Enhancing Value in Private Enterprises
It might seem surprising, but I’m convinced that many owners of mid-sized private enterprises are not fully aware of their company’s worth and the necessary steps to enhance its value. Certainly, these owners keep an eye on sales and profits, but augmenting a company’s value involves more than just these financial metrics.
Boosting value in a private enterprise is beneficial regardless of the owner’s intentions, be it selling the business, continuing its operation, or keeping it within the family. It’s noteworthy that family businesses often struggle to endure across generations: only about 30% make it to the second generation, 11% to the third, and a mere 3% survive into the fourth generation and beyond.
To effectively increase a company’s value, focus should be on six key elements:
- Industry Sector
- Management Team
- Range of Products or Services
- Customer Base
- Competitive Landscape
- Industry Benchmarks
Industry Sector — Value building is challenging in a stagnant industry. Privately held companies, however, have the flexibility to pivot and adapt. For instance, a company originally producing high-volume, low-end canoes successfully transitioned to producing fewer, higher-end lightweight canoes and kayaks, responding to new market needs and thus preserving itself.
Management Team — Developing a strong management team and planning for leadership succession are crucial for value enhancement. Key staff should be bound by employment contracts and non-compete clauses. For businesses with multiple partners, implementing “buy-sell” agreements is also beneficial for value growth.
Products or Services — Relying on a single product or service doesn’t foster value. However, introducing complementary products or services that are competitively priced in relation to the primary offering can lead to value creation.
Customer Base — A diverse customer base, spanning national or international markets, is essential for increasing value. A localized focus on a handful of customers can diminish value.
Competitive Landscape — Being a market leader greatly contributes to value, as does having minimal competition.
Industry Benchmarks — Utilizing benchmarks to compare a company against its industry peers is vital. Superior performance in these comparisons enhances the company’s value.
Three primary strategies for adding value to a company include: developing a robust management team and a dedicated workforce; employing flexible strategies that can be adjusted as needed; and surrounding the owner or CEO with top-notch advisors and professionals.
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