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Its All About Growth

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Information about Its All About Growth

Published on November 21, 2008

Author: tomstocker

Source: slideshare.net

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Top and bottom-line growth are two of the most important determinants of business value.
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It’s All About Growth by R. Thomas Stocker Without growth to its top and bottom lines, a decision plays out more often than one business will die. This fact is why one of would think. the first questions I normally ask a business When an owner decides they don’t want to owner is about the future. Where do they grow any larger and choose to preserve cash want their business to be in five years, ten rather than invest in innovation, they are years, twenty years? The answer I receive beginning a new phase of wealth and value usually depends on the lifecycle of that decline. Even to stay the same size, growth particular business. Businesses early in their must be part of their strategy. Cost cycle are all about cash. Revenue growth is reductions may not be an option, especially a given or the business will fail. As the if the business is small, and after a while, business grows and prospers, profitability even for businesses where reductions are growth is added to the mix and revenue and feasible, investment will be inevitable. But profit growth are the main drivers, but cash even with a cost reduction strategy, growth is normally still tight. But, there comes a is still a necessary strategy to preserve the time when the owner can make a choice. As business value. the business matures, revenue and profitability become more stable, cash is still Growth is important to drive the long-term king, but there is enough to sustain the value of the business. I recently attended a business, invest and still have some in Financial Executives International seminar reserve. Cash is no longer the main factor in about mergers and acquisitions. The focus business survival. This is just as dangerous was a panel discussion about the buy side of a time as earlier in the cycle. The danger is M&A. During the Q&A I asked the panel a real because growth can be compromised by question I ask fairly frequently. ‘What are the decisions of the owner. the top three to five things a business should focus on leading up to a sell strategy or to As the owner and business mature, the build long-term value?” The panelists all business model may become one of comfort agreed growth as their number one focus and lifestyle. Perhaps thoughts of an exit recommendation. I would have been begin to creep into the process. At this time surprised if any of them cited another the business comes to a crossroad. The number one focus. owner can continue to feed growth through investment, but it may affect their personal This is a very important point. In order to plans in the form of a reduction in their cash generate above average valuations, a accounts. Or, they can decide not to invest company must have a history of growth, and focus on cash preservation. especially over the previous few years. A Unfortunately for the owner and the company without this pattern will most business, should they choose the latter likely be much tougher to sell or transfer and instead of the former, wealth destruction the multiples will most likely be will begin. The business will begin to compromised. In the case of a transfer to an decline and long-term value will be owner’s children or other family members, seriously compromised. Unfortunately, this the transfer price would be equally 10 Larkspur Road, East Greenwich, RI 02818 401-451-9799 www.boardroomadvisorygroup.com

compromised, and if the transfer price is staggering. As a result, millions of artificially high, the new owner will most businesses will change ownership, control or likely be saddled with an unsustainable close. Pressure on business valuations will valuation, one that they will most likely be intense due to the sheer number of walk away from within a few years. This businesses in this situation. Unfortunately, scenario isn’t good for anyone. Not the those owners who did get comfortable will owner, their family, employees or be the most likely to close. So, my advice to community. all business owners is regardless of how long your long-term outlook is, keep growth Unfortunately for us we are entering what I as the central focus. Growth is value, and will term the “retirement boom”. It started keeping your business a valuable asset is early in 2007 with the official first good for everyone. retirement of baby boomers. Over the next ten years the number of retirements will be 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! Do You Have Contingency Plans? I’m Out of Compliance. Now What? Have You Thought About Your Future Lately? Are you in a Foxhole? Metrics Should Be Everywhere (Part I) Are You an Octopus? Metrics Should Be Everywhere (Part II) What is Value? 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.

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