Part 2 | Finance Basics: Capital Structure
This post is the second of four installments from our Corporate Finance in 30 Minutes whitepaper. In this series of posts, we walk through the three key decisions of capital structure, capital budgeting, and dividend policy to assist family business directors and shareholders without a finance background to make relevant and meaningful contributions to the most consequential financial decisions all companies must make. This week, we focus on capital structure.
Part 1 | Finance Basics: Return & Risk
This post is the first of four installments from our Corporate Finance in 30 Minutes whitepaper. We begin with a brief overview of return and risk, the two basic building blocks of corporate finance.
This case study summarizes a recent engagement in which we helped second-generation shareholders balance two objectives in setting up a dividend policy. They desired a dividend policy that would enable each shareholder to set aside a significant nest egg of liquidity independent of his or her ownership of the Company while also being reasonable for the company, given the development of outside management and the need for and opportunities for the Company to grow.
A recent article in the Wall Street Journal chronicled the slow demise of the Woolrich Woolen Mill. For the first time in the company’s 170 year history, it will no longer have any U.S. based production. The Woolrich saga is a vivid reminder of how challenging the appropriate balance between dividends and reinvestment is for family business directors (and of the real-life consequences those decisions can have). For this post, we asked two (hypothetical) colleagues with differing perspectives to review and comment on the recent story.
Takeaways from General Electric
The recent announcement that General Electric is slashing its shareholder payouts by more than 90% has put dividends in the headlines in recent days. The news coverage provides an opportunity for family business directors to re-visit dividend policy at their own companies. While we wouldn’t want to suggest that the GE dividend news tells savvy family business directors anything they didn’t already know, a few reminders about dividend basics seem fitting.
Stewarding a multi-generation family business is a privilege that comes with certain responsibilities, and each family business faces a unique set of challenges at any given time. For some, shareholder engagement is not currently an issue, but establishing a workable management accountability program is. For others, dividend policy is easy, while next gen development weighs heavily. Through our family business advisory services practice, we work with successful families facing issues like these every day.
Corporate Finance & Planning Insights for Multi-Generational Family Businesses
This is the inaugural post for our Family Business Director blog. By way of introduction, we thought we would anticipate a few questions that you might have.