BUSINESS TRANSITION & VALUATION REVIEW
 August 1, 2017                     Next Issue: Tuesday, August 15
In this issue: Business Owners: Plan Now For Workplace Automation, and six commentaries on news articles relevant to
business transition/valuation.

Business Owners: Plan Now For Workplace Automation
      
Ian R. Campbell, Business Transition Counsel Inc.
In This Issue
Synopsis

Five recent McKinsey articles address "future work" in the face of ongoing technological advances. Two other articles discuss the advantages and disadvantages of "remote working", or "telecommuting". Find headlines and links to those seven articles under References at the end of this commentary.

It is incumbent on all business owners and their advisors to understand, address, and document ongoing technological advances as they increasingly seem certain to directly and indirectly impact individual businesses. This where:

1.    business owners increasingly are unable to properly strategize, organize and manage either their business or their business transition without integrating an understanding of technological advances into their business planning and forecasting processes.
2.    in some cases ongoing technological advances are likely to impact the value, and in some cases the long-term viability, of individual businesses.

Ongoing workplace automation

There are many things related to workplace automation and ongoing technological advances that business owners and their advisors need to focus and work on now. If they are already doing that they might want to consider doing it in an ever more focused and systematic way. Those things include:

1.    gaining an ever greater appreciation of what workplace automation can do in the context of their business, and perhaps in the end just as importantly what their suppliers, customers and competitors are doing by way of workplace automation development and integration and how in turn that may impact their business.
2.    developing an action plan to keep on top of workplace automation developments .....
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News Headlines, Article Links, Curation
 Ian R. Campbell, Business Transition Counsel Inc.

In the past two weeks the following articles relevant to Business Transition and Valuation have been selected from a population of approximately 5,000 articles.

Selected articles and curation comments are organized under the following headings:
Business Transition News, Business Valuation News, Technology News, Economic News, and Financial Markets News.
Please forward to a friend or colleague!

Business Transition News

The Fed's plan to start shrinking its balance sheet could have unforeseen consequences. Reading time 3 minutes, thinking time longer. Business Insider, July 17, 2017.

Comment: Why is this news commentary included under the heading "Business Transition News" and not "Economic News"? Because it is both, with a potential significant impact on business owners - and not just those in the United States.

In the past few weeks the U.S. Federal Reserve - in particular Chair Janet Yellen - has made a number of statements that have led to an expectation that it is soon to begin shrinking its balance sheet that was driven significantly higher after 2008 as a result of enormous bond purchases. The Federal Reserve currently holds a debt portfolio of $4.5 trillion (with a "t"), an amount just shy of 25% of the U.S. Federal Government's National Debt before consideration of massive unfunded liabilities.

That debt purchase policy was in combination with reducing central bank interest rates to virtually zero the two economic drivers the Federal Reserve (and other world central banks) adopted to promote post-2008 economic recovery.

To date the Federal Reserve has made four small (0.25%) interest rate hikes from its "interest rate (Federal Fund Rate) low" of 0%-0.25%, one in each of December 2015 and 2016, March 2017 and June 2017. The Federal Fund Rate now stands at 1%-1.25%.

Important question: If the Federal Reserve begins to reduce its balance sheet, why will this not have an opposite effect than seemingly did so-called "quantitative easing", and result in U.S. (and presumably world) economic decline from current levels?

Janet Yellen's term as Federal Reserve Chair ends in seven months. There is hardly certainty that President Trump will offer to extend her term if she is interested in such a thing.

Once again I suggest that because of this, and because of the "ongoing state of things in Washington" as this is written, business owners and their advisors "prepare for a major storm". No long-term harm done if a storm doesn't come. However a lot of possible harm may be in the offing for businesses that do not so prepare if a major storm indeed hits.    

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What is a Family Office. Reading time 10 minutes. Divestopedia, July 17, 2017.

Comment: This article is a transcript of an interview with Richard Wilson. Mr. Wilson is said to "create and manage single family offices for ultra-wealthy families". He is the founder of the Family Office Club that claims membership of over 1,500 families each with a "similar" net worth of - if  I have done the math correctly - $650 million. Mr. Wilson is said to position himself as "the thought leader on family offices".

Mr. Wilson's interview canvasses six topic areas.

1.    What is a family office.
2.    The different types of family offices.
3.    How to create a family office to manage your wealth and business.
4.    Benefits of a holistic wealth management solution.
5.    Importance of building a platform business expanding on your niche.
6.    How a family office can reduce chaos and stress.

I recommend this as a worthwhile read for business owners and their advisors.   

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Involving Your Management Team in a Business Sale. Reading time 5 minutes. Divestopedia, July 19, 2017.

Comment: This article is an excerpt from the book Exit: Healthy, Wealthy and Wise - A Step-By-Step Guide to Conquering Business, Personal, Family and Financial Issues available at Amazon.

The article proposes business owners ought to have ongoing discussions with non-family management and employees regarding owner transition plans. It also speaks to employee agreements and non-compete clauses - suggesting that important employees (the article mentions management and the sales team) participate in sale proceeds over a 'base amount'.

I suggest the article is worth the reading time of business owners and their advisors. However I suggest business owners and their advisors exercise great caution when contemplating the author's recommendations.

The rumor mill in any company environment has always been strong - and more so now in our "social media" world. Moreover, like many things business sales are not "over till they are over". Many employees have worrisome issues today over job security, among other things. Open or wide disclosure of transition plans might create more problems - including competitors learning in advance of a transaction - than it solves. 
Business Valuation News

No business valuation news articles are included in this issue of the Business Transition and Valuation Review.
Technology News

Construction: The next great tech transformation. Reading time 3 minutes. McKinsey & Co., July 2017.

Comment: This short McKinsey article has the following sub-title: "Mired by underdigitization and fragmentation, constructuion must find a new way to build". McKinsey claims "construction remains one of the most stagnant major industries in the world, still using many of the same methods first deployed in the 19th century", and "productivity is falling, the construction workforce is shrinking, and demand for housing continually outpaces supply".

While seemingly aimed a the house construction industry, this McKinsey article can be taken by construction company business owners and their advisors as a "call to action". McKinsey does not speak to infrastructure construction in the article. Perhaps there are significant technology applications that can be, or are being, developed that will improve productivity in that important space.   
Economic News 


Comment: The nineteen countries listed in this article range from Libya with a "breakeven price based on imports" (BIPBI) of U.S.$134. All but Nigeria are said to have a BIPBI of over U.S.$50 where this morning's price is U.S.$46.61. The list includes nine of the current 17 OPEC countries, including Saudi Arabia and Iraq - respectively in 2016 the world's #2 and #4 largest oil producers.
 
In 2016 the nineteen countries listed collectively produced over 36% of world oil production.

In 2016 the United States was the world's largest oil consumer at just under 25% of reported world oil consumption. This was just over 2% more than it consumed in 2010. In 2016 China, the world's second largest oil consumer, consumed just over 15% of reported world oil consumption. That was about 31% more than China consumed in 2010.

Considering the foregoing from 10,000 feet, one might wonder how valid oil production and consumption are as economic barometers. If they are important economic measures, one might question whether U.S. oil consumption - at least to the end of 2016 - supports or belies the U.S. Federal Reserve's and Government's continuing good news on U.S. economic recovery.

Something for business owners and their advisors to think about.

The percentages in the previous paragraphs are derived from a combination of Wikipedia and The Statistics Portal.

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Trump calls McCain a 'crusty voice in Washington' and says Republicans need his vote for the healthcare bill. Reading time 1 minute, thinking time longer. Business Insider, July 15, 2017.

Comment: It is not necessary to read this article beyond the title. One has only to get up to 1,000 feet (not 10,000 feet) to consider the Healthcare Bill issues currently before the U.S. Congress.

These issues go, at least in my view, to the heart of one important problem with the U.S. political system. Namely, that a simple majority is required to pass a Bill that has important consequences to all Americans. That system makes "king-makers" of individuals. In the case of the current Healthcare Bill one is led to believe that the entire U.S. population from the wealthiest to the poorest is dependent on the vote cast by only one man - in this case John McCain who currently (on July 18) is recovering from " brain surgery to remove a concerning blood clot - and experts think his recovery could take weeks".

Consider whether you think there is something fundamentally wrong with one person - irrespective of health and time issues - being made such a "king-maker" in a democracy. This where there can be no question that currently the United States is both a democracy and the most powerful country in the world.

Only one day later, July 18 Business Insider carried an article titled An 'unmitigated disaster for Trump': President's agenda in shambles after healthcare collapse. This article reports on two Republican Senators unexpectedly opposing the draft Healthcare Bill. I suggest that whether it was one person (John McCain), or two Senators (Mike Lee and Jerry Moran) the question of "is there something fundamentally wrong" stands open to serious consideration.

Finally, as this newsletter is published it is "old news", but very early in the morning of Friday, July 28 John McCain's "no vote" in the Senate indeed did turn out to be the deciding vote on what became the so-called "Skinny Repeal" of Obamacare. See McCain Pulls the Plug on Obamacare "Skinny Repeal" Without Replacement. Enough said.  
Financial Markets News

No financial markets news articles are included in this issue of the Business Transition and Valuation Review.
Newsletter Contributors
 
Ian R. Campbell is the principal contributor to this Newsletter. He has given business valuation and transition advice to both public and private company owners for over 40 years. Other contributors are experts in business transition or specific disciplines relevant to business transition and valuation. They take part in Q&A sessions posted on BusinessTransitionSimplified.com.
Newsletter content ('Content') does not constitute individualized business transition, valuation, economic or investment advice. The ideas, views and opinions expressed in the Content are solely those of the authors/contributors. Provided 'as is', Content may change without prior notice, may be incomplete, inexact, incorrect or jurisdictionally specific. It is used at the reader's own risk.