Building Value in a Private Company

Most investors are aware of the intricacies of equity and building value when it comes to publicly-traded companies, however few can offer advice for private companies. When developing a plan for your private company, you should consider how your plan could help your company grow to reach your long-term financial goals. Here are a few tips that can help build value in a private company:

1. Consider your Target Net Proceeds

If selling your company is important in the future, be sure to focus on EBITDA. Although revenue is important, if you are looking to sell, buyers often focus on your earnings. Streamlining your business, improving your margins and increasing earnings is always more important than growing your sales without the corresponding profitability.

2. Diversify

In any company, risks can threaten the success and valuation of a business. One of the most common risks a private company faces is becoming dependent and reliant on one customer, vendor, or product type. In order to avoid this risk, companies must diversify.

By diversifying your business, it reduces risk and sets your company up in the long run. If one vendor goes out of business, your company can continue to operate without having a major impact on your success. Similarly, diversifying can provide your business with additional bargaining power.

To still receive a premium valuation when selling a company, top customers should be less than 15-20% of total revenues.

3. Understand the Quality of Earnings

When looking at a company’s revenue and cash flow, it is important to have some consistency in your business. Creating a source of recurring revenue is a good way to ensure a high quality of earnings and helps you to evaluate your cash flow and potential earnings.

Similarly, buyers analyze predictability of revenues and profits in order to assess the value of a company.

Whether you are looking to sell your business today or decades down the road, building your business to sell will help you create value and ultimately, wealth.

Symmetrical works with privately held, mid-market companies, representing both buyers and sellers. Acting as a trusted advisor, we often help business owners and executives implement strategic changes that add value to their company. For more information on how your business could build value, please contact us at info@sym-inv.com.