Continuing the deep dive from an original by Sean Hutchinson from SVA Value Accelerators Methodology, Sean gets right down through the financial accelerator component. He covers three things about the power of the financial accelerator – financial transparency, lowering the cost of capital, and the importance of knowing when to stop funding things that are ripping economic value away from the shareholders. Sean also touches on higher valuation, explaining how to talk with a lending institution, the Feed-Starve principle, and transferability options. Ultimately, creating value can be interpreted as the wealth of the owner, but what it should be is the value it has to shareholders and the whole company.

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Financial Accelerator Methodology Detailed: Creating The Path To Higher Valuation with CEO/Partner Sean Hutchinson

Creating The Path To Higher Valuation with CEO/Partner Sean Hutchinson

We’re doing a continuation deep dive from an original podcast with Sean Hutchinson from http://buildvaluetoday.com/ (SVA Value Accelerators) Methodology. We’re going to go through the financial accelerator component.

Our Value Accelerator consists of discovery plus seven 90-day sprints. We’re talking about a two-year project. Why do we put financial acceleration toward the end? We’ve gone through decision making and culture, risk reduction and productivity, the company of the future, and sales and marketing at this point. What we’re trying to figure out in the financial accelerator is how to efficiently fund it all at the lowest cost of capital possible. Often, the financial strategy and the organizational strategy are not aligned. You can have a good foundation of strategy, a good operational foundation and a good productive, efficient process. If the financing strategies don’t line up with it, you keep running into these blockades that ultimately are not going to serve you. Financial acceleration is also importantly about creating shareholder value for the owners. Ultimately, when we talk about value creation or value acceleration, what we’re doing is accelerating shareholder value. We’re creating transferability options for the owner that they did not have before.

When you say transferability options, what that means is we have a buyer out there and the business owner wants to sell.

That would be an example of an outside transfer, but the business has to be able to transfer also to the inside if that’s the way it’s going to go. Employee ownership, management ownership, partnership, or transfer to family. Those are the four inside options. The outside options are to sell to a third party, recapitalize the business which brings in a partner that takes part of the ownership, or liquidate. When I’m talking about transferable value, I am talking about being able to efficiently transfer the ownership of the business at the highest value possible. Most businesses when we start working with them are not transferable at all. If you put a value on the business, it’s probably more of a fair market value or an IRS tax value than a true market representation. Our position is nobody would buy your business. Particularly, Mr. Owner or Mrs. Owner, if you would look at your business from the outside and say, “I don’t think I would buy that business,” then it has zero value. The IRS is happy to put a value on it, especially within your estate. They got their own valuation approach. Even if yours is not transferable, they’re going to say that it has value and they’re going to tax you on it. We are always talking about transferability and value in our work because we think that that’s the acid test. Will it transfer from one party to the other efficiently at the highest value possible?