Corporate Finance & Planning Insights for Multi-Generational Family Businesses
We are excited to offer our readers a physical version of our piece, “Corporate Finance in 30 Minutes: A Guide for Family Business Directors and Shareholders.” We have put this piece together to give family business directors and shareholders a vocabulary and conceptual framework for thinking about strategic corporate finance decisions. We hope this provides a helpful resource for you and your fellow directors & shareholders.
Family businesses are uniquely positioned to leverage the skills, goals, and offerings of their family owners. Some family owners may have different priorities, like creating a legacy, maximizing their return, or simply building a career. As a family business director, knowing these different goals and the types of owners that make up the family business shareholder group is key, and engages and enables the owners who may want to expand their role and contribution.
This week kicks off a time of economic uncertainty, with global financial markets in turmoil stemming from proposed retaliatory tariffs by the United States on effectively the rest of the world. Simultaneously, golf’s first major of 2025, the Masters, is poised to begin at Augusta National. While the Masters presents a radically different set of challenges from those presented in the Open Championship, the underlying themes and skillsets required to prevail remain the same and are just as applicable to family businesses facing challenges in times of uncertainty. With that in mind, we turn to some key thoughts for family business owners and directors to consider during these tumultuous days.
We are excited to offer our readers a physical version of our piece, “Basics of Financial Statements: A Guide for Private Company Directors and Shareholders.” The purpose of this piece is to help readers develop an understanding of the three principal financial statements. We hope this provides you with a helpful resource for your own personal use, as well as a resource to share with your fellow directors & shareholders.
Last week’s news that the publicly traded REIT Crown Castle (ticker: CCI) had agreed to divest its Fiber segment was a bit of a perfect storm of the issues we focus on here at Family Business Director: capital allocation and strategy, return on invested capital, valuation, and dividend policy. After years of underperformance and stagnating dividends, Crown announced a “strategic review” of its fiber business in December 2023, which culminated in Thursday’s announcement that CCI’s fiber segment would be sold to two buyers for an aggregate purchase price of $8.5 billion. In this week’s post, we review how Crown Castle’s divestiture of its Fiber segment highlights the need for an integrated framework for family business directors to evaluate and monitor the key strategic finance decisions that influence family shareholder returns for the years and decades to come.
In last week’s post, we reviewed what EBITDA is and why not all EBITDA is created equal. In case you missed it, we ended that post with the following statement: “…improving EBITDA margins can have a multiplicative impact on your family business’s value by both providing more EBITDA and justifying a higher multiple.” So, is it really true that a higher EBITDA margin will also bring a higher multiple, or were we just getting carried away with our own thesis? For this week’s post, we pull some market data to test our assertion.
In the world of family-owned and other private businesses, most everyone looks to EBITDA (earnings before interest, taxes, depreciation, and amortization) as an indicator of financial performance. Legendary investor Warren Buffett, however, holds a long-standing grudge against EBITDA. Here at Family Business Director, we believe there is a time and a place for EBITDA in financial analysis, but Mr. Buffett does have a point — some EBITDA is better than others. But why? We explore EBITDA and why it matters for family business directors in this week’s post.
Fresh off the Super Bowl with no more football in sight, it’s time to pick up that book collecting dust on the shelf. To help ease you back into the routine of things as we head into the dog days of winter, here’s a quick roundup of what we have been reading.
Over the weekend, President Donald Trump signed an executive order that imposed an additional 25% tariff on Canadian and Mexican imports and an additional 10% tariff on imports from China. As the socio-political atmosphere is continuously changing, it is critical for family business directors to keep a pulse on current developments and understand the different implications that may impact or change their industry moving forward. Maintaining an adaptive forecast is one of the best practices for being able to pivot during unpredictable times. As family business managers and directors re-evaluate their projections, we revisit some of the mental biases that can potentially skew forecasts.
Family Business Director attended the 59th Annual Heckerling Institute on Estate Planning earlier this month. In one of the standout sessions, we reviewed purpose trusts and how companies like Patagonia are employing them for succession planning. Even if your family business is unlikely to follow suit, Patagonia’s novel business succession strategy provides important lessons and reminders for family directors. Your family business may not have a purpose as lofty as “protecting the planet,” but you and your shareholders will benefit if the purpose is clearly articulated, protected by thoughtful governance structures, and visible through disciplined and transparent reporting.
Over the years, we have used Thanksgiving as a time to remind family business directors that family is indeed the most important part of the family business. In this week’s post, we share some helpful resources before you sit down to eat some turkey with the family this Thursday. Happy Thanksgiving!
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.
Fed Chair Jerome Powell addressed the National Association of Business Economists conference in Nashville last week, and we — despite not being trained economists — were on hand. In this week’s post, we provide a brief summary of our impressions and a few thoughts for family business directors.
We are excited to share the release of Z. Christopher Mercer’s latest book, Buy-Sell Agreements: Valuation Handbook for Attorneys published by the American Bar Association. This week, we share an excerpt from the book and what you can expect to find in the full copy.
Since 2017, the Nordstrom family has made multiple attempts to take the company private but has been rebuffed by the board. Nordstrom was in the news again this week, with the company disclosing that the members of the Nordstrom family were once again offering to take the company private, this time $23 per share (compared to $50 share six years ago). The Nordstrom board has formed an independent committee to evaluate the offer. In this week’s post, we identify three lessons for family business directors from the unfolding saga.
Coming off a run of economic data releases in the last few weeks, we take a look at the numbers and some of their implications for the broader economy in this week’s post. GDP growth in the U.S. economy measured 2.8% in the second quarter of 2024, outpacing growth of 1.4% in the first quarter. Following persistently elevated measures in the first quarter, recent inflation readings have cooled. The following sections provide a brief look at these economic trends and their implications, sourced from Mercer Capital’s National Economic Review.
As the pandemic recedes further into the rearview mirror, long-term business consequences continue to reverberate through the economy. In addition to recalibrating expectations among domestic manufacturers, foreclosures on distressed commercial real estate are accelerating. Since enterprising families often accumulate significant real estate holdings, the lingering pandemic-induced weakness in real estate values may encourage families to evaluate their real estate strategies. In this week’s post, we discuss three broad real estate strategies for families owning and operating businesses.
Current economic uncertainties may have family businesses feeling more like they’re playing in an Open Championship than a routine PGA/LIV tour event. While there are many ways to steer your family business through uneven times, these lessons are a good starting point.
Last week, the consumer-price index decreased slightly from May, resulting in a year-over-year inflation measure of 3%. And as earnings season approaches, the broader stock market is eyeing new records. Last year, we discussed how family business leaders could use earnings season as an opportunity to discuss strategy and goals with their family board. Today, we focus on earnings season as a broader indication of inflation and investor sentiment in the months to come.
A quality of earnings (“QoE”) report and an audit are both essential tools in the business world, but they serve distinct purposes and offer varying insights. Audits are broader and regulatory in nature, whereas QoE analyses are more focused and strategic, catering to the needs of investors and decision-makers who require a deeper understanding of a family business’s true financial health and future potential.
The cost of M&A failures is high for both buyers and sellers of family businesses. For buyers, overpaying for a target can hamper returns and crowd out other more attractive investment opportunities for years to come. Sellers only get one chance to sell their businesses. Failing to maximize proceeds represents a missed opportunity they can never get back. These high stakes mean that thorough and high-quality due diligence is critical. A Quality of Earnings (or QofE) analysis is an essential component of transaction diligence for both buyers and sellers. Optimizing your transaction diligence requires assembling the right team.
This week we look at recent economic data and the implications of this data regarding the Fed’s upcoming monetary policy actions. GDP growth in the U.S. economy slowed to 1.6% in the first quarter of 2024, lagging measures of 4.9% and 3.4% recorded in the final two quarters of 2023. Leading economic indicators point to a further slowdown on the horizon in 2024, as The Conference Board’s Leading Economic Index, fell 2.2% in the six months ended March 2024. We take a brief look at these trends and more.
We’re back from Family Business Magazine’s 2024 Transitions Spring Conference, held this year in Tampa, Florida. The theme of this year’s conference was change and transition in your family business. The conference speakers and sessions struck a good balance of effectively facilitating organizational change while maintaining your family’s values and identity. We discuss three transitional forces facing you and your family business, inspired by the conversations we had at the conference.
Rising inflation and higher interest rates have significantly affected business values and the broader economy, with some industries managing to navigate the higher-rate environment while others struggle. The Federal Reserve has indicated potential rate cuts later this year, which could have widespread implications for businesses and the economy. Now is the time to explore favorable opportunities for transferring business value to future generations and consult with estate planning advisors.
