansom
“Net income is not gonna be our main target, because that’s where we play the tax game. All of the noise of all the expenses, the owner’s perks, and all that stuff goes through net income.” (@TBD) — Ryan Tansom
“If you sit down in an offsite planning meeting and you’re trying to pick what to work on, a lot of times people pick what to work on based on who’s complaining the most.” (@TBD) — Ryan Tansom
“If you input shit, it’s gonna pump out crap.” (@TBD) — Ryan Tansom
“I got super sick and tired of flying blind, running a $20 million business with a couple million dollars in inventory of payables, receivables.” (@TBD) — Ryan Tansom
About This Episode
Solo Ryan teaching episode. Part two of a two-part series on 2024 annual planning. Ryan walks through the full sequence: set the target equity valuation at a point in time, reverse-engineer it through the three financial statements, calculate available distributions and reinvestment dollars, then run a real budget that starts with sales and marketing, moves to cost of goods and operations, and ends with overhead and finance tying all three statements together. The episode is built for owners and visionaries who don’t want to do the math themselves but need to know what to ask for from their CFO. Part three is a bonus episode with Ami at Multifunding on using SBA debt to fund the plan.
Resources Mentioned
- Arcona Fractional CFO Services — Ryan’s firm. Builds the financial dashboard, three-statement model, and value growth plan with management teams.
- Intentional Growth Academy — Self-directed program covering the eight functional areas and the financial lens. Coupon code in original show notes.
- Intentional Growth Starter Kit — Free framework intro covering the eight functional areas in principle four.
- Episode with Craig Rutledge on Executive Compensation — Mini-series on short-term cash bonuses, benefits, phantom stock, and long-term equity plans.
- Episode with Dan Grimsrud (M&A Attorney) on Ownership and Leadership Alignment — How to align partners on roles, target valuations, distributions, and timelines.
- Value Opportunity Profile (Ken St. Gennari) — Tool for assessing the eight functional areas in balance.
- Bonus episode with Ami at Multifunding — Next week’s episode on using SBA debt to fund the value growth plan.
Connections
Phase + Modules:
- Module 4 — Sustainable Financials — The three-statement model that makes the trade-offs visible
- Module 5 — Predictable Revenue — Strategic plan and revenue systems feeding the budget
- Module 6 — Transferable Margins — Margin discipline and the operating system that holds the plan together
- Module 3 — Owner’s Playbook — Where the target equity valuation and reinvest-vs-distribute trade-offs live
Milestones:
- Milestone 5 — Market Value — Setting the point B target multiple and equity valuation
- Milestone 7 — Value Growth Plan — The bridge between point A and point B
- Milestone 11 — Annual Budget — Month-by-month, sales then ops then finance
- Milestone 12 — Five-Year Forecast — Out-year projection that closes the value gap
- Milestone 13 — Strategic Plan — The strategy that drives the rocks the OS executes
- Milestone 18 — Business Operating System — Where EOS-style execution sits inside the iBD framework
- Milestone 8 — Quarterly Boardroom Rhythm — Where ownership reviews progress against the plan
Concepts referenced:
- Three-Statement Model — The closed loop you need to see cash, not just income
- Normalized EBITDA — Add-backs strip the noise so the multiple has something real to attach to
- The Multiple & WACC — The risk lens that turns cash flow into equity value
- The Four Value Levers — Cash flow, multiple, debt, and time as the levers private equity plays
- Value Gap — The space between point A and point B that the budget has to close
- Distributable Cash — What’s left after taxes, working capital, and reinvestment
- Cash Conversion Cycle — Receivables, payables, and inventory as the engine of the balance sheet projection
- Net Debt and Working Capital — The two adjustments between enterprise value and equity value
- Free Cash Flow — What the model eventually feeds at the bottom of the cascade
- Rolling Forecast — The discipline that keeps the plan honest after the offsite
Related episode:
- Ep. 379 — 2024 Planning Part 1 — Part one of this series, on setting the target equity valuation