Football coaching legend Bill Parcells famously said, “You are what your record says you are.” Adapting that thought to the corporate world, one could say, “Your company is what its financial statements say it is.” Although we would not deny that there are important non-financial considerations in business, the remark strikes close enough to the truth to underscore the importance of being able to read financial statements. Accounting is the language of business, and financial statements are the primary texts to be mastered.Corporate directors need to be able to read financial statements to discharge their fiduciary duty to shareholders effectively. The ability to analyze financial statements gives shareholders the confidence to independently assess the company’s performance and the effectiveness of management’s stewardship of shareholder resources.The purpose of this whitepaper 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. After reviewing each statement, we explain how the different statements relate to one another. Finally, we provide some guidance on how to evaluate projected financial statements.

Switching costs for capital investment are high and do-overs are expensive. A capital project is simply any use of the family business’s capital resources in the present with a view toward earning a return on that investment over time, and may take the form of acquisitions, capital expenditures, research & development, or other investments. Net present value and internal rate of return are the two primary tools used to determine whether the forecasted marginal cash flows are sufficient to justify the proposed project. However, a healthy capital budgeting process goes beyond mere financial feasibility to address the proposed project’s “fit” within the overall corporate strategy. The purpose of this whitepaper is to assist directors in evaluating proposed capital projects and contributing to capital budgeting decisions that enhance value.This whitepaper is the third in the “Corporate Finance in 30 Minutes Series.” Learn more about the whitepaper series below.Corporate Finance in 30 MinutesIn this whitepaper, we distill the fundamental principles of corporate finance into an accessible and non-technical primer.Capital Structure in 30 MinutesThrough this whitepaper, we equip directors to contribute to capital structure decisions that promote the financial health and sustainability of the family business.Dividend Policy in 30 MinutesFrom the perspective of family shareholders, dividend policy is the most transparent element of corporate finance. This whitepaper helps family business directors formulate and communicate a dividend policy that contributes to family shareholder wealth and satisfaction.

Capital structure decisions have long-term consequences for shareholders. Family business directors evaluate capital structure with an eye toward identifying the financing mix that minimizes the weighted average cost of capital. This decision is complicated by the iterative nature of capital costs: the financing mix influences the cost of the different financing sources. While the nominal cost of debt is always less than the nominal cost of equity, the relevant consideration for directors is the marginal cost of debt and equity, which measures the impact of a given financing decision on the overall cost of capital. The purpose of this whitepaper is to equip directors to contribute to capital structure decisions that promote the financial health and sustainability of the family business.This whitepaper is the second in the “Corporate Finance in 30 Minutes Series.” Learn more about the whitepaper series below.Corporate Finance in 30 MinutesIn this whitepaper, we distill the fundamental principles of corporate finance into an accessible and non-technical primer.Capital Budgeting in 30 MinutesCapital Budgeting in 30 Minutes assists directors in evaluating proposed capital projects and contributing to capital budgeting decisions that enhance value.Dividend Policy in 30 MinutesFrom the perspective of family shareholders, dividend policy is the most transparent element of corporate finance. This whitepaper helps family business directors formulate and communicate a dividend policy that contributes to family shareholder wealth and satisfaction.

Corporate finance does not need to be a mystery.In this whitepaper, we distill the fundamental principles of corporate finance into an accessible and non-technical primer.Structured around the three key decisions of capital structure, capital budgeting, and dividend policy, the guide is designed to assist family business directors and shareholders without a finance background make relevant and meaningful contributions to the most consequential financial decisions all companies must make.Our goal with this whitepaper is to give family business directors and shareholders a vocabulary and conceptual framework for thinking about strategic corporate finance decisions, allowing them to bring their perspectives and expertise to the discussion.This whitepaper is the first in the "Corporate Finance in 30 Minutes Series." Continue reading the whitepaper series below.Capital Structure in 30 MinutesThrough this whitepaper, we equip directors to contribute to capital structure decisions that promote the financial health and sustainability of the family business.Capital Budgeting in 30 MinutesCapital Budgeting in 30 Minutes assists directors in evaluating proposed capital projects and contributing to capital budgeting decisions that enhance value.Dividend Policy in 30 MinutesFrom the perspective of family shareholders, dividend policy is the most transparent element of corporate finance. This whitepaper helps family business directors formulate and communicate a dividend policy that contributes to family shareholder wealth and satisfaction.

From the perspective of family shareholders, dividend policy is the most transparent element of corporate finance. Dividend policy addresses both how much cash flow should be distributed to shareholders and the ideal form of such distributions. In the context of a family business’s life cycle, directors can use dividend policy to manage the company’s capital structure and tailor the form of returns to better match family shareholder preferences. Diverse shareholder preferences and characteristics can enhance the attractiveness of share repurchases relative to dividends; however, executing share repurchases for family businesses bring its own set of considerations and challenges. The purpose of this whitepaper is to help family business directors formulate and communicate a dividend policy that contributes to family shareholder wealth and satisfaction.This whitepaper is the fourth in the “Corporate Finance in 30 Minutes Series.” Learn more about the whitepaper series below.Corporate Finance in 30 MinutesIn this whitepaper, we distill the fundamental principles of corporate finance into an accessible and non-technical primer.Capital Structure in 30 MinutesThrough this whitepaper, we equip directors to contribute to capital structure decisions that promote the financial health and sustainability of the family business.Capital Budgeting in 30 MinutesCapital Budgeting in 30 Minutes assists directors in evaluating proposed capital projects and contributing to capital budgeting decisions that enhance value.

Effective communication between management and shareholders is a key component of the long-term sustainability and success of any family business. The cornerstone of a thoughtful and effective shareholder relations program is education.Apart from a shared vocabulary and understanding of basic corporate finance concepts, family business managers will struggle to communicate the company's strategy and financial results to shareholders clearly.We have combined these whitepapers to help family businesses make strategic financial decisions and communicate those decisions to their shareholders.

Suppose that your exposure to the French language consists of two years of high school classes twenty-five years ago. Imagine how frustrating it would be if suddenly the only news outlet available to you was Le Monde. With no small effort on your part, there’s a good chance you would be able to discern the broad outlines of the day’s events, but the odds of misunderstanding a key part of the story would be high, and any subtleties or nuance in the writing would be totally lost on you.That is likely how many of your family shareholders feel when it comes to comprehending the financial results of your family business. Perhaps they took an accounting course at some point in their lives. Or simply by virtue of having grown up around the family business, they have developed a vague sense of the differences between revenue and equity, or assets and expenses. As a result, when they read a financial report, they are generally able to discern the broad outlines of performance for the year or quarter, but the odds of misunderstanding a key part of the story are high, and any subtleties or nuance beyond the most rudimentary data are likely to pass them by.Everyone agrees that communication promotes positive shareholder engagement, but what does it look like to communicate financial results effectively? In this whitepaper, we offer practical suggestions for presenting key financial data in ways that family shareholders find useful.

Family business advisors help companies and leaders navigate a wide range of business and family challenges, ranging from corporate governance to succession planning to family relationship dynamics and all points in between. Over the past several years, many of the family business advisors we have met have expressed a desire to better understand the intersection between business valuation and the family business advisory services they provide. We have written this whitepaper to help fill in that gap. The whitepaper is organized in four sections, each of which seek to answer a specific question about valuation.