Preface of my 2nd book “Corporate Growth & Cashflow Sustainability”
26 Sep, by
2nd Book by Michael Matthew Lee
Corporate Growth & Cashflow Sustainability
(5th Draft: Sat 23 Sept 2023)
Originally this book was supposed to have been written as one volume with cashflow sustainability topic covered in full. Subsequently, I realized that it would have taken a long time, and so I decided to split it into 2 books. The first book entitled “The Essence of Corporate Cashflow Sustainability” was launched in June 2022. This second book builds on the first.
My 40-odd years of corporate financial and operational experience at C-Suite levels at 3 main board public-listed groups in Singapore put me in good stead to write this book, largely from a practitioner’s viewpoint.
During my terms of service, I encountered huge challenges, often moving into uncharted territories, and making good and timely decisions and implementations that on hindsight contributed much to my invaluable experiences. I have painfully ridden through at least 4 local, regional, and global financial crises; 1985/6 Pan Electric saga, 1997/8 Thai baht collapse, 2007/8 US subprime crisis, 2009/10 Dubai financial crisis, among others. These have taught me how to view challenges from different lenses!
As I am a life-long learner, I studied alongside working full time. This approach saves time (almost living double lives – learning and working!) and enables me to contribute even more effectively in my “corporate clean-up” assignments. I am also blessed and grateful to have studied at my alma maters, NUS (National University of Singapore) and NUS Business School, which gave me the confidence in piercing the boundaries of accounting & finance knowledge, and to view finance and operations, not in silos, but with profound insights into their capacities for seamless interactions. The new concepts and principles promulgated in this book are testaments to that effort.
The diagram above depicts the organisation of this book. It starts off with “Corporate cashflow sustainability” as a refresher, and its importance as the foundation for corporate growth, which is the growth in a company’s sales, earnings, and total assets. Emphasizing on the 2 cashflow engines, capital structure (funding engine) and sales (cash-generating engine), the chapter teaches how these engines could be protected, enhanced, grown, and developed. It is followed up by a discussion on what can disrupt cashflow sustainability, and how the impacts of these disruptors can be managed and minimised.
As this is also a useful handbook for C-Suite Executives, a discussion on the functions and responsibilities of their respective roles is required. The discussion also extends to how a newly appointed C-Suite Executive should approach his/her first 100 days on the job.
Chapter 4 sets the stage for corporate growth by defining what it entails and describing the corporate eco-system. Corporate growth encompasses the growth in sales, earnings, and total assets. These metrics of corporate growth require the collaboration of both operations and finance departments, especially in the areas of earnings and total assets growth. While total assets growth is a definitive indicator of corporate growth, it is based on absolute figures and at best, a lagging indicator. In Chapter 10, I introduce a discussion on business valuation and explain how an indicative company valuation could be performed at each financial year-end. When 3 consecutive company valuations are performed, a trend of equity values can be established. This is the equity value growth, which is the ultimate corporate growth, not in absolute, but in value terms.
The diagram below summarises the corporate growth components and assessment leading to equity value growth.
It is critical for C-Suite Executives to understand the corporate functions and responsibilities of each component of the eco-system to fully appreciate how corporate strategy impacts them. Chapter 4 also covers an enlightening discussion on vision and mission, strategic market management, business strategy and decisions, and business portfolio design.
Chapter 5 is devoted to some common and useful management models that the C-Suite Executives and senior staff can apply. These models are carefully selected out of a large collection in various textbooks. The selected models have practical applications and how they are to be applied is illustrated. The chapter ends with an integration of these selected management models and therefore provides a clear insight of how they inter-relate and help in corporate growth activities.
In Chapter 6, organic growth is explored, and it is a topic that every C-Suite Executive must be conversant with. What we normally experience is that organic growth is given a free rein to run its course. This chapter sets out how the stages in organic growth should be executed, and how the Ansoff Matrix and Porter’s strategies are applied. It also presents the measurement tools to assess the progress and success in the organic growth effort.
For corporate growth to take the next leap, organic growth may not be sufficient. Non-organic (typically M&A) growth is needed. The common belief that an acquisition is an exchange of cash for quick profits is misdirected. In this chapter, I highlight the importance of extraction of synergies from the target, to provide long term growth for the bidder. There are at least 7 pitfalls in M&A, which are identified and discussed. Profound topics such are quantification of synergies, extent of acquisitions needed to achieve group turnover objectives, debt/equity funding considerations and their impact on WACC (Weighed Average Cost of Capital) and financial risks, and a table for negotiation preparation are also presented. I have also devised templates to enable these difficult areas to be easily understood and executed.
Chapter 9 on Framework for Corporate Planning is a crowning topic for the book. This Framework was first devised by me in the early 1990s and has since undergone a few enhancements. For corporate growth to succeed, not only must we have Cashflow Sustainability, but we must also have a Corporate Planning Framework to guide us. The chapter highlights the key stages in corporate planning and growth and how the knowledge gathered from the previous chapters can be effectively applied.
Business valuation is presented in Chapter 10. The company needs to conduct a company valuation to know how well it has performed in terms of shareholder value.
A company valuation should be measured/computed at each year end to assess whether corporate growth is on the right track. The discussions on business valuation in this chapter will only provide an indicative company value, which is sufficient for a quick assessment. A professional valuation may be needed at some point and a professional valuer will then have to be engaged.
As ESG (Environmental, Social and Governance) implementation, disclosures, compliance, and reporting are becoming central to all businesses for risk management, a brief chapter on ESG is included to highlight that it is integral to corporate strategic planning.
In general, the discussions in this book provide a new perspective of how corporate growth could be conducted by C-Suite Executives. Undoubtedly, cashflow sustainability must be its foundation. But a well-designed Framework for Corporate Planning must be the necessary guide for the C-Suite Executives to achieve greater success in the corporate growth journey ahead!
Michael M Lee
Founder & Director
The CFO Desk Pte Ltd