Family Business Director

July 1, 2024 Capital Budgeting Capital Structure Planning & Strategy Shareholder Engagement

The Supreme Court Weighs in on Shareholder Redemptions

Earlier this year, we wrote about the Connelly case heading to the Supreme Court for final adjudication. The Court handed down its ruling in June, siding with the IRS in a unanimous decision. While the Supreme Court’s economic reasoning in its Connelly decision is impeccable, the need to redeem shares to fund eventual estate tax obligations of significant shareholders can disrupt, or at least complicate, the best-laid plans of growing family businesses. The Supreme Court’s Connelly decision is a timely reminder that family businesses and their shareholders need to work together to prepare for possible redemptions.

June 24, 2024 M&A Planning & Strategy Special Topics

How Does a Quality of Earnings Report Differ from an Audit?

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.

June 17, 2024 Capital Budgeting

5 Reasons Your Financial Projections Are Wrong

The good news – or maybe it’s the bad news, depending on your perspective – is that overly optimistic projections are not necessarily the result of intentional errors on the part of your family business managers.  Rather, behavioral economists tell us that humans are prone to overconfidence as a result of what they refer to as cognitive biases. In this week’s post, we address five cognitive biases contributing to overly optimistic forecasts.

June 10, 2024 M&A Planning & Strategy Special Topics

What to Look for in a Quality of Earnings Provider

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.

June 4, 2024 Capital Budgeting Capital Structure Dividend Policy

Mastering the Dividend Dance

A recent Wall Street Journal article noted that, while the effects of the pandemic have receded from many aspects of American life in mid-2024, investors continue to deal with dividend disruptions.  According to the article, of the 187 U.S. companies that suspended dividend payments during the pandemic, all but 47 have resumed payouts. With the competing claims on operating cash flow from the perspectives of the family business and family shareholders, managing dividend expectations can be a delicate dance.  Finding and forging consensus on what the family business means to the family can help make sure that everyone is at least dancing to the same tune. 

May 29, 2024 M&A Planning & Strategy

A To-Do List for Evaluating Acquisition Offers

The tyranny of the urgent imposes itself on family business leaders just as it does on everyone else. In this week’s post we offer a to-do list for family business directors should they come up against an acquisition offer. The items offered for consideration will help reflect priorities for the long-term sustainability of your family business.

May 21, 2024 M&A

How Should Family Businesses Respond to an Acquisition Offer?

Successful businesses don’t have to go looking for potential acquirers—potential acquirers are likely to come looking for them. Most of our family business clients have no intention of selling in the near-term, and yet they often receive a steady stream of unsolicited offers from eager suitors. Many of these offers can be quickly dismissed as uninformed or bottom-fishing, but serious inquiries from legitimate buyers of capacity occasionally appear that require a response.

May 14, 2024 Capital Budgeting Planning & Strategy Special Topics

Review of Key Economic Indicators for Family Businesses

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. 

May 7, 2024 Capital Budgeting Planning & Strategy Taxes

The Case for Research and Development

A Case Study of Innovation and Taxes

Consistent investment in research and development is at the heart of many family business breakthroughs. Like any investment, R&D spending consumes family capital today in the expectation of generating more cash flow in the future, and for many years, companies deducted R&D costs from taxable income as those dollars were spent. However, a little-heralded provision of the Tax Cut & Jobs Act of 2017 upended the status quo for tax treatment of R&D expenditures. Taxpayers are now required to capitalize R&D costs, deducting them from taxable income over a period of five years rather than in the period the costs were incurred. With this in mind, we present a brief case study to help family businesses visualize this change and better prepare for capital budgeting decisions in the future.

May 1, 2024 Capital Budgeting Planning & Strategy

Your Family Business Is on the Clock – Are You Ready?

The 2024 NFL Draft occurred this past weekend, and while a family business director might not be sitting 8th on the clock in next year’s NFL Draft, there are certainly draft day themes that can be applied within your family business. NFL Draft “assets” may look different than those of the family business, but the themes of considering shareholder & owner preferences, allocating capital, and preparing for next-generation leadership mirror many of the responsibilities of a family business director. Read more in this week’s post.