Equity Valuation: A Tool to Enhance Value and Mitigate Risk

Foreword xv

Preface xix

Acknowledgments xxxi

About the Author xxxiii

Author’s Vision and Challenge xxxvii

CHAPTER 1 Value ABCs 1

Capital and Risk 4

Understanding Assets 5

Plugging the Gap 7

Notes 8

CHAPTER 2 Focus on Trusted Advisors 9

The Path to Being the Best 16

Question Yourself 18

Taking It to the Next Level 19

Notes 22

CHAPTER 3 Focus on Business Owners 23

The Role of Advisors 27

The Cost of Bad Advice 28

The Value of Leveraged Knowledge 29

Engaging the Best 31

Practical Vetting Suggestions 32

Size and Scope Considerations 33

Setting Expectations 34

Note 44

CHAPTER 4 Risk in the Eye of the Beholder 45

Inexperienced Business Appraiser Lenses 47

CPA Lenses 48

Attorney Lenses 51

Investment Banker/Business Broker/Business Intermediary Lenses 52

Commercial Banker Lenses 54

Insurance Professional Lenses 55

Wealth Manager/Financial Advisor/ Fiduciary/Trust Officer Lenses 55

Research on Risk and Returns 59

Economist Lenses 60

MBA/PhD/CFA Lenses 61

Owner/Family Lenses 63

Family Business Advisor Lenses 70

Staff/Vendor Lenses 71

Client Lenses 75

Notes 80

CHAPTER 5 The Role of Governance 81

Governance 83

Focus on Culture 84

About Boards, Governance, and Strategy 85

Healthy Board Governance and Strategy Creates Value 87

Strategy and Equity Value 90

Family Harmony and Legacy as a Governance Driver 93

Board Strategic Direction and Accountability 94

Board Structure and Member Traits 95

Governance and Risk Management 97

Qualitative Value Measures 98

Taking Control 99

The Secret Sauce 101

Governance Measurements 104

Governance Takeaways 106

Notes 106

CHAPTER 6 The Role of Relationships 107

Client Relationships 112

Advisor Relationships 114

Commercial Bankers 116

Investment Bankers 116

Insurance Agents 118

Wealth Advisors 120

Board of Directors 121

The Bottom Line on “Free” Advisors 122

Accountants 122

Attorneys 126

Fractional CFO 127

Family Relationships 128

Shareholder Relationships 129

Vendor Relationships 129

Community/Legislative/Philanthropic Relationships 130

CHAPTER 7 The Role of Risk: Financial- and Legal-Oriented Risk 131

Commonly Missed Risks 137

Final Thoughts 172

Notes 174

CHAPTER 8 The Role of Risk: Operational-Related Risks 175

CHAPTER 9 The Role of Knowledge 241

A Matter of Culture 244

Healthy Knowledge 247

Be Transparent 248

Encourage Two-Way Communication 249

Knowledge and Human Capital 249

Knowledge Measures 252

Notes 253

CHAPTER 10 Valuation versus Value Creation (GRRK) 255

Software and Rules of Thumb 258

A Personal Aside 260

Collaboration, Cohesion, and Transformation 261

Notes 262

CHAPTER 11 Putting It All Together—Four Vignettes 263

Vignette One: What the 2009 Financial Crisis Can Teach Us (It’s about Relationships) 265

Vignette Two: The Trees-and-Forest Syndrome 272

Vignette Three: The Path Not Taken 275

Vignette Four: Putting It All Together (Strategy, Human Capital and Finance) 284

Recommended Reading 313

Index 317

CARL L. SHEELER, PhD, ASA, is the managing director and global group leader of family office and business strategies at Berkeley Research Group, LLC—a 900+ staff global business litigation and advisory services firm. He is also the founder of Business Valuations, Ltd./Allison Appraisals & Assessments, Inc. and co-founder of Privatus CI3O Services, LLC. He has performed more than 1,200 high-profile litigation, valuation, and restructuring engagements from midmarket to national companies. He has testified more than 170 times on matters ranging from IRS taxpayer to shareholder disputes and assisted hundreds of clients on the measurement, creation, management, and defense of more than $50 billion in values.

Carl is also a Manager of the Two Bears Ranch, LLC, formed to receive the proceeds from the sale of this book which will be used to serve combat PTSD veterans and at-risk horses and dogs. They will be healed through equine and canine therapy. Donations, grants, and ranch operation revenues will also subsidize this cause.