Corporate Finance & Planning Insights for Multi-Generational Family Businesses
Benchmarking is a powerful tool for family businesses. Done well, benchmarking provides managers and directors with valuable insight and context for evaluating the operating performance of the family business and the strategic investing and financing decisions made by their leaders.
This blog post will summarize some of the findings in our 2022 Benchmarking Guide for Family Business Directors.
Do you know how much cash is on your family business balance sheet? How about receivable health and your debt position? Reading this blog, you likely answered “yes” to these questions.
Do you also know how much your family business is worth?
If you answered “Yes,” you are in a select company as 98% of small businesses polled by M&T Bank over the past two years didn’t know the value of their businesses. Knowing and understanding the value of your family business is essential to making critical decisions around dividends, capital structure, or capital budgeting that have long-term effects on your family business.
Travis Harms, who leads Mercer Capital’s Family Business Advisory Services Group, spoke to CNBC recently on the importance of valuation and understanding the value of your business. This week’s Family Business Director post highlights the piece, and we hope you check it out.
Unlike McDonald’s franchisees, directors and managers of family businesses are not required to undergo a renewal procedure to maintain access to the family’s human and financial resources. However, pretending that you had to is a good exercise for managers and directors. What evidence do you have to support your decision to continue managing the family’s wealth? Do you have a regular reporting procedure in place that takes those elements into account? In this week’s blog post, we provide some broad elements that should be considered for any stewardship reporting model.
Acquirers of companies can learn a valuable lesson from the same approach that pro sports teams take in evaluating players. Prior to draft night, teams have events called combines where they put prospective players through tests to more accurately assess their potential. In this scenario, the team is akin to the acquirer or investor and the player is the seller. While a player may have strong statistics in college, this may not translate to their future performance at the next level. So it’s important for the team to dig deeper and analyze thoroughly to reduce the potential for a draft bust and increase the potential for drafting a future all-star.
A similar process should take place when acquirers examine acquisition targets. Historical financial statements may provide little insight into the future growth and earnings potential for the underlying company. One way that acquirers can better assess potential targets is through a process similar to a sports combine called a Quality of Earnings Study (QoE).
The risk of a recession is growing, and inflation in May reached a new four-decade high. Companies and consumers alike are feeling the pinch and battening down the hatches in anticipation of stormy weather, with markets reflecting less-than-optimistic expectations. Stocks are in the red outside of the energy sector. Lower broad market pricing translates to lower family business valuations. So, what? A market downturn, on the other hand, presents an opportunity for family businesses planning long-term intrafamily transfers and gifting plans to significantly reduce their estate and gift tax exposure. We’ll show you how in this post.
Corporate executives are considering how a recession would affect their businesses due to the current uncertainty in the macroeconomic environment. How will your family business fare in the event of a recession, and how are expectations for the future affecting the value of your family business right now? We discuss this impact in terms of value in this week’s blog post by categorizing expectations into three primary categories: cash flow, risk & return, and growth.
We at Family Business Director hope you all had a relaxing and enjoyable Memorial Day Weekend. This week’s post is a collection of thought-provoking “summer reading” material. We hope you enjoy these pieces on a beach or by a pool, preferably while sipping a tall cool beverage. Happy reading!
Think back to March 2020. Many businesses and operations saw immediate stoppages and closures with no idea when they could restart. The fitness industry was no exception. Planet Fitness, the gym operator, completely shut down its locations and its stock plummeted. Peloton Interactive saw sales surge for its at-home exercise spin-bike and its stock soar. These two businesses entered very different seasons at the onset of the COVID-19 lockdowns and slowdown. Planet Fitness was facing a sudden and bitterly cold winter, while Peloton was spinning its way into summer.
We think there are three lessons that can prevent your family business from pedaling in place: understand what season your business is in, be prepared for slow-downs, and diversify prudently. Read more in this week’s post.
In this week’s post, we take a look at a few key macroeconomic trends that developed in the, shall we say, busy, first quarter of 2022. Between volatile equity markets, mounting global geopolitical tensions, raging inflation, and increasing interest rates, a lot went on in the year’s first quarter from a macro perspective.
We hope that this blog post cuts through some of the “noise” and provides our readers with a concise and unbiased look at economic trends from the first quarter of 2022.
How your family business thinks about success is important. James Hughes, author of Family Wealth: Keeping It in the Family poses a question early on in his book: Can a family successfully preserve its wealth for more than one hundred years or for at least four generations? It’s a compelling question and a compelling book.
Hughes is now a retired sixth-generation counselor-at-law, prolific author, and renowned multi-generation family meeting facilitator. He has advised numerous wealthy families on how to maintain and grow their wealth over time. Hughes views “shirtsleeves to shirtsleeves in three generations” plaguing family businesses not as destiny but as a cycle family businesses can overcome with thoughtful practices and patience over many years. In this week’s post, we review his very insightful and helpful book.
