{"id":560739,"date":"2014-05-05T07:19:08","date_gmt":"2014-05-05T11:19:08","guid":{"rendered":"https:\/\/vrbbd.wpengine.com\/vrbbgreenbay\/creating-value-privately-held-companies\/"},"modified":"2022-01-31T12:43:57","modified_gmt":"2022-01-31T17:43:57","slug":"creating-value-privately-held-companies","status":"publish","type":"post","link":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/creating-value-privately-held-companies\/","title":{"rendered":"Creating Value in Privately Held Companies"},"content":{"rendered":"<div>\n<p>\u201cAs shocking as it may sound, I believe that most owners of middle market private companies do not really know the value of their company and what it takes to create greater value in their company \u2026 Oh sure, the owner tracks sales and earnings on a regular basis, but there is much more to creating company value than just sales and earnings\u201d<br \/>\n<em>\u00a0\u00a0\u00a0\u00a0\u00a0Russ Robb, Editor, M&amp;A Today<\/em><\/p>\n<p>Creating value in the privately held company makes sense whether the owner is considering selling the business, plans on continuing to operate the business, or hopes to have the company remain in the family.\u00a0 (It is interesting to note that, of the businesses held within the family, only about 30 percent survive the second generation, 11 percent survive the third generation and only 3 percent survive the fourth generation and beyond).<\/p>\n<p>Building value in a company should focus on the following six components:<\/p>\n<ul>\n<li>the industry<\/li>\n<li>the management<\/li>\n<li>products or services<\/li>\n<li>customers<\/li>\n<li>competitors<\/li>\n<li>comparative benchmarks<\/li>\n<\/ul>\n<p><strong><b>The Industry<\/b><\/strong> \u2013 It is difficult, if not impossible, to build value if the business is in a stagnating industry.\u00a0 One advantage of privately held firms is their ability to shift gears and go into a different direction.\u00a0 One firm, for example, that made high-volume, low-end canoes shifted to low-volume, high-end lightweight canoes and kayaks to meet new market demands.\u00a0 This saved the company.<\/p>\n<p><strong><b>The Management<\/b><\/strong> \u2013 Building depth in management and creating a succession plan also builds value.\u00a0 Key employees should have employment contracts and sign non-compete agreements. In situations where there are partners, \u201cbuy-sell\u201d agreements should be executed. These arrangements contribute to value.<\/p>\n<p><strong><b>Products or Services<\/b><\/strong>\u2013 A single product or service does not build value.\u00a0 However, if additional or companion products or services can be created, especially if they are non-competitive in price with the primary product or service \u2013 then value can be created.<\/p>\n<p><strong><b>Customers <\/b><\/strong>\u2013 A broad customer base that is national or international is the key to increasing value.\u00a0 Localized distribution focused on one or two customers will subtract from value.<\/p>\n<p><strong><b>Competitors <\/b><\/strong>\u2013 Being a market leader adds significantly to value, as does a lack of competition.<\/p>\n<p><strong><b>Comparative Benchmarks<\/b><\/strong> \u2013 Benchmarks can be used to measure a company against its peers.\u00a0 The better the results, the greater the value of the company.<\/p>\n<p>Three keys to adding value to a company are: building a top management team coupled with a loyal work force; strategies that are flexible and therefore can be changed in mid-stream; and surrounding the owner\/CEO with top advisors and professionals.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>\u201cAs shocking as it may sound, I believe that most owners of middle market private companies do not really know the value of their company and what it takes to create greater value in their company \u2026 Oh sure, the owner tracks sales and earnings on a regular basis, but there is much more to [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[10],"tags":[],"class_list":["post-560739","post","type-post","status-publish","format-standard","hentry","category-valuation"],"blocksy_meta":[],"_links":{"self":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts\/560739","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/comments?post=560739"}],"version-history":[{"count":0,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts\/560739\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/media?parent=560739"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/categories?post=560739"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/tags?post=560739"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}