A Holistic Approach to Owner Management Part III
I noted in the original article that capital allocation decisions are primarily to the benefit of optimizing equity value (versus enterprise value or the net proceeds after transition). In business school, often times corporate finance courses go into detail about capital allocation theory. For public companies (or large private companies), optimal capital structure is an important part of their corporate finance function. However, for SMEs capital allocation is rarely optimal (nor achievable) and for many owners, not even on their radar. This article provides a high-level summary of:
- What is capital allocation?
- Why would an SME owner interested in growth with an exit in mind care about it?
- The pros and cons of various sources of funds.