Equity Value Enhancement. Sheeler Carl L.

then why are we satisfied with the notion of the lowest fee for service is better? If a physician could tell you when and why you'll have a heart attack and also provide a real fix such that its occurrence would be slim to none, what would that be worth? Given that for most owners the largest asset families will have is the blood, sweat, and tears of a business and equity interest therein, then what are we doing to guarantee this most rare asset remains healthy and there's a strategy to ensure its value is enhanced, not simply preserved? Isn't preservation synonymous with defensive as well as the illusion of control and safety? If so, how, in a dynamic market, fueled by uncertainty, is the value of advisory services and equity enhanced and what is the economic impact when we don't consider and act on these factors?

      Truth be told, I would be happier than a pig in a poke if I spent my remaining days working with families, founders, owners, boards, C-suites, and their advisors turning 8-figure companies into 9- and 10-figure companies and the balance of my time on a ranch surrounded by trees, pastures, and lots of animals.

      Perhaps like the Showtime character, Ray Donovan – I'd be a “fixer” of affluent family businesses and small cap public companies adorned with jeans and a plaid shirt saying “Pay what you think I'm worth. But remember, this here ranch is a retreat for both wayward business folks and military veterans looking to find solace. One of you can afford the retreat and the other cannot.”

      This book offers sometimes subtle and other times not so much guidancethat those who are unwilling to think out of the box are doomed to remain in the box. Familiar has its merits, but the fact remains time is not static, so change is inevitable. Lead the change.

      If you didn't get value from this book, return it in new condition in 60 days with the receipt; the full purchase price will be refunded, no questions asked. If it has value, please feel free to share. All proceeds received by the author will go to a 501(c)3 which will benefit veterans with combat PTSD through the use of equine and canine therapy.

      And if you need a value opinion, GRRK or EVE advisory services, please contact at: [email protected] I'll reply when I'm unchained from my desk.

      Author's Vision and Challenge

      “Values are more than numbers.”

      The above statement would at first glance be seen in the context of finance; however, a significant opportunity and challenge exists. Owners' and advisors' human values are just as relevant, if not more so. Both constituencies seek better ways to get from here to there.

      This may be referred to as achieving liquidity to legacy, or success to significance. But where is guidance on the nonfinancial? This higher purpose, or self-actualization for Maslow's Hierarchy of Needs fans, is dear to the author. Mid-market business owners are a rare breed who dare to be great. They are the innovation and employment engine for the U.S. economy. They are the unheralded heroes who are seldom recognized in college corporate finance classes or Wall Street media. What to do when they transition from daily blocking and tackling to more time to do what they want?

      This book reflects two passions of the author: (1) provide guidance to owners and advisors to leverage human and financial capital while managing risk, and (2) provide respite for those who have served in our U.S. Armed Services – our brothers and sisters in arms. (My wife and I are both U.S. Marine veterans.)

      The stats are staggering. Up to 20 percent of those with military service, many who have been on five or more deployments, suffer from combat post-traumatic stress disorder (PTSD). PTSD is not an affliction for which a prescription drug is the simple answer. The operative word is trauma and healing can take years. The rate of unemployment, substance abuse, and homelessness is higher for those who have served. Supporting our troops is as important in peacetime as it is when they're deployed, with over 2,000,000 having served in Iraq and Afghanistan since 9/11. Every affected veteran, with care and treatment, can be the human capital that is so elemental to this book.

      All proceeds received by the author will go to a 501(c)3. The 501(c)3 will operate at the Two Bears Ranch (see websites at www.dosososranch.org or www.twobearsranch.com) in Colorado, which will be home to rehabilitated dogs and horses. Veterans in the program will benefit from equine and canine therapy. Both the animals and their military care providers will heal and prosper. In addition, residents will have the opportunity to plant and eat from organic gardens, as well as learn business and life skills for transition back to society. The 501(c)3 will be funded by donations, grants, and ranch operations. Ranch revenues will be from equestrian and pet boarding/training, executive and spiritual retreats; and several home sites with acreage will be available for sale. Crowd funding will also be sourced.

      If you order this book directly from me at www.carlsheeler.com, you may pay whatever you wish, to include making a tax-deductible donation. If you choose to purchase the book directly from Wiley Finance or from a retailer, consider supporting this cause or visiting the ranch you helped build.

Chapter 1

      Value ABCs

      Yet, knowing how to get there – to create value – still is not common knowledge. The goals of trusted advisors should include helping clients build and create value by ensuring they're aware of how to enhance their intangible assets' value and the options to do so. Advisors must also recognize owners have limited time to shepherd growth, so having a plan is insufficient. Having resources to execute the plan is what's needed. Successful business owners and their advisors already know it's not simply selling more services and products profitably.

      Let's be clear from the beginning. Tracking revenue growth and profitability oversimplifies the complexity of an operating business. Doing so fails to examine the influence of invested capital. Invested capital examines both the use and optimization of a company's assets and liabilities (debt and its leverage as well as its risk sharing attributes). Here is a simple example: If a company has reasonable growth and profitability, it does not necessarily follow that it has performed its cash, accounts receivable, or inventory management well. It also follows that if these tangible assets have not been adequately considered, then what about the intangible assets such as human capital (i.e., governance, relationships, and knowledge) where such attributes are not found on a financial statement, but clearly have a significant impact on performance and value?

      It stands to reason that most company founders understandably confuse their roles as owner-investors, officers, and employees of their companies. They may not have had the benefit of more rigorous financial training. However, what is the excuse of business advisors of all kinds who have a fiduciary duty that is greater than selling a service or product. For example, how does an owner allocate assets if she or he doesn't have a full understanding of the risks and value of one of their largest assets – the company? How does financial reporting for tax purposes help create more intangible value? How do rates and terms alone impact the overall business in order to be more competitive in its marketplace?

      Value is more than a number. The previous paragraphs ought to give pause. If value were as simple as affixing a number based on a universally accepted formula, there'd never be any disagreements between owners and the IRS, between buyers and sellers, and between any other interested parties. This is especially true for private and thinly traded public companies. The most common way to determine value is by gauging the rate of risk (return) associated with an asset's ability to generate free cash flow – and that leaves room for a lot of gray area (whose idea of risk? what period and duration of time?).

      Arguably, that is where intellectual rigor and due diligence that looks beyond financial statements and forecasts is required. Mastering operational risk identification, measurement (benchmarking), and management are musts.

      In Driving Your Company's Value: Strategic Benchmarking for Value, Michael J. Mard expresses, “Management must understand that a focus on value creation is a holistic endeavor that is constantly and consistently applied.”1

      Return on invested capital (ROIC) and strengths, weaknesses, opportunities, and threats (SWOT) analysis as well