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What Is Value?
 

What Is Value?

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Private Business Owners think of value in many ways. Long-term market value is the true answer.

Private Business Owners think of value in many ways. Long-term market value is the true answer.

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    What Is Value? What Is Value? Document Transcript

    • What is Value? by R. Thomas Stocker Value means different things to different public companies. They have a board of business owners. If you ask an owner just directors and/or a board of advisors, a clear starting up their business the answer may be succession plan, easily understood structure revenue growth or available cash. Ask and documented processes. All of these another who has gotten past the startup things reduce risk and provide superior phase and it may be cash and/or profit, and enterprise value. ask a stockholder of a public company and it Risk is an important factor to consider when will probably be profit. They are all correct you think about enterprise value. All of course, but the real value in any non- valuation experts use a risk factor to public company isn’t just growth, profit and determine a company’s value. As the owner cash. It is much more. and/or CEO of your company, part of your Value is not a here and now measure of how job and obligation to your owners is to much cash the company has available or the minimize risk as much as possible. Making profit it made last quarter. It is a long-term sure your company has adequate business metric that is measurable and changeable. It systems, processes and structure will go a is the most important measure of any long way toward minimizing internal risk. company, private or public. It is a measure This is a topic in itself which I will address of sustainability and transferability. in a future blog. Ultimately it is how much your company At Chairman’s View we have two can sell for on the open market. At any presentations we call “The Story of Value” given time, what would someone be willing and “Building an “A”. In both cases we talk to pay for the enterprise as it exists today. about the meaning of value for private You should be aware of this value whether companies and concentrate heavily on how or not you are planning to sell or transfer important sustainability and transferability your business today, tomorrow or twenty are to building a valuable company. years from now. Because it is so important to you, your strategies must start with how Sustainability is a very important concept to increase this value. for making a valuable company. Outside investors won’t pay much for a company if For a private company, real value is they can’t see or understand how an sustainable and transferable profitability. enterprise can continue to grow revenue and For public companies, sustainable and profitability. Likewise, they need to feel transferable are given as the enterprise is comfortable the business can survive generally transparent and value is reflected without you the owner/CEO. If you are the in real time through the enterprise’s stock “octopus” (see my article “Are You an price. Private companies do not always see Octopus?”), haven’t done anything to groom value in this light but should consider and a competent management team, all processes understand the implications of avoiding or are in peoples’ heads or are “custom” for ignoring these two key factors. The most each transaction or action; you don’t have a valuable private companies generally transferable business and are at risk of not conduct themselves in the same manner as 10 Larkspur Road, East Greenwich, RI 02818 401-451-9799 www.boardroomadvisorygroup.com
    • having a sustainable business. As a result, only one of them is right and you haven’t there is higher risk and thus a lower talked to any or all of them? What if the valuation than a similar business/competitor “wrong” one emerges as that successor in that does have these internal characteristics the aftermath? If this is a family business, in place. will this event tear apart your family? Clearly there are many alternatives and These concepts hold true regardless of conclusions to this story. But from a where you are in your business lifecycle. business standpoint the ending is clear. The The best time to be working on long-term company will be worth less and may not value is all the time. Clearly the longer time survive because sustainability and horizon you have before you plan to exit transferability were not addressed. your business the more value (and less risk) you can build. Having a lot of time It is clear to see how sustainability and (meaning multiple years) provides the transferability are important cornerstones to flexibility to work on this in smaller bites. all businesses. With a public company Regardless of your timeline, a sense of sustainability and transferability is taken for urgency should be in place to get it done as granted. It is part of the stock price of all quickly as possible. public companies. Private companies who can be considered “A” companies have also Think about what would happen to your addressed these important tenets of control. business if something were to happen to you But unfortunately, many private companies today to remove you from the business have not and could suffer when a transfer of suddenly and permanently. Could it control becomes necessary for whatever survive? Is there someone in place who reason. And with the “retirement boom” of could step in and provide the leadership to at aging baby boomer owners currently least sustain the business? Is there someone underway, business transitions and pressure who can provide the vision and leadership on business valuations are only going to needed to make the business thrive? Are increase. Start getting ready now. there multiple people (children) who think they are that heir apparent, but you know To comment on this or other topics important to private business owners, access my blog at www.boardroomadvisorygroup.com. About the author; Tom is a Principal of Boardroom Advisory Group, LLC, an owner advisory and consulting firm. Tom serves on the Board of Directors for the RI Economic Development Corp’s Small Business Loan Fund Corporation (SBLFC), the finance arm of the RI EDC. He writes a monthly article for the RI EDC’s Every Company Counts initiative. His articles focus on areas that can add significant value for business owners. Contact Tom directly at 401-451-9799 or tstocker@boardroomadvisorygroup.com. Boardroom Advisory Group, LLC is a business advisory and consulting firm specializing in helping business owners resolve day-to-day systemic issues that interfere with cash flow and profitability attainment. The Firm works with both growing and underperforming small to mid-market private companies. The Firm’s team of hands-on senior professionals find and implement solutions to improve top-line and bottom-line growth, increase cash flow, reduce costs, improve process, structure, and use world-class metrics to keep the business on track. The team also has extensive experience working with troubled companies through business restructures and recapitalization. Boardroom Advisory Group’s core focus on developing strategies to drive and measure performance has resulted in a history of sustainable top and bottom line growth, healthy cash flow and increased company value for their clients. For more information about how we can help you build a more valuable business visit our website at www.boardroomadvisorygroup.com. ©2008-09 Boardroom Advisory Group, LLC All Rights Reserved. No part of this document may be reproduced without the express permission of the author. All registered trademarks mentioned in this document are the property of their respective owners. Additional articles written by Mr. Stocker include: Start Forecasting Now! What is Value? I’m Out of Compliance. Now What? Do You Have Contingency Plans? Are you in a Foxhole? Have You Thought About Your Future Lately? Are You an Octopus? Metrics Should Be Everywhere (Part I)
    • Metrics Should Be Everywhere (Part II) It’s All About Growth These articles can be accessed at www.boardroomadvisorygroup.com/pages/pubs.php. You can also request to be added to his email list to receive his latest articles on a monthly basis on the Company website. Contact Tom at tstocker@boardroomadvisorygroup.com.
    • What is Value? by R. Thomas Stocker Value means different things to different public companies. They have a board of business owners. If you ask an owner just directors and/or a board of advisors, a clear starting up their business the answer may be succession plan, easily understood structure revenue growth or available cash. Ask and documented processes. All of these another who has gotten past the startup things reduce risk and provide superior phase and it may be cash and/or profit, and enterprise value. ask a stockholder of a public company and it Risk is an important factor to consider when will probably be profit. They are all correct you think about enterprise value. All of course, but the real value in any non- valuation experts use a risk factor to public company isn’t just growth, profit and determine a company’s value. As the owner cash. It is much more. and/or CEO of your company, part of your Value is not a here and now measure of how job and obligation to your owners is to much cash the company has available or the minimize risk as much as possible. Making profit it made last quarter. It is a long-term sure your company has adequate business metric that is measurable and changeable. It systems, processes and structure will go a is the most important measure of any long way toward minimizing internal risk. company, private or public. It is a measure This is a topic in itself which I will address of sustainability and transferability. in a future blog. Ultimately it is how much your company At Chairman’s View we have two can sell for on the open market. At any presentations we call “The Story of Value” given time, what would someone be willing and “Building an “A”. In both cases we talk to pay for the enterprise as it exists today. about the meaning of value for private You should be aware of this value whether companies and concentrate heavily on how or not you are planning to sell or transfer important sustainability and transferability your business today, tomorrow or twenty are to building a valuable company. years from now. Because it is so important to you, your strategies must start with how Sustainability is a very important concept to increase this value. for making a valuable company. Outside investors won’t pay much for a company if For a private company, real value is they can’t see or understand how an sustainable and transferable profitability. enterprise can continue to grow revenue and For public companies, sustainable and profitability. Likewise, they need to feel transferable are given as the enterprise is comfortable the business can survive generally transparent and value is reflected without you the owner/CEO. If you are the in real time through the enterprise’s stock “octopus” (see my article “Are You an price. Private companies do not always see Octopus?”), haven’t done anything to groom value in this light but should consider and a competent management team, all processes understand the implications of avoiding or are in peoples’ heads or are “custom” for ignoring these two key factors. The most each transaction or action; you don’t have a valuable private companies generally transferable business and are at risk of not conduct themselves in the same manner as 10 Larkspur Road, East Greenwich, RI 02818 401-451-9799 www.boardroomadvisorygroup.com
    • having a sustainable business. As a result, only one of them is right and you haven’t there is higher risk and thus a lower talked to any or all of them? What if the valuation than a similar business/competitor “wrong” one emerges as that successor in that does have these internal characteristics the aftermath? If this is a family business, in place. will this event tear apart your family? Clearly there are many alternatives and These concepts hold true regardless of conclusions to this story. But from a where you are in your business lifecycle. business standpoint the ending is clear. The The best time to be working on long-term company will be worth less and may not value is all the time. Clearly the longer time survive because sustainability and horizon you have before you plan to exit transferability were not addressed. your business the more value (and less risk) you can build. Having a lot of time It is clear to see how sustainability and (meaning multiple years) provides the transferability are important cornerstones to flexibility to work on this in smaller bites. all businesses. With a public company Regardless of your timeline, a sense of sustainability and transferability is taken for urgency should be in place to get it done as granted. It is part of the stock price of all quickly as possible. public companies. Private companies who can be considered “A” companies have also Think about what would happen to your addressed these important tenets of control. business if something were to happen to you But unfortunately, many private companies today to remove you from the business have not and could suffer when a transfer of suddenly and permanently. Could it control becomes necessary for whatever survive? Is there someone in place who reason. And with the “retirement boom” of could step in and provide the leadership to at aging baby boomer owners currently least sustain the business? Is there someone underway, business transitions and pressure who can provide the vision and leadership on business valuations are only going to needed to make the business thrive? Are increase. Start getting ready now. there multiple people (children) who think they are that heir apparent, but you know To comment on this or other topics important to private business owners, access my blog at www.boardroomadvisorygroup.com. About the author; Tom is a Principal of Boardroom Advisory Group, LLC, an owner advisory and consulting firm. Tom serves on the Board of Directors for the RI Economic Development Corp’s Small Business Loan Fund Corporation (SBLFC), the finance arm of the RI EDC. He writes a monthly article for the RI EDC’s Every Company Counts initiative. His articles focus on areas that can add significant value for business owners. Contact Tom directly at 401-451-9799 or tstocker@boardroomadvisorygroup.com. Boardroom Advisory Group, LLC is a business advisory and consulting firm specializing in helping business owners resolve day-to-day systemic issues that interfere with cash flow and profitability attainment. The Firm works with both growing and underperforming small to mid-market private companies. The Firm’s team of hands-on senior professionals find and implement solutions to improve top-line and bottom-line growth, increase cash flow, reduce costs, improve process, structure, and use world-class metrics to keep the business on track. The team also has extensive experience working with troubled companies through business restructures and recapitalization. Boardroom Advisory Group’s core focus on developing strategies to drive and measure performance has resulted in a history of sustainable top and bottom line growth, healthy cash flow and increased company value for their clients. For more information about how we can help you build a more valuable business visit our website at www.boardroomadvisorygroup.com. ©2008-09 Boardroom Advisory Group, LLC All Rights Reserved. No part of this document may be reproduced without the express permission of the author. All registered trademarks mentioned in this document are the property of their respective owners. Additional articles written by Mr. Stocker include: Start Forecasting Now! What is Value? I’m Out of Compliance. Now What? Do You Have Contingency Plans? Are you in a Foxhole? Have You Thought About Your Future Lately? Are You an Octopus? Metrics Should Be Everywhere (Part I)
    • Metrics Should Be Everywhere (Part II) It’s All About Growth These articles can be accessed at www.boardroomadvisorygroup.com/pages/pubs.php. You can also request to be added to his email list to receive his latest articles on a monthly basis on the Company website. Contact Tom at tstocker@boardroomadvisorygroup.com.
    • What is Value? by R. Thomas Stocker Value means different things to different public companies. They have a board of business owners. If you ask an owner just directors and/or a board of advisors, a clear starting up their business the answer may be succession plan, easily understood structure revenue growth or available cash. Ask and documented processes. All of these another who has gotten past the startup things reduce risk and provide superior phase and it may be cash and/or profit, and enterprise value. ask a stockholder of a public company and it Risk is an important factor to consider when will probably be profit. They are all correct you think about enterprise value. All of course, but the real value in any non- valuation experts use a risk factor to public company isn’t just growth, profit and determine a company’s value. As the owner cash. It is much more. and/or CEO of your company, part of your Value is not a here and now measure of how job and obligation to your owners is to much cash the company has available or the minimize risk as much as possible. Making profit it made last quarter. It is a long-term sure your company has adequate business metric that is measurable and changeable. It systems, processes and structure will go a is the most important measure of any long way toward minimizing internal risk. company, private or public. It is a measure This is a topic in itself which I will address of sustainability and transferability. in a future blog. Ultimately it is how much your company At Chairman’s View we have two can sell for on the open market. At any presentations we call “The Story of Value” given time, what would someone be willing and “Building an “A”. In both cases we talk to pay for the enterprise as it exists today. about the meaning of value for private You should be aware of this value whether companies and concentrate heavily on how or not you are planning to sell or transfer important sustainability and transferability your business today, tomorrow or twenty are to building a valuable company. years from now. Because it is so important to you, your strategies must start with how Sustainability is a very important concept to increase this value. for making a valuable company. Outside investors won’t pay much for a company if For a private company, real value is they can’t see or understand how an sustainable and transferable profitability. enterprise can continue to grow revenue and For public companies, sustainable and profitability. Likewise, they need to feel transferable are given as the enterprise is comfortable the business can survive generally transparent and value is reflected without you the owner/CEO. If you are the in real time through the enterprise’s stock “octopus” (see my article “Are You an price. Private companies do not always see Octopus?”), haven’t done anything to groom value in this light but should consider and a competent management team, all processes understand the implications of avoiding or are in peoples’ heads or are “custom” for ignoring these two key factors. The most each transaction or action; you don’t have a valuable private companies generally transferable business and are at risk of not conduct themselves in the same manner as 10 Larkspur Road, East Greenwich, RI 02818 401-451-9799 www.boardroomadvisorygroup.com
    • having a sustainable business. As a result, only one of them is right and you haven’t there is higher risk and thus a lower talked to any or all of them? What if the valuation than a similar business/competitor “wrong” one emerges as that successor in that does have these internal characteristics the aftermath? If this is a family business, in place. will this event tear apart your family? Clearly there are many alternatives and These concepts hold true regardless of conclusions to this story. But from a where you are in your business lifecycle. business standpoint the ending is clear. The The best time to be working on long-term company will be worth less and may not value is all the time. Clearly the longer time survive because sustainability and horizon you have before you plan to exit transferability were not addressed. your business the more value (and less risk) you can build. Having a lot of time It is clear to see how sustainability and (meaning multiple years) provides the transferability are important cornerstones to flexibility to work on this in smaller bites. all businesses. With a public company Regardless of your timeline, a sense of sustainability and transferability is taken for urgency should be in place to get it done as granted. It is part of the stock price of all quickly as possible. public companies. Private companies who can be considered “A” companies have also Think about what would happen to your addressed these important tenets of control. business if something were to happen to you But unfortunately, many private companies today to remove you from the business have not and could suffer when a transfer of suddenly and permanently. Could it control becomes necessary for whatever survive? Is there someone in place who reason. And with the “retirement boom” of could step in and provide the leadership to at aging baby boomer owners currently least sustain the business? Is there someone underway, business transitions and pressure who can provide the vision and leadership on business valuations are only going to needed to make the business thrive? Are increase. Start getting ready now. there multiple people (children) who think they are that heir apparent, but you know To comment on this or other topics important to private business owners, access my blog at www.boardroomadvisorygroup.com. About the author; Tom is a Principal of Boardroom Advisory Group, LLC, an owner advisory and consulting firm. Tom serves on the Board of Directors for the RI Economic Development Corp’s Small Business Loan Fund Corporation (SBLFC), the finance arm of the RI EDC. He writes a monthly article for the RI EDC’s Every Company Counts initiative. His articles focus on areas that can add significant value for business owners. Contact Tom directly at 401-451-9799 or tstocker@boardroomadvisorygroup.com. Boardroom Advisory Group, LLC is a business advisory and consulting firm specializing in helping business owners resolve day-to-day systemic issues that interfere with cash flow and profitability attainment. The Firm works with both growing and underperforming small to mid-market private companies. The Firm’s team of hands-on senior professionals find and implement solutions to improve top-line and bottom-line growth, increase cash flow, reduce costs, improve process, structure, and use world-class metrics to keep the business on track. The team also has extensive experience working with troubled companies through business restructures and recapitalization. Boardroom Advisory Group’s core focus on developing strategies to drive and measure performance has resulted in a history of sustainable top and bottom line growth, healthy cash flow and increased company value for their clients. For more information about how we can help you build a more valuable business visit our website at www.boardroomadvisorygroup.com. ©2008-09 Boardroom Advisory Group, LLC All Rights Reserved. No part of this document may be reproduced without the express permission of the author. All registered trademarks mentioned in this document are the property of their respective owners. Additional articles written by Mr. Stocker include: Start Forecasting Now! What is Value? I’m Out of Compliance. Now What? Do You Have Contingency Plans? Are you in a Foxhole? Have You Thought About Your Future Lately? Are You an Octopus? Metrics Should Be Everywhere (Part I)
    • Metrics Should Be Everywhere (Part II) It’s All About Growth These articles can be accessed at www.boardroomadvisorygroup.com/pages/pubs.php. You can also request to be added to his email list to receive his latest articles on a monthly basis on the Company website. Contact Tom at tstocker@boardroomadvisorygroup.com.
    • What is Value? by R. Thomas Stocker Value means different things to different public companies. They have a board of business owners. If you ask an owner just directors and/or a board of advisors, a clear starting up their business the answer may be succession plan, easily understood structure revenue growth or available cash. Ask and documented processes. All of these another who has gotten past the startup things reduce risk and provide superior phase and it may be cash and/or profit, and enterprise value. ask a stockholder of a public company and it Risk is an important factor to consider when will probably be profit. They are all correct you think about enterprise value. All of course, but the real value in any non- valuation experts use a risk factor to public company isn’t just growth, profit and determine a company’s value. As the owner cash. It is much more. and/or CEO of your company, part of your Value is not a here and now measure of how job and obligation to your owners is to much cash the company has available or the minimize risk as much as possible. Making profit it made last quarter. It is a long-term sure your company has adequate business metric that is measurable and changeable. It systems, processes and structure will go a is the most important measure of any long way toward minimizing internal risk. company, private or public. It is a measure This is a topic in itself which I will address of sustainability and transferability. in a future blog. Ultimately it is how much your company At Chairman’s View we have two can sell for on the open market. At any presentations we call “The Story of Value” given time, what would someone be willing and “Building an “A”. In both cases we talk to pay for the enterprise as it exists today. about the meaning of value for private You should be aware of this value whether companies and concentrate heavily on how or not you are planning to sell or transfer important sustainability and transferability your business today, tomorrow or twenty are to building a valuable company. years from now. Because it is so important to you, your strategies must start with how Sustainability is a very important concept to increase this value. for making a valuable company. Outside investors won’t pay much for a company if For a private company, real value is they can’t see or understand how an sustainable and transferable profitability. enterprise can continue to grow revenue and For public companies, sustainable and profitability. Likewise, they need to feel transferable are given as the enterprise is comfortable the business can survive generally transparent and value is reflected without you the owner/CEO. If you are the in real time through the enterprise’s stock “octopus” (see my article “Are You an price. Private companies do not always see Octopus?”), haven’t done anything to groom value in this light but should consider and a competent management team, all processes understand the implications of avoiding or are in peoples’ heads or are “custom” for ignoring these two key factors. The most each transaction or action; you don’t have a valuable private companies generally transferable business and are at risk of not conduct themselves in the same manner as 10 Larkspur Road, East Greenwich, RI 02818 401-451-9799 www.boardroomadvisorygroup.com
    • having a sustainable business. As a result, only one of them is right and you haven’t there is higher risk and thus a lower talked to any or all of them? What if the valuation than a similar business/competitor “wrong” one emerges as that successor in that does have these internal characteristics the aftermath? If this is a family business, in place. will this event tear apart your family? Clearly there are many alternatives and These concepts hold true regardless of conclusions to this story. But from a where you are in your business lifecycle. business standpoint the ending is clear. The The best time to be working on long-term company will be worth less and may not value is all the time. Clearly the longer time survive because sustainability and horizon you have before you plan to exit transferability were not addressed. your business the more value (and less risk) you can build. Having a lot of time It is clear to see how sustainability and (meaning multiple years) provides the transferability are important cornerstones to flexibility to work on this in smaller bites. all businesses. With a public company Regardless of your timeline, a sense of sustainability and transferability is taken for urgency should be in place to get it done as granted. It is part of the stock price of all quickly as possible. public companies. Private companies who can be considered “A” companies have also Think about what would happen to your addressed these important tenets of control. business if something were to happen to you But unfortunately, many private companies today to remove you from the business have not and could suffer when a transfer of suddenly and permanently. Could it control becomes necessary for whatever survive? Is there someone in place who reason. And with the “retirement boom” of could step in and provide the leadership to at aging baby boomer owners currently least sustain the business? Is there someone underway, business transitions and pressure who can provide the vision and leadership on business valuations are only going to needed to make the business thrive? Are increase. Start getting ready now. there multiple people (children) who think they are that heir apparent, but you know To comment on this or other topics important to private business owners, access my blog at www.boardroomadvisorygroup.com. About the author; Tom is a Principal of Boardroom Advisory Group, LLC, an owner advisory and consulting firm. Tom serves on the Board of Directors for the RI Economic Development Corp’s Small Business Loan Fund Corporation (SBLFC), the finance arm of the RI EDC. He writes a monthly article for the RI EDC’s Every Company Counts initiative. His articles focus on areas that can add significant value for business owners. Contact Tom directly at 401-451-9799 or tstocker@boardroomadvisorygroup.com. Boardroom Advisory Group, LLC is a business advisory and consulting firm specializing in helping business owners resolve day-to-day systemic issues that interfere with cash flow and profitability attainment. The Firm works with both growing and underperforming small to mid-market private companies. The Firm’s team of hands-on senior professionals find and implement solutions to improve top-line and bottom-line growth, increase cash flow, reduce costs, improve process, structure, and use world-class metrics to keep the business on track. The team also has extensive experience working with troubled companies through business restructures and recapitalization. Boardroom Advisory Group’s core focus on developing strategies to drive and measure performance has resulted in a history of sustainable top and bottom line growth, healthy cash flow and increased company value for their clients. For more information about how we can help you build a more valuable business visit our website at www.boardroomadvisorygroup.com. ©2008-09 Boardroom Advisory Group, LLC All Rights Reserved. No part of this document may be reproduced without the express permission of the author. All registered trademarks mentioned in this document are the property of their respective owners. Additional articles written by Mr. Stocker include: Start Forecasting Now! What is Value? I’m Out of Compliance. Now What? Do You Have Contingency Plans? Are you in a Foxhole? Have You Thought About Your Future Lately? Are You an Octopus? Metrics Should Be Everywhere (Part I)
    • Metrics Should Be Everywhere (Part II) It’s All About Growth These articles can be accessed at www.boardroomadvisorygroup.com/pages/pubs.php. You can also request to be added to his email list to receive his latest articles on a monthly basis on the Company website. Contact Tom at tstocker@boardroomadvisorygroup.com.
    • What is Value? by R. Thomas Stocker Value means different things to different public companies. They have a board of business owners. If you ask an owner just directors and/or a board of advisors, a clear starting up their business the answer may be succession plan, easily understood structure revenue growth or available cash. Ask and documented processes. All of these another who has gotten past the startup things reduce risk and provide superior phase and it may be cash and/or profit, and enterprise value. ask a stockholder of a public company and it Risk is an important factor to consider when will probably be profit. They are all correct you think about enterprise value. All of course, but the real value in any non- valuation experts use a risk factor to public company isn’t just growth, profit and determine a company’s value. As the owner cash. It is much more. and/or CEO of your company, part of your Value is not a here and now measure of how job and obligation to your owners is to much cash the company has available or the minimize risk as much as possible. Making profit it made last quarter. It is a long-term sure your company has adequate business metric that is measurable and changeable. It systems, processes and structure will go a is the most important measure of any long way toward minimizing internal risk. company, private or public. It is a measure This is a topic in itself which I will address of sustainability and transferability. in a future blog. Ultimately it is how much your company At Chairman’s View we have two can sell for on the open market. At any presentations we call “The Story of Value” given time, what would someone be willing and “Building an “A”. In both cases we talk to pay for the enterprise as it exists today. about the meaning of value for private You should be aware of this value whether companies and concentrate heavily on how or not you are planning to sell or transfer important sustainability and transferability your business today, tomorrow or twenty are to building a valuable company. years from now. Because it is so important to you, your strategies must start with how Sustainability is a very important concept to increase this value. for making a valuable company. Outside investors won’t pay much for a company if For a private company, real value is they can’t see or understand how an sustainable and transferable profitability. enterprise can continue to grow revenue and For public companies, sustainable and profitability. Likewise, they need to feel transferable are given as the enterprise is comfortable the business can survive generally transparent and value is reflected without you the owner/CEO. If you are the in real time through the enterprise’s stock “octopus” (see my article “Are You an price. Private companies do not always see Octopus?”), haven’t done anything to groom value in this light but should consider and a competent management team, all processes understand the implications of avoiding or are in peoples’ heads or are “custom” for ignoring these two key factors. The most each transaction or action; you don’t have a valuable private companies generally transferable business and are at risk of not conduct themselves in the same manner as 10 Larkspur Road, East Greenwich, RI 02818 401-451-9799 www.boardroomadvisorygroup.com
    • having a sustainable business. As a result, only one of them is right and you haven’t there is higher risk and thus a lower talked to any or all of them? What if the valuation than a similar business/competitor “wrong” one emerges as that successor in that does have these internal characteristics the aftermath? If this is a family business, in place. will this event tear apart your family? Clearly there are many alternatives and These concepts hold true regardless of conclusions to this story. But from a where you are in your business lifecycle. business standpoint the ending is clear. The The best time to be working on long-term company will be worth less and may not value is all the time. Clearly the longer time survive because sustainability and horizon you have before you plan to exit transferability were not addressed. your business the more value (and less risk) you can build. Having a lot of time It is clear to see how sustainability and (meaning multiple years) provides the transferability are important cornerstones to flexibility to work on this in smaller bites. all businesses. With a public company Regardless of your timeline, a sense of sustainability and transferability is taken for urgency should be in place to get it done as granted. It is part of the stock price of all quickly as possible. public companies. Private companies who can be considered “A” companies have also Think about what would happen to your addressed these important tenets of control. business if something were to happen to you But unfortunately, many private companies today to remove you from the business have not and could suffer when a transfer of suddenly and permanently. Could it control becomes necessary for whatever survive? Is there someone in place who reason. And with the “retirement boom” of could step in and provide the leadership to at aging baby boomer owners currently least sustain the business? Is there someone underway, business transitions and pressure who can provide the vision and leadership on business valuations are only going to needed to make the business thrive? Are increase. Start getting ready now. there multiple people (children) who think they are that heir apparent, but you know To comment on this or other topics important to private business owners, access my blog at www.boardroomadvisorygroup.com. About the author; Tom is a Principal of Boardroom Advisory Group, LLC, an owner advisory and consulting firm. Tom serves on the Board of Directors for the RI Economic Development Corp’s Small Business Loan Fund Corporation (SBLFC), the finance arm of the RI EDC. He writes a monthly article for the RI EDC’s Every Company Counts initiative. His articles focus on areas that can add significant value for business owners. Contact Tom directly at 401-451-9799 or tstocker@boardroomadvisorygroup.com. Boardroom Advisory Group, LLC is a business advisory and consulting firm specializing in helping business owners resolve day-to-day systemic issues that interfere with cash flow and profitability attainment. The Firm works with both growing and underperforming small to mid-market private companies. The Firm’s team of hands-on senior professionals find and implement solutions to improve top-line and bottom-line growth, increase cash flow, reduce costs, improve process, structure, and use world-class metrics to keep the business on track. The team also has extensive experience working with troubled companies through business restructures and recapitalization. Boardroom Advisory Group’s core focus on developing strategies to drive and measure performance has resulted in a history of sustainable top and bottom line growth, healthy cash flow and increased company value for their clients. For more information about how we can help you build a more valuable business visit our website at www.boardroomadvisorygroup.com. ©2008-09 Boardroom Advisory Group, LLC All Rights Reserved. No part of this document may be reproduced without the express permission of the author. All registered trademarks mentioned in this document are the property of their respective owners. Additional articles written by Mr. Stocker include: Start Forecasting Now! What is Value? I’m Out of Compliance. Now What? Do You Have Contingency Plans? Are you in a Foxhole? Have You Thought About Your Future Lately? Are You an Octopus? Metrics Should Be Everywhere (Part I)
    • Metrics Should Be Everywhere (Part II) It’s All About Growth These articles can be accessed at www.boardroomadvisorygroup.com/pages/pubs.php. You can also request to be added to his email list to receive his latest articles on a monthly basis on the Company website. Contact Tom at tstocker@boardroomadvisorygroup.com.