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....

Cash Flow Tip 5 - Flowchart Your Cash Flow
You can only see the full value-stream of cash flow including the waste, the people and the opportunities for improvement by mapping out every step.
Planning and Preparing for Unknowns
When faced with many unknowns, it is important to plan and prepare for multiple scenarios, while holding off on being decisive until the last responsible moment.
The Basic Math of Prioritization
Build your project, career, and business more profitably by continually allocating more of your resources to their "Highest & Best" use, focusing on prioritized probabilities rather than possibilities.