Top and bottom-line growth are two of the most important determinants of business value.

1. 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

2. 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.