Whether your plan is to eventually sell your business or keep it for the long term, shareholder value maximization is a key imperative!
In a nutshell, value is the present worth of all future cash flows generated by a business. To calculate value, estimate future cash flows (easier said than done!) and apply an appropriate discount rate commensurate with the risk of the business (the more the risk the higher the discount rate). By definition then, you create value by growing and sustaining cash flows and/or reducing the risk associated with realizing those cash flows.
Growing and sustaining cash flows involves great strategy and even better execution! A quality product or service with competitive advantage and relevant market share, delivered consistently to customers by motivated and engaged employees whose interests are aligned with those of the company.
A big element of risk reduction is building a solid management team that will minimize “personal goodwill” associated with a few key owners. Reliance on a few key products, a few key customers or geographic concentration can also add to the risk of the business. As an owner of a small or mid-size business you will have to find the right balance between staying focused and mitigating risk through diversification.
To break through the growth ceiling you will need strong Management Information Systems to give you timely and relevant information to run your business. As your business grows, you may also need to “up-size” your professional advisors and financiers.
In addition to the normal licenses and permits you need to operate, you must now have a “social license” to operate. This involves doing all the right things to ensure that your employees, customers, suppliers, investors and the community at large view your company as a good corporate citizen.
Whether setting strategy, running your business day to day or making an investment decision, be sure to ask – “Will this enhance the long term value of my company?”
Aroon Sequeira is the president of Sequeira Partners Inc., a Western Canadian firm specializing in corporate finance for large private and mid-cap public energy, industrial and resource based service companies. Over the last 25 years Aroon has advised on 100+ transactions involving clients and counter parties in Canada, the United States, and Globally. Read more about Aroon and Sequeira Partners Inc. at www.sequeirapartners.com.
- Getting To Your End Game by Creating Extraordinary Sustainable Value (tec-canada.com/resources-events)
- 7 Ways to Keep Cash Flowing (openforum.com)