Succession Fact #1: Capital and Cash Flow

Succession Fact #1: No deal structure will substantially create capital or cash flow, as only the business operations can do that.

D. Brown Management Profile Picture
Share
Succession: Fact 1. Capital and Cash Flow

It is only the business performance that ensures all major stakeholder groups are compensated properly for their time and capital put at risk.  

  • If the deal will only pencil out returns for both parties due to some intricate tax strategy, then the deal probably shouldn’t be done. With that said, invest wisely in your advisors to make the transaction as tax efficient as possible.  
  • It is only in the rare cases of truly strategic sales that the business substantially increases in its ability to make profits and generate free cash flow after the transaction is completed.  
  • Outside of a strategic sale, if the business will substantially increase the trajectory of profit growth and free cash flow, that means that less of the value was created by the current owner. This will result in a lower valuation for the current owner in the transaction to make the simple capital formula work.  

The saddest thing we see during ownership transitions is when the ownership groups and management start to focus more on intricate hypothetical deal models rather than aligning on increasing the true underlying value of the business.


Succession Fact #1: Capital and Cash Flow
Continue building value in your business, yourself and your key team members with a good succession strategy....

Succession Fact #1: Capital and Cash Flow
Continue building value in your business, yourself and your key team members with a good succession strategy....

Construction Technology Integration Failures
More construction technology integrations FAIL to meet expectations due to alignment with the talent than the capabilities of the technology. If we looked at talent and technology the same way we look at equipment we would achieve a much better return.
Process Improvement and Cycle Times
When contractors grow inefficient processes usually get substantially more inefficient dramatically changing the Return on Investment (ROI) model. Saving a few minutes over 1,000 cycles per month means $60K+ potential savings over a couple years.
Key Drivers of Value
Valuation is a very critical factor during ownership transitions because it has to be a number that fairly represents the value of the business for the outgoing owners while providing a solid return for the buyers.