Family Business Director

Corporate Finance & Planning Insights for Multi-Generational Family Businesses

Category

Performance Measurement


COVID-19 Coverage

How Is Your Family Business Performing in the COVID-19 Pandemic?

One thing in short supply thus far in the pandemic has been perspective.  We know that GDP fell by more than 30% during the second quarter, but how does that translate into the actual financial performance of businesses?  Family business directors have been flying blind over the past few months, with no reliable way to benchmark the performance of their businesses. 

Earnings season for the second quarter of 2020 gives us the first opportunity to see how the COVID-19 pandemic is affecting businesses. In this post, we elaborate on four themes that emerge from the data.

How Much Money Do Family Businesses Like Ours Invest?

To be sustainable, family businesses need to invest capital wisely. As directors, the investment decisions you make today can define the family business for future generations. Before making a significant investment decision that will be hard to reverse, it is a good idea to evaluate how other companies in your industry are investing their capital.

How Much Money Do Family Businesses Like Ours Make?

The goal of “maximizing shareholder value” is fast assuming its rightful place in the dustbin of financial history as more families embrace a broader vision of relevant stakeholders for their enterprises.  The freedom to develop a balanced scorecard of performance objectives that includes both financial and non-financial goals is one of the most rewarding aspects of family business. 

Embracing non-financial objectives does not mean, however, that a family business can be unconcerned about their profitability.  After all, operating efficiency helps to underwrite the various non-financial goals and values the family chooses.  So, our first comparison when benchmarking performance for a family business is to evaluate profitability.

Seven Questions Benchmarking Can Answer for Your Family Business

Introducing the 2020 Benchmarking Guide for Family Business Directors

Managing a family business without benchmarking data is a bit like shopping for clothes in a store with no mirrors.  Without context, financial performance is hard to interpret.  Directors are responsible for making long-term decisions that can influence the course of a family business for decades.  Access to relevant benchmarking data is essential for directors as they contemplate strategic financing, investment, and distribution decisions.

We have structured our 2020 Benchmarking Guide for Family Business Directors around seven questions designed to provide the necessary context for financial decision-making in family businesses.

Five Reasons Your Family Business Should Focus on ROIC

Return on invested capital is not a silver bullet – it will not solve all of the challenges facing your family business.  However, when we let the data speak for itself, the benefits of ROIC are undeniable. This week, we identify five reasons family businesses should focus on ROIC.

Are Metrics Really Undermining Your Family Business?

This month’s cover story in the Harvard Business Review takes aim at the misuse of metrics in businesses, highlighting the tendency of leaders to confuse numbers with strategy. In this post, we consider how to apply the authors’ suggestions in the context of family businesses.

Return on Invested Capital: Digging a Little Deeper

The best performance metrics address not just “what” performance has been in the past, but reveal the “why” behind that performance and give direction for “how” to improve performance in the future.  In last week’s post, we introduced return on invested capital (ROIC) as a comprehensive performance measure for family businesses.  In this week’s post, we will dig a little deeper with ROIC, demonstrating how we can use ROIC to answer the “what,” “why,” and “how” questions for your family business.

And Now You Know… The Rest of the Story

Revenue growth and profitability are critical measures for the health of any family business, but by themselves, they tell only half of the story.  As a family business director, you need the whole story.  We’re not aware that Paul Harvey was a financial analyst, but if he were, we suspect his favorite performance metric would have been return on invested capital, because it tells you the rest of the story.

Basics of Financial Statement Analysis

Part 4: Telling the Company’s Story

This post is the fourth installment from our Basics of Financial Statement Analysis whitepaper.  In this series of posts, our goal is to help readers develop an understanding of the basic contours of the three principal financial statements. The balance sheet, income statement, and statement of cash flows are each indispensable components of the “story” that the financial statements tell about a company.

Basics of Financial Statement Analysis

Part 3: The Statement of Cash Flows

This post is the third of four installments from our Basics of Financial Statement Analysis whitepaper.  In this series of posts, our goal is to help readers develop an understanding of the basic contours of the three principal financial statements. The balance sheet, income statement, and statement of cash flows are each indispensable components of the “story” that the financial statements tell about a company.  This week, we focus on the statement of cash flows.

Basics of Financial Statement Analysis

Part 2: The Income Statement

This post is the second of four installments from our Basics of Financial Statement Analysis whitepaper.  In this series of posts, our goal is to help readers develop an understanding of the basic contours of the three principal financial statements. The balance sheet, income statement, and statement of cash flows are each indispensable components of the “story” that the financial statements tell about a company.  This week, we focus on the income statement.

Basics of Financial Statement Analysis

Part 1: The Balance Sheet

This post is the first of four installments from our Basics of Financial Statement Analysis whitepaper.  In this series of posts, our goal is to help readers develop an understanding of the basic contours of the three principal financial statements. The balance sheet, income statement, and statement of cash flows are each indispensable components of the “story” that the financial statements tell about a company.  This week, we focus on the balance sheet.

How Much Money Does Your Family Business Really Make?

In our last post in this series, we focused on operating income, which is a critical measure for evaluating the performance of management since it is unaffected by financing and tax decisions made by the board of directors.  Net income, on the other hand, reveals how those board-level decisions influence your family business’s earnings and ability to pay dividends.  Everyone likes to talk about EBITDA and EBIT – and those are important metrics – but only net income measures the increase in the family’s wealth from owning the business.

What Business Is Your Family Business In?

When engaging in shop talk about a client project, our colleagues inevitably start by asking, “What business is the client in?” In nearly all cases, the appropriate response to the question is a brief description of the client’s industry. But for a small minority of clients whose financial performance is truly extraordinary, the correct response is that they are in the “money making” business. For these clients, the particular “it” of what they do is secondary to the fact that they make a lot of money doing it. Has your family business joined the exclusive club whose members are in the “money making” business?

What Do Your Customers Pay For?

It may be a tiresome cliché, but your family business really does make money buying low and selling high. It’s important to think about gross margin, because it tells you how much of a “mark-up” your customers are willing to pay for your good or service. The higher the “mark-up” the more revenue will be available to cover operating expenses and generate an operating profit.

Is Growth Optional for Your Family Business?

The income statement is a natural place to begin analyzing a company’s financial results, and revenue is the natural starting point for that analysis. We recently heard someone remark that everything good in business starts with revenue, and our experience working with family businesses of all stripes confirms that sentiment. While the absolute amount of revenue can be instructive (i.e., are we looking at a $10 million business or a $100 million business?), it is the trend in revenue that is most revealing. Is the business growing, treading water, or shrinking?

Analyzing Public Company Data for Family Business Insights

Talking to the Numbers Introduction

Reading financial statements well is all about asking the right questions. In this series of posts, our goal is to help family business directors ask the right questions of their financial statements. Asking better questions leads to better financial and business decisions.

Capital Budgeting Capital Structure Dividend Policy M&A Shareholder Engagement Taxes

What Keeps Family Business Directors Awake at Night?

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.

Consulting Services

Family Business Advisory Services

Mercer Capital provides financial education services and other strategic financial consulting to family businesses