Planning for Survival and Sustainability

1
Planning for Survival and Sustainability

• Developing Strategies Financial Issues

Assessing the Firms Financial Position ard
Chapter 4
2
Two Critical Questions

1. How Well Are We Actually Doing Now?
2. What Does Our Future Hold If No New Strategies
   Are Undertaken?

3
Signs of Funding the Present at the Expense of
the Future

• Declining Profitability
• Declining Productivity
• Inefficient Use of Cash
• Decline in Competitive Strength
• Decline in of Strategic Experiments
• Decline in Reinvestment in Marketing, Equipment,
  Research Training
• Declining Market Value of Company
• Declining Market Share

4
Barometers of Current Decay

• ROI Return on Investment
• Real Profitability
• Productivity
• Real Value Added
• Sustainable Growth Rate

Operating Income
Net Assets
5
Barometers of Future Problems
Assumption Money spent on the business will
ensure a brighter future and money invested
outside the business will erode its prospects!
(Ward)

• Ownership Returns Versus Business Investment
• Family Business Annuity

6
Ownership Returns Versus Business Investment
Family salaries and perquisites as a of the
total sum available for future business
opportunities (net income before taxes).
salaries and perquisites
net income before taxes

• Should be no more than 33 50 of operating
  income.

7
Family Business Annuity
How dependent is the family for its current
standard of living?

• Note the approximate worth of BIZ on open market.
  (2M)
• Consider this the endowment.

• Note rate of return the family could earn if 2M
  were invested in stock, etc. (10 ?)
• Withdrawing more than that devalues the BIZ.

8
More Barometers of Problems

• Low Debt to Equity Ratio (Debt-is-good!)
• Capital Budget less than the cash savings from
  the depreciation expense (ideal 1.5 2 times
  annual depreciation)
• Depreciation of Fixed Assets (more than half is
  below average.)
• Strategic Experiments Underway.

9
Assessing Future Prospects

• Is Your Market Share Sizeable Increasing?
• How are Competitors Doing?
• Have you Gained or Lost Accounts?
• Is your company participating in the fastest
  growing market segments?
• Are your customers and Suppliers Growing?