Increasing the Value of a Privately Held Company

In this article from our Winter 2010 newsletter, ASG Managing Partner Paul Keller provides advice for business owners interested in increasing the value of their companies.

ASG Partners has been selling privately-held manufacturing, service and distribution companies for more than 27 years. As a result, we have a unique perspective on the characteristics that create value in highly sought-after companies. And our experience is that many business owners could make their companies significantly more valuable with a little time and some good planning.

If you are contemplating a transition - regardless of whether it involves passing the company on to family members, structuring a buyout by employees, or selling it to a third party – you should be asking and answering the following questions:

• Have you developed a transition plan? Business owners that develop and execute a transition plan can significantly increase the value their companies – perhaps by 20-30% or more.
  
  
• Are you confident in the market value of your company? Your company may represent a significant portion of your net worth. Surprisingly, many business owners do not know how much their company is worth and/or the factors that enhance or detract from value.
  
  
• Do you understand the tax consequences of a sale? Taxes might take a significant bite out of your proceeds; then again they might not depending on how the company is held and how the transaction is structured.
  
  
• Are your sales concentrated among a few customers? Loyal customers contribute to value, but revenues concentrated among a relatively small number of customers could significantly impact an acquirer’s perception of risk.
  
  
• How accurate/consistent are your financial statements? Financial statements take on new importance during any transition. Now may be the time to assess and/or change your accounting practices to ensure that your financials stand up to increased scrutiny.
  
  
• What clues about the future can be gleaned from the historical trends? Your revenue, gross margin and profitability trends say a lot about your company’s current strength and future potential. In fact, those trends have more impact on timing and value than the “market conditions,” so make sure you are properly reading the signs.
  
  
• Can you quantify the predictability of your earnings? Strong recurring revenues and repeat customers improve predictability. Consequently, you can increase the value of your company by measuring, monitoring and improving these operational metrics.
  
  
• Does the company have a management succession plan? A smooth transition hinges on reducing your day-to-day involvement while developing the team that is capable of successfully running the company after your retirement. Management succession doesn’t happen overnight, so the key is developing your plan.
  
  
• How will employees be impacted by your transition? Good employees are the most valuable assets in most companies. That is why it is so important to think through issues like employee incentives, retention strategies and non-compete agreements.
  
  
• To what degree do your suppliers affect your company’s success? Your supplier relationships may be just as important as your customer relationships. You can increase the value of your company by assessing your supply chain and developing/executing plans that improve or protect your strategic position.
  
  
• Are you well-positioned from a real estate perspective? Your real estate can be a strategic asset even if you lease it, but you might significantly increase/diversify your net worth by purchasing real estate for your company.
  
  
• Finally, do you know what the company needs to “look like” to achieve your valuation goals? Company values depend on many factors. The first steps toward achieving your goals are developing a picture of how the company needs to look, and developing a plan to get there.

ASG Partners can help you ask – and answer – all of these questions, along with others like them. So if you are interested in increasing the value of your company, we are here to help.

I invite you to contact us if you are interested in increasing the value of your company. Our conversation will be strictly confidential, and I am sure it will be worth your time. Contact ASG Partners via email (info@asgpartners.com) or phone (425-450-4800) or read more about ASG's consulting services.

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