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
Continue building value in your business, yourself and your key team members with a good succession strategy....

Succession
Continue building value in your business, yourself and your key team members with a good succession strategy....

Mental Models and Building Strong Businesses
The best builders develop a complex 5D mental model of the project, keeping it constantly updated. Through thousands of interactions with hundreds of people over years they “nudge” the project from concept through construction completion.
Evolving Leadership Focus with Role Growth
All contractors are built on the same foundation, which starts with the amazing crafts people. With growth in the business, project size, and your career, the time you allocate to different layers of the pyramid must evolve.
Prioritize and Execute
You are simultaneously building a construction project, a construction company and a career in construction. There will always be more problems to solve and potential opportunities to explore than you have the resources for.