Corporate Finance & Planning Insights for Multi-Generational Family Businesses
As a tribute to the late Charlie Munger, we reflect on his unique perspectives on investment strategies, highlighting his candid views on cryptocurrencies, diversification, and reliance on projections. We explore a few quotes that showcase Munger’s legacy in rational investing and his influential philosophies that continue to shape prudent financial decision-making.
In the latest economic update, the U.S. GDP showed a resilient 4.9% growth in Q3 2023, surpassing expectations and driven primarily by personal consumption and exports. However, leading indicators suggest a potential slowdown, with economists predicting reduced GDP growth in the upcoming quarters. This week’s post delves into these trends, inflation rates, and the Federal Reserve’s monetary policies, offering useful insights for family businesses.
Happy Halloween! This week, we have four frightening guests who share their most terror-inducing family business challenges.
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 if Paul Harvey was a financial analyst, but if he were, we suspect his favorite performance metric would have been return on invested capital (ROIC), because it tells you the Rest of the Story.
The U.S. economy defied expectations by growing at an annualized rate of 2.4% in the second quarter of 2023, outperforming consensus estimates and showing resilience against the Federal Reserve’s ongoing rate hikes. While inflation rates have moderately stabilized, economists forecast a potential slowdown in GDP growth for the upcoming quarters. Explore this delicate economic balancing act, including insights from the Fed’s latest meetings and how these developments could influence both consumer and investor behavior.
This week we’ve compiled a brief reading list of items we’ve found to be interesting and informative in the past couple of weeks. Think of it as your Family Business Director summer reading list.
In this video, Tripp Crews discusses a few key economic indicators that family business owners and directors would be well-served to keep an eye on as we continue to navigate through a turbulent macroeconomic environment. Having a working knowledge of these indicators can help inform decision-making processes for owners and directors both in the office and in the board room.
The business landscape of 2022 was like a competitive football game, where the repercussions of inflation, rising interest rates, and global conflicts felt like a stonewall defense. Still, businesses found ways to hold their ground, providing key takeaways for family businesses, as dissected in our comprehensive 2023 Benchmarking Guide. Our guide helps family business directors understand how to make important financial decisions, like setting dividend policies, making investments, and arranging financing, while analyzing the shifts in capital allocation amid the changing financial climate.
In this week’s post, we analyze the recent Tax Court case, Cecil v. Commissioner. A key issue in the case was the role of appreciated corporate assets in determining the fair market value of a minority interest in an operating company. The Cecil family has owned and operated the Biltmore mansion in Ashville, North Carolina for decades, and the case highlights the intersection of the asset-based, income, and market approaches to valuation, and serves as an important reminder to families evaluating their own estate plans in light of the approaching sunset provisions in the Tax Cut and Jobs Act of 2017.
Bernard Arnault, founder of LVMH and the world’s wealthiest person, is meticulously planning the future of his luxury empire. Through a blend of creativity and pragmatism, Arnault has built LVMH into a global powerhouse while maintaining its status as a family business. Learn how the “Wolf in Cashmere” has prepared his children for leadership roles, and the Arnault family’s approach to long-term planning, stewardship, and collaboration.
Looking to unlock the secrets of corporate finance in just 5 minutes? This concise and engaging video will demystify the world of finance, providing you with an essential understanding of key concepts and strategies. Perfect for aspiring business leaders, entrepreneurs, or anyone looking to expand their knowledge, this video will give you the background you need to understand financial business decisions made by your company’s board and directors.
Mercer Capital sponsored and attended last week’s Transitions conference, where enterprising families came together to discuss the most critical topics for family business success. This year’s event revolved around the “3 New Circles” – engagement, succession, and governance – and tackled the essential questions family business leaders need to address. In addition, our breakout session, How to Be a Good Owner, presented 5 questions associated with developing good owners for your family business. How would you answer these questions?
The failure of Silicon Valley Bank will be talked about for years. What really happened? What caused SVB to fail? Was it just the long-term Treasury securities that everyone has talked about? Well, no. SVB was on a self-imposed path to destruction that had been waiting for an adverse change in the economy or a rising interest rate environment to kick it into oblivion.
There are, indeed, lessons for family business directors from the failure of Silicon Valley Bank. In this week’s post, we discuss four.
In this week’s post, we attempt to divert your attention from interest rates and banking crises by looking at recent private company transaction multiples and some implications of these measures. As detailed in the latest edition of “Mercer Capital’s Middle Market Transaction Update,” transaction activity, both in terms of deal values and volume, ended 2022 with a thud, as expected. Multiples on deals across all size tranches in the middle market (which we define as deals with total enterprise value between $10 million and $250 million) fell to close the year—implying a broad decline in private company valuations in that time. However, asset prices across most classes were susceptible to these declines, creating opportunities for prudent family business managers and directors to evaluate potential transactions in a “down” market. Family business owners should not bury their heads in the sand regarding the current environment–one of the most important facets of a successful transaction is that sellers have reasonable and informed expectations of what their business may command in the market. These reasonable and informed expectations are difficult to develop without a solid understanding of current market conditions for privately held businesses.
On January 1, 2021, Congress enacted the Corporate Transparency Act (the “CTA”) as part of the Anti-Money Laundering Act of 2020. The main purpose of the Corporate Transparency Act is to protect the United States financial system from being used for money laundering and other illicit activities. Effective January 1, 2024, the CTA requires a range of different entities to file a report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). The CTA regulations are written so broadly that nearly every family business in the U.S. will be swept under this new law.
So, what does that mean for business owners? In this week’s post, we answer the main questions stemming from the Final Reporting Rule of the Corporate Transparency Act that will most likely affect you and your family business.
Silicon Valley Bank (SVB) imploded last week in a “gradually, then suddenly”’ fashion. Regulators stepped in quickly and aggressively, promising to back up deposits at the bank of the VC world and stave off a contagion of fear at other banks. And while the body was still warm, politicians stepped in and dusted off their 2008 talking point notes.
This post from Family Business Director aims to highlight three relevant family business lessons from the failure of SVB: diversification, succession planning, and keeping a long-term focus.
In this week’s Family Business Director post, we look at a few key macroeconomic trends that developed in the fourth quarter of 2022 and early 2023 and their impact on family businesses. In the final quarter of 2022, the effects of the Fed’s rate hiking campaign began to permeate throughout the economy, particularly in inflation readings. Still, GDP outpaced consensus estimates, and U.S. equity markets reacted positively to signs of slowing inflation in October and November. The Fed continued to raise the benchmark rate with a 75-basis point increase in November and a 50-basis point increase in December. This post provides a brief look at these trends.
Facebook, now known as Meta Platforms (NASDAQ: META), released fourth-quarter earnings and full-year 2022 results earlier this month. The stock is currently trading at its highest level in the last six months, albeit still at relatively low implied valuation multiples. This comes after a notably tough year for Facebook, as its stock fell 64% last year due to heightened competition from TikTok and a slump in the digital ad market.
So, what changed? The two main changes for this significant increase are cost cuts and the announcement of a $40 billion increase in their share repurchase authorization. While Meta previously taught us about long-term planning and plant/harvest decisions, Facebook’s belt-tightening and share repurchase plan bring up another few lessons on forecasting and share repurchasing, which we revisit in this blog.
We had the opportunity to attend the 57th Annual Heckerling Institute on Estate Planning, one the largest conferences for estate planning professionals. This year’s week-long conference was the first to be held in person in a few years, and the exhibit hall and education sessions were full of good information and details on the estate, gift, and tax planning fronts. We share just a few topics of conversation and tidbits we picked up from the sessions and conference last week.
As we begin to put a bow on 2022 and turn our attention to 2023, we suspect that the dreaded “R word” is on the mind of many of our readers as they contemplate the myriad challenges and obstacles their businesses will face in 2023. As a family business owner or director, now is the time to think critically about how your family business is positioned for a potential economic slowdown. This post offers a few practical steps family business owners and directors can take to ensure their business continues to thrive even if Santa brings us a recession this year.
We have traditionally advised you about what not to talk about at the Thanksgiving dinner table, but this year, we thought we would highlight a more positive family business conversation that you might want to have with your family shareholders.
With economic data for 3Q22 beginning to trickle in, we look at a few key trends that developed during the quarter. The tale of the tape in the third quarter was the same as it has been for virtually all of 2022—volatile equity markets, ongoing inflationary concerns, and rising interest rates. In this post, we provide a concise and unbiased look at some of the manifested trends.
The 2022 midterm elections are here, and, as usual, one of the most significant differences between Democrats and Republicans is tax policy. While voters are contemplating significant issues ranging from inflation, immigration, and gun control, the election outcome will also influence which tax priorities Democratic and Republican lawmakers will pursue over the next few years.
For many family business leaders we talk with, “private equity” is a four-letter word. In this post, we identify a couple of potential “pros” for private equity that family business directors should be aware of and also confirm a couple of the well-known “cons” to accepting private equity investment.
