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.

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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.

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

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

What Must Be True...
Asking the right strategic questions will ensure profitable growth in all economic conditions. Daily operational management is about adapting to what is currently true. Effective executive leadership creatively bridges the gap between the two.
Construction Contracting, Materials Science, and "People Science"
Psychology is materials science for people. Engineers use materials science to design and build construction projects that are both safe and meet the needs of their owners. Organizational Development is the engineering of individuals into effective teams.
Required Leadership Focus Changes at Each Stage of Growth
At each stage of growth, the leadership focus at the top for majority Owners/CEO/President must change to continue navigating growth effectively. Concurrently, the leadership focus from the prior stage of growth must be transferred and expanded downward.