Equity Value Enhancement

Chapter 1Value 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 ...