Hardwired for Value: How Strategic Capital Structure Shapes the Future of Your Family Enterprise

Welcome to Legacy Builders, strategies for building successful family enterprises. Brought to you by Beacon Family Office at Assante Financial Management Limited. I’m your host, Cory Gagnon, Senior Wealth Advisor. And on this show, we explore global ideas, concepts, and models that help family enterprises better navigate the complexities of family wealth.

Today, we welcome Gerard McInnis, Senior Partner at Kalos Transactions Advisory and Chair of both the MacKay CEO Forum and Cashco Financial Services Inc. Gerard brings over three decades of experience in valuation, strategy, governance, and operations. As a private company board Chair and Director, he stays immersed in current business challenges. Previously, Gerard was a partner with a Big 4 accounting firm, leading their regional valuations practice and serving on the firm’s Partnership Board. Gerard has chaired Finance & Risk committees for the Alberta Ballet and Junior Achievement of Canada, and currently serves on the Institute of Corporate Directors Calgary Chapter Executive. His unique combination of transaction expertise and governance leadership makes him an invaluable voice in today’s complex business landscape.

My goal is to be the most curious person in today’s conversation with Gerard McInnis, where we explore his wealth of experience in guiding businesses through valuation challenges and strategic growth opportunities. We’ll discuss how Gerard’s pioneering work in applying valuation principles has led him to reimagine the role of advisors, focusing on fostering value creation and strategic alignment across organizations. Together, we’ll uncover how Gerard helps businesses cultivate the discipline, foresight and governance frameworks needed to successfully navigate the complexities of capital structure optimization and exit planning. 

Now let’s dive in!

Cory: Welcome, Gerard. We’re excited to have you here today to share your wealth of knowledge and experiences with us. Let’s dive in, shall we?

Gerard: Yeah. I look forward to it, Cory.

Cory: Now, imagine you’re delivering the commencement speech to the graduating class of 2025, and you have the chance to inspire them with your story. How would you begin your speech to convey the incredible lessons and expertise that you’ve gained along your career?

Gerard: Yeah. There’s actually probably four things that come to mind for me, and maybe I’ll just mention them and we could touch back on each of them. I’ll start by saying embrace change. You know, own your destiny. “Make your own opportunities” is how I would want to frame that. Commit to lifelong learning. And, most importantly, I think enjoy what you do. So, if you’d like, I can maybe touch on each of those, like change and disruption are constants in our life.

You can fight it, or you can go with it. I think equally important is if you recognize that change is all around us, how do you equip yourself for change and take advantage of change opportunities, which really is the second point that I said, make your own opportunities. It’s something I go through life with, which, you know, I’ve always observed.

I said, you can kind of put people when I’m generalizing here, but you kind of put people into three buckets. People that make things happen, people that watch things happen, and people that don’t even realize something happened. And from a career management perspective, as I look back, I was someone who always kind of created my own opportunities. And each of these points you’re going to see build on each other.

My third thing I said there was to commit to lifelong learning. Be intellectually curious, read a lot, listen to podcasts like this, and thank you for inviting me today. But that commitment to lifelong learning keeps your mind open, that you anticipate change and really is a demonstration of staying current and creating your own opportunities.

So, again, as I say, these things all build on each other, And enjoy what you do. I’m fortunate now, I guess, where I am in my career, you have a little bit more flexibility. But I think I’ve always kind of lived my professional life this way that if it feels like work, it likely is work. And, you know, right now, I kind of have this saying in my life that’s saying it feels like work. I don’t want to do it. I know that sounds kind of crass, but the reality is if you really truly enjoy what you’re doing, it’s not going to feel like work.

Cory: I love that because so often, people go through life struggling and feeling like they need to do it. And if it doesn’t feel hard, then they must not be doing it right. And finding that place is so important where you can be rewarded for your efforts, and your efforts are actually enjoyable.

Gerard: Exactly. And I don’t mean to imply that it won’t be hard. Challenging yourself is part of it, but having that predisposition to embrace that and take on the challenges, put yourself in uncomfortable situations at times. As you look back later in life, you’ll look back on those, and those will be the moments you remember.

Cory: Right!. And so, through your career, you talk about equipping for change and some of those uncomfortable positions. Where would you say would be the most memorable where you said, “I took this leap and really that change made a difference.”

Gerard: Thanks for asking that. This could be the subject of a whole other podcast, but I started in a call it a traditional path of becoming a chartered accountant, you know, graduate from university, become a CA. Although, I did make a life change quite early in my career. I’m dating myself, but this was pre-internet days. So I go down to New Zealand, at that time, it was a big move. But I did stay in professional services for the first eleven years of my career. My big step out was to leave the accounting profession and go into industry. And I went into a role with a for-profit education company. So that was probably my biggest step out. I was at a point in my career where I was on track to be a partner. At the time it was a big aid accounting firm. It was starting to feel too comfortable for me already, and then I’m still fairly young in my career.

So it was a big step out for me. I valued a company that was going public. They asked me to join their management team, and I did. And that led to the next seven, almost eight years of my life. Lots of up and down, lots of learning, moved out of finance. I actually took operations roles. I relocated to Denver where I got to live and work for a couple years. Unfortunately, that story from a corporate perspective didn’t didn’t end well, but I took tons away from it again personally and professionally.

Cory: You made a comment about getting comfortable, being on that partner track. When you look at some of the businesses that you work with, and some of those families, where have they gotten comfortable? Or where do you see some of that comfort start to set in and maybe become a negative that they didn’t really realize?

Gerard: You know  I put my evaluator hat on and, you know, I’ll often go in when I go in to meet folks for the first time and talk about their business. I want to engage in a conversation around their strategy. And when I start to discuss strategy with them and they answer by what they do today, then I see a level of comfort that has set in, if that makes sense. So they don’t talk about their organizational purpose. I say if they don’t talk about their purpose, if they don’t talk about what problems they solve, if they don’t talk about how they consciously, strategically position themselves for competitive advantage, these are all signs to me that they’re comfortable in what they’re doing today, and not maybe really having that foresight and perspective for, not only how their business might be disrupted, because that sounds negative, but where the opportunities are to to evolve the business. So it’s a long way of saying, I see comfort set in when you kind of just keep doing what you’re doing, keep trucking on, and thinking that that’s going to carry on that way forever.

Cory: And relating that back to the three types of people, those that are are making things happen. When you look at strategy, where is that balance of what you’re doing today and what you’re doing in the future? Because some people forget that they’re solving a problem today, and they’re focused on something that maybe hasn’t made money or isn’t making money yet. So how do you look at that when it comes to valuation as well?

Gerard: Again, it might be the perspective that I have on strategy. At the high level, it creates the guardrails and the direction for the organization. And we’ll probably touch on a little later on the importance of alignment because I really think it ties to that as well. But strategy cascades down into your actual strategic planning, into your strategic objectives, which actually feed into business planning, ultimately turns into KPIs and performance measures, personal performance measures. So if you follow that cascade, and this happens sometimes in an entrepreneurial environment where maybe you’re making change too fast and it’s almost like being on a boat and you’re starting to get a little seasick or dizzy because it’s bouncing around too much.

If you follow that cascade the way I outlined it, the closer you get down to the work that has to be done today, it’s still fairly stable. If you know what you have to do, you know how you’re being measured, you know what’s still important today. But you can see how everything connects up to the bigger strategy. Strategies are always evolving, but the day to day activities should, there’s a certain constant instability that you can expect there.

Cory: As you’re explaining this, I’m thinking about, typically, people think of valuation as something that’s an ownership problem or objective. And what you’re talking about is how it now relates to management discussions. And so, some of the things that I’ve heard from people in the past is it’s quite expensive to get a valuation. I only would do  a valuation if I’m going to sell, or maybe the tax man needs it. But, really, what I’m hearing you say is there’s something else here where if people are understanding their strategy, there actually is a byproduct to good valuation principles.

Gerard: Hundred percent! I mean, I often get asked that question around “how do I create value in my business?” Well, if you have a clear strategy, which really does tie to a sustainable, competitive advantage, you’re building in value, hopefully, growing value in the business every day. Certainly, there are extraneous circumstances, economic conditions change, competitor conditions change, etcetera. There’s only so much that you can control, but at least control the controllable. And if you feel like you have that kind of structure in place as the shareholder or, you know, I’m looking at it from a financial value perspective. You should feel pretty confident every day that if people are executing on the plan, and the plan is aligned to the strategy, then they’re helping grow value in your business every day.

And you touched on the cost. I actually think as a profession, valuation services are good value, pardon the pun. But to learn the the principles of valuation, the core tenets of value, honestly, you could do that in an hour of conversation, and it might just hardwire a change in your brain, a change in your thinking, to start to employ kind of valuation thinking in all of the business decisions that you make. I really think that it can be that simple in the sense.

Cory: And that investment in that advice, being able to think long term, and just even that multiple of your investment, if you start today, and it’s something that maybe starts to actually build to the bottom line today, but maybe it doesn’t. Maybe it’s three years from now where you really start to see that pay off. I can only imagine what sort of return on investment you could see by understanding some of these principles.

Gerard: Hundred percent! And, again, in a family business, family enterprise perspective, and really every type of business, to be honest, I think you should always have an exit plan in mind. Or at least build the business and think about growing value in your business from the same perspective as exit planning.

And often what we find in owner managed businesses is they don’t embrace that thinking, or they don’t take the opportunity to embrace that thinking maybe sooner than they could. You’re familiar with the concepts of personal goodwill. But how do you start to transition that into corporate goodwill? By building robust business practice, documenting procedures, transferring knowledge to key employees, diversifying your revenue base, diversify your customer base, etcetera. These are all steps you can start to take. I can tell you as a fact, each one of those things I mentioned increased value in the business.

Cory: Right! And somebody who maybe traditionally, let’s say we’re was trained by their accountant to look at the financial statements that are produced every year, and they’re looking at those financial statements. How different does their thinking need to become? They’ve now really gotten good at understanding that profit and loss, that balance sheet. They’ve always measured their progress based on the balance sheet. And now we’re turning things a little bit different. So how much of a change is that? And what can they do to maybe look at that in a similar fashion where they’ve got that cadence of review to say, are we making that progress?

Gerard: Great question! Again, I look at a financial statement differently because as evaluator, it tells me a story, and I think it really should tell any user of the financial statement a story, or at least should lead you to a series of questions that you’d want to understand from what you’re observing. Trends in revenue or inconsistent revenue year over year tells me something about the resilience of the business. Same with the same with margins. You can see whether capital was being reinvested in the business or not by looking at investments in capital assets, or dividends and retained earnings being stripped out. What does that tell you? I immediately look to the capital structure.

Capital structure more so than probably anything impacts on value. And we could touch on that a bit more. But I’m a big fan of appropriate use of debt, you know, having appropriate leverage in your business, which I find is an interesting concept in the private enterprise space where often there’s a debt aversion. People just associate risk with having debt in the business, and there is. But that is also the lowest cost of financing. And shareholder equity, common shareholder equity is the highest cost of financing. So even just trying to get that concept understood, if there’s lower cost of financing available because the asset base accommodates that, then I’m a fan of taking advantage of that leverage.Those are just a few examples. When I look at a financial statement, I’m trying to see what are the questions it tells me around the resilience of the business, the trend, the capital structure, and how the business is financed.

Cory: So one of the things that you mentioned at the beginning Gerard, you said keep your mind open and stay current. And I wanna bring that and from a personal perspective, as a leader, I think that there’s a tremendous amount of value in that. And then I think about what you just said about reinvestment in the business. And that’s a concept of staying current. You can strip out, as you said, all of those retained earnings, not be reinvesting, and start to see that business dwindle. And so what is that? And, of course, every business is unique, but what would be appropriate, or could you give some examples where you say, this really has taken the valuation down because they’ve been stripping it of capital for a period of time.

Gerard: I guess it depends on the nature of the business too. And then that’s one of the other things that when I’m looking at a financial statement, I can quickly understand the business model, to be honest, by understanding, by looking at the balance sheet, and having an understanding of what kind of business they operate in.

So capital intensive businesses, say you have a truck fleet, manufacturing equipment or, arguably, even real estate, but it’s something that’s capital backed. It’s a lot easier to look at it and see what the historical CapEx spend has been, whether they’re growing the fleet. And if it’s a fleet based business, then you know, or most capital intensive business, there’s some type of utilization factor you can start to monitor to see whether or not, you know, has utilization been going up such that they’ve had to increase the availability of capital assets? Those are signs of growth.

Conversely, if the fleet’s decreasing, or utilization is going down and they deferred maintenance on equipment, then you could see that the purchase of new equipment has been decreasing, that’s a sign. I mean, these are all just telling you the story of what’s going on in the business. And quite clearly, that story is being told in their financial statements. Now that’s historical. I mean, those financial statements, by the time you’re looking at them are, you know, I’ll look to the past. One of my favorite valuation expressions is, you know, history is interesting, but not always relevant. It’s just leading you to the question that you might want to ask.

Cory: And touching on that, that history might not be relevant. What would be some examples where the financial statements really aren’t indicative of a valuation because maybe the world’s changed. Where are some of those changes?

Gerard: In diligence work that we do, you know, here at our firm, Michaelos, in any valuation assignment, actually, you’re going to hear the expression of normalizing earnings. So when you look back through, say, five years of financials for any business, there’s a series of normalizing adjustments. That might be an extraordinary contract. Let’s say you’re supplying one of the major pipeline development projects. Those projects have finite life. Or, you provide safety services to industrial plant sites, and they schedule turnarounds. You can forecast that there’s three turnarounds coming this year, and you’re going to have great revenue. If those sectors get impacted due to political or economic circumstances that that cause some uncertainty or slowdown in those industries, then maybe some of those activities that they’re going to take on, like the turnaround, for example, or a pipeline expansion, for example, they might just get deferred or put on hold or maybe never come to fruition at all.

So you look at a company that’s done really well for a couple years because they’re servicing a major construction project or what have you. And then all of a sudden things flatten out because that was that one big project, and we didn’t didn’t get another one to replace it, for example. It could be a little black swan event, if that’s what you want to call COVID, for example. Those ones are a little bit more apparent in terms of the need to normalize. Things were going really well. You’re down in the ditch for a couple years, but you’ve seen how it recovers. That’s actually quite informative to evaluate because it does show resilience. It shows the ability that you’re able to live through the trough and come back out, and now you’re back running again. But any time you look back through historical financial statements, you’re trying to understand what’s the story that needs to be told here.

Cory: Thinking about the people aspect, possibly, there’s an external or non-family executive team that’s been engaged. From a valuation perspective, how important are those people and the stability of those people in their roles?

Gerard: I’d say hugely important. It kind of ties to what I mentioned earlier around exit planning. But if you have a business that’s still wholly dependent on an owner-managed, or small long-term senior management team. Anyone that’s looking to perhaps invest into that business or buy that business outright is going to look to how the contributions of those people can be replaced.

So I wanted to share, again, just to remind, that the concept of value and valuation is a prospective concept. It’s about the future, and it’s a very simple formula. You have an expectation for future cash flows, and there’s risk and uncertainty attached to those cash flows. The valuator literally goes in under both sides of that equation and says, well, what’s our expectation here of maintaining this level of business? Again, it might tie to those individuals. If there’s key individual dependence, then that goes to the other side of the equation, the risk side of the equation. If there are five key customers and there’s a lot of dependence on those customers, and maybe one or two product lines, that goes to the risk side of the equation. So say those things in the inverse. If you’ve got a really well diversified revenue base, strong, like I said earlier, customer base, you know, professional processes and Salesforce in place that had deep embedded relationships broadly across the organization. Those are all things that go to the risk rate as well, but in a positive way. Key person dependence is, obviously, a consideration of the evaluator, same as key customer dependence.

Cory: Right! Now thinking on the people side of things as well, from a board perspective, and I know you’ve done some governance work. Where does valuation play when it comes to boards, specifically private companies? I think what I have seen in the past is, on transfer of ownership, there’s a change of board. But thinking of boards and their duty to the company. What sort of things should they be looking at from what we’re talking about here?

Gerard: My experience with that is it’s often maybe not as apparent as it should be at the boardroom table. It’s indirect because every board will say they address strategy. Every board understands that strategy is ultimately a board responsibility. I’m not sure they take it far enough applying valuation concepts, valuation principles, to actually think about value creation.

And probably the biggest buzzword I’m hearing today in the context of private equity capital is value creation. So there’s a very tangible focus now. Partly because whole times for investee company, company assets, are tending to be a little longer maybe than they’d originally intended. And they’re finding they have to operate these businesses longer maybe than they had planned on. I’m not saying that value creation wasn’t part of their mantra, but, maybe from financial leverage, or some synergy capture that’s kind of a low hanging fruit. That’s traditional ways of creating value in private equity consolidation, for example. But when you actually have to start owning and operating assets for a longer period of time than you anticipated, really focusing on what we truly mean by value creation. That gets at least another layer deep into process design, optimizing processes, investment, and enabling of technologies, etcetera. And that’s what we’re seeing play out today more so than we have in the past.

Cory: Right! Now, oftentimes, in board formation, we’re looking for people who have certain expertise in areas like deploying technology. And risk is a big thing as well from boards. But if a family was looking to establish an independent board or bring some people on. Maybe there’s some family tied directors that are going to be appointed as well. What are the sort of things that they might want to be thinking about that maybe isn’t going to the director’s school and getting some of that formal knowledge. I think that this is important, for me to be thinking about valuation on an ongoing basis, and those drivers as you mentioned of not just cash flow, but also some of those risk measures.

Gerard: Not all boards are equal. I think I’ll start with that. I think there’s a whole spectrum available, from advisors that you want to surround yourself with as a business owner. And you might call that an advisory board. I like to call it more like an advisory panel. If you’re really not looking to be governed, but you’re really looking for some adjunct perspective. And then on the continuum all the way to what I’ll call a full governance board that’s executing on their full scope of fiduciary responsibility. What might be different? I think the more mature companies, so I’ll start on that other end.

The more mature companies that have a more formal governance structure and more fiduciary board, most of this I’d say all of the executive skills that they need to run that business should exist within the management team. Now you could and should supplement it maybe with board perspective. But I’ll contrast that to a private business that maybe can’t afford to have that same depth of an executive team. And that’s why I go back to more of that concept of the advisory panel where maybe they supplement the management capabilities by having some advisors that can bring in those perspectives. Or maybe those advisors are even contract, you know, fractional executives for example.

So I think the main thing is, really to pick up on your point, is to identify what are the experience gaps that we have. And I’ll look at it from a positive side, like, what are the opportunities? Like, right now, for example, if you’re not somehow enabling generative AI in your business planning, you’re probably falling behind. Now, does the board member have to be deep in AI? Maybe, maybe not. Depends on maybe the size, sophistication of the business. But someone somewhere in the talent pool should be conversant with generative AI and how it’s impacting, not only on business performance and business operations, but perhaps this goes back to the board level, how it might impact your strategy. There are businesses that could be hugely disrupted, if not fully disintermediated by these emerging technologies. And if I’m a board member that’s not bringing those conversations to the board table, then I’m not doing my job.

Cory: Absolutely! And that goes back to your point of staying current, how important that is. Where would a consultant fit in? Maybe they don’t have that talent. They know they need to be looking at this. Is that viewed as a strength of that they’ve engaged management consultants for certain subject matter expertise to to work on components of the business?

Gerard: From evaluators’ perspective, you mean? Yes, hundred percent! Again, I’m looking for a management team that demonstrates that currency that I’m looking for. Like, they understand what’s going on. And let’s say every risk can be turned on its head to opportunity. So when they go again, it goes back to my three levels of people. Who’s making it happen, who’s watching that happen, and who doesn’t know what happens.

Cory: Going back to your comment about capital structure, as you said, every every risk can be an opportunity, and your comment about debts. Oftentimes, people don’t pay attention to their capital structure. You made a comment of common shares. Oftentimes, the exposure to a preferred share in a lot of privately held businesses where family enterprises come from a succession tool. But there’s so many different things to be looking at from that perspective. Can we touch on some of that where maybe that that fearful, scary thing can actually be a significant opportunity?

Gerard: I think you’re right to touch on the creativity that can exist in your capital structure. You mentioned preferred shares. I mean, you can have multiple classes of preferred shares, without being all geeky accounting on you. What preferred share can itself have a lot of creativity. It can be participating or not. It can be voting or not. It can have dividends or not. Dividends can be cumulative or not. They can be layered, a preferred A, B, C, D. So where they sit in the, we call it the capital stack, which is really your claim on the company’s assets. So in all cases, preferred shares sit higher in the capital stack than common equity, that’s why they’re called “preferred.” Preferred charge on assets. But they would sit subordinate to higher rating collateralized debt, like your traditional line of credit, maybe an asset backed loan, etcetera. So when I see a mature capital structure, I see a business that really has been taking advantage of optimum financing and capital structures, which, again, from the value perspective, is a means towards increasing value. The most efficient capital structure aligns with being properly valued, if that makes sense.

Cory: Being exit ready, what sort of things would a buyer be looking at? You made comments of line of credit, but what about some of that debt structure? Maybe there’s certain covenants that,, Oh men! You know, the bank required this, but ahh jeez! Those terms weren’t really what’s going to allow us to be flexible, and maybe it detracts from value. Or there’s some old share structure there that needs to be cleaned up, and this becomes a detractor of value. Are there examples where you can, or am I off base on any of that?

Gerard: No, you’re right on base. That’s why I mentioned earlier, often the first normalizing adjustment that, and I’ll ask with the private equity example, would be how the capital structure would change under their ownership. So let’s say they’re buying a business that really maybe didn’t take advantage of leverage at all because of the owner or manager’s aversion to debt. A private equity or any other investor coming in that has had any kind of a risk appetite would come in and say, yeah, I’m going to lever that up. What does that do? It allows them to pull cash out, and replace it with relatively lower lower cost financing, become relative to equity.

So two things really changed. One is putting more debt in as a way of financing the business. But because often these buyers are larger and they come from syndicates or larger asset-backed pools, they can also get better rates. So not only are they able to put more debt on, leaving the business more, but they can do so or sell at even better rates.

Cory: Taking that a little bit further, what if we were talking to a family that maybe just wanted to take some chips off the table? Maybe they didn’t want to sell the entire business, and now they’re looking at, probably, it would be investment capital, not strategic buyer at that point. What would that look like? What are some of the things that you’ve seen that still is favorable to the family, allows the business to mostly stay in the family, but maybe provides them some liquidity to execute on some of their other priorities?

Gerard: Yeah. I mean, there’s two two parts to that. One is the structure of the transaction itself. And absolutely, there can be a mechanism that allows for some liquidity as new capital is being provided. They’re introducing a new third party. So it does come back to some rules of engagement. Is that a passive investor? What they’re going to want depends on maybe how material an interest is.

Maybe it’s a minority interest, then they’re just going to let it ride. Or it’s strategic capital, like you mentioned, then they’re actually going to want to maybe have a voice at the table, which ties back to governance. In most cases, that means having a board seat or two. Often there’s an aversion to losing control. And it’s a bit of a tightrope because you want liquidity, but you don’t want to give up control. You want to take advantage of their experience and knowledge because you’re adding some new perspective, but you don’t want to lose control. So it’s a balance, and that really depends on how far that, I guess how great that liquidity objective really is.

You talked about preferred shares. I mean, there are mechanisms to bring in new investors, maybe through subordinated loan. It’s more into the bank or primary lender, but it still injected some capital into the business or a preferred shareholder. He’s got a specified claim on the asset. I talked about voting or not, or whatever. But, again, they put capital in, allowing capital to be taken out from the common pool. So they don’t have to come in as common equity holders. They could come in as a debt player. They could come in as a preferred shareholder. So I guess it really perhaps depends on how much liquidity. If it’s a generational change, you know, there’s going to be more risk to that party that’s bringing in new capital. We know how this business performed in the past, but now we’ve got new leadership of a new generation. So that might influence the type of capital position they’d be willing to take without having a stronger voice. Because these all go hand in hand.

Cory: One thing that I just heard you say is how important that succession of leadership in the management role is, and maybe that happens prior to a succession of ownership. In this case, if there is outside capital, that outsider would want to see a bit of a track record of that next generation and that stability of those people in those seats.

Gerard: If you’ve got an owner manager who used to be the chief operating officer, or the chief executive officer who is stepping back from the business and putting in place what I’ll call a third party or independent new executive to run the business, there’s a period of transition there where you need to really watch it play out to see whether that business can continue to not only sustain itself, but hopefully, grow. And if you’re providing capital into a changing dynamic like that, you want to make sure that that capital A is being appropriately rewarded in terms of coupon rate or whatever, and B is appropriately secured, and where it sits in that capital stack.

Cory: As we near the end of our conversation today, there’s a few questions that I ask each guest before we wrap up. Are you ready for the tough ones?

What is one key strategy that you believe is most essential for building a successful family enterprise?

Gerard: We touched on it earlier. I’m just a huge fan of robust communication. If I had to put one word, I’d say alignment. Ensuring that there’s alignment to purpose, alignment on values, alignment on the strategy, trust, and robust communication.

Cory: Love it! And what is the most common challenge that you see family enterprises encountering when it comes to wealth transition and generational continuity?

Gerard: I can take all of those initial comments and play them back in reverse. Perhaps that alignment hasn’t been there, and there hasn’t been enough communication. It summarizes by saying engage that next generation early so that those values are embedded. They understand the organizational purpose.

I know you’ve had other podcast conversations around the importance of a family constitution. That’s really just a tool and a mechanism for getting everyone on the same page. The challenge is when they’re not on the same page, when there may be different financial objectives or otherwise between generations. I think sometimes there’s an expectation that gen two or gen three want to carry on with the business, as a legacy business. But maybe they’re not as emotionally attached to the vision business as the founders were. And these are difficult conversations to have, but they need to be had because, in my experience, it’s, at times, the elephant in the room. You talked about maybe just wanting some liquidity, and maybe wanting to do something different. I think open, honest, transparent conversations as a family.

There’s another favorite expression I have, which I’ll actually attribute to one of my partners and friends at Ozone Darren Rawson. When we do family enterprise work, he asked this question. Is it a family business, or is it a business investment of the family? I don’t think that’s always really clear.

Cory: Absolutely! I don’t think the family defines that well. And when you talk about alignment, if they’re not discussing that topic, then, there’s different answers amongst all those members for sure.

Gerard: And, you know, I can expand on that a little bit. I mean, that’s an example of maybe moving maybe gen two or gen three doesn’t want to stay involved in the business. Doesn’t mean the family has to sell the business. That’s that move towards maybe third party management. Maybe you bring in some third-party capital to provide some liquidity. But, you know, as an asset or investment in the family trust or in the family estate, you still want to let that investment interest be carried. That can be done.

Cory: Absolutely! And in your experience, what are the top three qualities that successful family enterprise leaders possess?

Gerard: I kind of went to entrepreneurship in general to be honest, but what I attribute to an entrepreneur is really a family owned business leader, a founder. The ones who I believe could have been the most successful have enhanced governance or have enhanced different perspectives, willing to listen and learn, and surround themselves with other smart people. They have a vision for the business. Their courage, they have courage, which goes to the risk taking, they’re willing to be risk takers. A certain tenacity that just allows them to, I when I talked about resilience earlier, that tenacity to just stay at it when times get tough, because times will get tough.

I did want to quickly flip that on its head, though, because those are all the positive aspects. The qualities I’ve seen that can be challenging for entrepreneurs and enterprise leaders is ego can get in the way, which leads to a kind of stubbornness. So that’s kind of the counter of being open to take perspective from others. And sometimes, risk-taking to a fault. Sometimes, “no” really should send you a signal, but most entrepreneurs and family enterprise leaders when they’re challenged and they hear “no,” their stubbornness kicks in, and sometimes no means no. They don’t always hear that the way they should.

Cory: I love that, risk-taking to a fault. We we talked about aspects of risk, and it can go too far. So that’s fantastic.

And before we conclude our discussion, I’d like to highlight where listeners can engage more of the conversations that you’re having, or in your comment of staying current, some of the things that you’re reading and paying attention to.

Gerard: Sure! I mean, I’m just an avid reader of anything, to be honest. I subscribe to probably a dozen different online news services. So I wake up every morning to whatever the headline of the day is. I mean, I’m a big fan of just following B and M Bloomberg, and I’m a big fan of McKinsey. There’s literally daily materials that come out. Following a lot of generative AI now. There’s various sites that provide daily insights into the evolution of these generative AI tools, which just blows my mind every day I read about a new tool that’s doing something new. There’s a proliferation of stuff available to us now.

Personally, I love to network, happy to engage with everyone. I’m an active member with our ICD chapter here in Calgary, the Institute of Corporate Directors. So I like to surround myself with people who are smarter than me, which is not hard to do. I stay active. I’m an adviser at Calos. We do transaction advisory, transaction diligence, valuations. I’m staying current in the work that we’re doing, and we’re doing some really interesting great work right now, some really interesting work with first nations as well. And then as well, I act as a chair for MacKay Executive Forums. So I facilitate two peer groups. One is for executives, one is for CEOs.

I get to stay current and listen, I’m literally listening on a real time basis on the types of issues and challenges that executives are facing, personally and professionally. So I have lots of avenues to stay grounded, let alone, you know, my own personal life, like my family, my wife, my children are active in the Calgary community, and lots of friends that are still part of the establishment at the Big Four Accounting Firms. I don’t say no to an invitation. If I have an opportunity to get out and engage and learn, I take it.

Cory: Fantastic! And I wanted to make sure that we covered everything today. Is there anything else that we didn’t get a chance to cover that you’d like to share with our audience?

Gerard: I think we covered everything for it. I guess I’m really hoping to demystify the concepts of value and how we define value. And I’m able to just come back to that again and because I think if people are hardwired, we just really think and anchor their decisions every day around “ how does this align to our strategy?” Therefore, read that as saying, “how does this align to value?” Values about risking future cash flows. So what can we do in our business to make it more resilient, to create a little bit more certainty around future cash flow? With the investments that we need to make that are going to pay off  in the longer term, and truly understanding our unique, sustainable competitive advantages, that we are confident every day, that, as leaders, as owners, and as employees, that we’re going in and growing value in the business every day.

Cory: Fantastic! Well, great, great final words! As we wrap up, I’d just like to thank you, Gerard, for taking the time to share your expertise and experiences with us today. Your insights have been incredibly valuable to me, and I’m sure our listeners will be grateful for your contribution to this episode. So, thank you.

Gerard: Well, thank you, Cory. I really enjoy your podcast series, and I am honored that you asked me to participate. So, thank you.

As we wrap up this episode, we invite you to reflect on the valuable conversation we’ve shared with Gerard about family enterprises and their unique dynamics.

Whether you are part of a family enterprise or provide consulting to family enterprises, Gerard’s perspectives offer practical approaches to enhancing business value through strategic thinking and optimized capital structures.

Throughout our discussion, Gerard highlighted the importance of staying current and embracing appropriate risk for family enterprise sustainability. His insights explored how value creation extends beyond financial statements to include transferable knowledge and resilient management teams. By viewing business through a valuation lens, he emphasized the need for a forward-looking mindset that balances financial stewardship with strategic growth. Our conversation ultimately revealed how applying valuation principles to everyday decisions can help family enterprises build sustainable value that transcends generations.

For families seeking expertise in business valuation, strategy, and governance, Gerard McInnis at Kalos is ready to help. We’ve included his contact information and additional resources in the show notes to support you on your journey.

Disclaimer: 

This program was prepared by Cory Gagnon who is a Senior Wealth Advisor with Beacon Family Office at Assante Financial Management Ltd. This not an official program how Assante Financial Management and the statements and opinions expressed during this podcast are not necessarily those how Assante Financial Management. This show is intended for general information only and may not apply to all listeners or investors; please obtain professional financial advice or contact us at [email protected] or visit BeaconFamilyOffice.com to discuss your particular circumstances before acting on the information presented.