Business Value Beyond Cash Flow

June, 2022
Bob Vinson

Standard valuation approaches used by M&A practitioners in valuing non-traded companies depend very heavily upon various manipulations of various measures of the amount and rate of cash thrown off by the enterprise. Measures such as EBITDA, owners’ incomes, annual revenue, and others are essentially measures of cash flow.
However, looking at records of past business sales, we can find many cases where businesses with very similar levels of cash flow, whatever the measure, sell for significantly different prices.
What accounts for these discrepancies?

The Network Enterprise

July, 2022
Bob Vinson

Since the successful conclusion of the United States Army’s participation in World War II, the reigning vision of a successful business enterprise has been that of a command and control structure managed from the top and consisting of a homogenized group of dedicated workers with a common mission and set of objectives motivated by the desire to advance each unit’s and worker’s success and prestige within the enterprise. The enterprise owned and directed most of the resources required to produce a particular set of products meant to address a defined market. The various segments of the productive apparatus; workers, assets, knowledge were located contiguously and contemporaneously and had a common clear path of authority and responsibility.

In this world, lines of communication are largely internal under direct control of the command structure. In the past communication methods available largely determined such an organization – word of mouth, written memos and other documents, letters, fax, demanded proximity and organizational and cultural consistency for successful delivery, comprehension and execution

However, we now have a completely different set of communication and control options with the development since the 80’s of the internet and all the options that it enables – especially its world-wide and instantaneous nature.

What is a Business?

Bob Vinson
November, 2022

What IS a business?  We all know what a business is; or do we?  Is a non-profit a business?  Is a charity a business?  Is a government agency a business?  I would say yes to all of those.

A business is a collaboration intended to produce value in the face of risk.

Very straight forward, yes?  No.  The problem is, what is valuable?  Who determines value?