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....

6 Common Exit Strategies for Contractors
Contracting is a capital-intensive and risky business. The construction business is also amazing, with the owners making a good return on their capital.
Preconstruction - Adding Value from the Perspective of the Architect
Getting involved early in the project as it is being developed is one of the best things a contractor can do for profitable growth. Effective precon services will achieve the design the architect wants within the budget the project owner needs.
Rigorous Questioning Develops Critical Thinking
Thinking is really just about asking ourselves then answering a series of questions to help us make a good decision. Critical thinking is quite simply asking ourselves a more complex set of questions then answering them from a larger base of knowledge.