W&F Issue 12 2018

www.wealthandfinance-news.com 22 Wealth & Finance International - Issue 12 - 2018 You need these guys … to increase cash flow, provide guidance, contacts, and credibility. Companies committed to going through significant business change (turnaround, transition, generational ownership transfer), anticipating a major liquidity event, need guidance. Why add outsiders to your board of directors or advisors? 1) Outside directors often increase cash flow and business growth. According to a Forbes/ Lodestone Global survey; 97% of companies reporting increased revenues and EBITDA, since adding a board with outside directors. 2) Outside directors can be a low-risk, low-cost resource. They bring a new set of skills and ideas to produce benefits, while you maintain control. 3) Outside directors provide an external source of accountability. 4) Outside directors are on your side. These advisors answer only to you. 5) Outside directors add credibility. When it comes time for a liquidity seeking event, outside directors send the message that you are an organization with leadership and guidance. Outside directors bring skillsets often absent in companies, so the outside influence should be used to your benefit. Day-to-day events can distract a CEO. Outside advisors provide a sounding board to ground the CEO in real leadership duties. Typically, a board will focus on protecting the unique value of the company, but they often add much more. The CEO needs unbiased advice and diversity of opinions from outside directors who can view things from a distance and a different perspective. The CEO will be well served by adding board members who can challenge them and the decisions that they are about to make. Hire board members who are not afraid to offer advice, guidance, feedback, and argument on issues. Employee board members may be in fear of speaking up. Board members can mediate disputes. Strategic Thinking & Planning Outside directors should challenge and contribute to strategy development and implementation. They can be particularly adept at guiding the company into new markets, or changing directions when trouble occurs. Because these outsiders have experienced these situations before, they can certainly guide you to success with less trepidation. Once strategy is set, communicate that message for all stakeholders to provide guidance. Which generic customer needs will be satisfied? Why will they buy? Why will they buy from you? Differentiate yourself. There is nothing quite so effective as designing compensation and incentive plans that are paid out when goals are met, but, don’t pay for non-performance. Incentive-based management is extremely effective. Experience & Objectivity The nature of growth implies that a company is going where it has not been before. Make that journey to new opportunities with the help of an objective advisor who has been there and done that before. Understand the idiosyncrasies of the new market: doing business with the federal government is quite different than doing business in commercial and international markets. Sell products and services to customers in the way that they want to be sold to. When independent observers scrutinize management performance meeting goals and objectives, and monitoring results compared to long term valuation goals there is real value in their participation. Contacts Your contact book can’t include everyone. Every company needs help when it wants to grow, prosper, or turn around. Outside directors can extend the company’s reach by using their own contact network, colleagues that can get involved to provide guidance and resources. Rely on these introductions to bring in new capital, customers, and suppliers. Negotiate strategic teaming relationships to promote growth. Contacts can be influential in bringing resources not previously available. Change! Break the Status Quo. Rejuvenate. Article by John M. Collard, Chairman of Strategic Management Partners, Inc. Why Hire Outside Directors When Private Companies Don’t Have To? Capital Infusion Outside directors often have a database of contacts who can supply capital, in the form of equity and/or debt. Some have more extensive and higher quality databases than others. You can get in front of many financing resources quickly once an expression of interest package is ready. The key is to document the plan describing where you want to go, why you will succeed, and returns for investors. Put that in summary and detail form, describe assumptions and risks, and present return projections. Present your opportunity in terms the investor wants to see —your company is the product. Investors are in this for returns on their investment. Begin this process early so that you are prepared when the time comes. Consider a 2 page (executive introduction), 10 page (present the deal opportunity), list of due diligence (details) available, and operating plan approach, to step potential interested parties through the process. Send the introduction to 100s or 1,000s of potential investors. An outside director, as part of the company, can be a Finder to introduce you to investors and / or lenders and guide the process – you then negotiate a deal that you can live with. There is money available, just be the ‘good deal.’ Transactions Outside directors also have investor contacts who have deals for acquisition and who are looking for opportunities to buy. You can get in front of M&A dealmakers quickly once an offering package is ready. Prepare for that future liquidity event. The best time to sell a company is when a buyer wants to buy and has cash, which could come when you least expect it. Be prepared and work toward ultimate valuation throughout the process of growth. Buyers don’t pay for past sins. Outside directors are adept at introductions or negotiating deals, which elevates you to the decision-making role. Hire that outside director.

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