This article appeared in the July-August 2013 issue of Snow Business.
I know that when I began my business enterprise value wasn’t something I necessarily put under the microscope. I was much more focused on survival and just getting any kind of work.
Over time, I learned the benefit of focusing on a market and standardizing the business rather than just winning any work I could, which in the end helped me build a strong enterprise value. Don’t get me wrong, earnings are extremely important, but enterprise value ensures you’ll have the big payday at the end of your career. Enterprise value is truly the ultimate reward for a business owner.
Build Enterprise Value
There are several ways you can build enterprise value as you continue to work and grow your business. The key is to think about things that are going to benefit you in the long run and have time work with you instead of against you.
1. Create a strong business plan. If you have a vision and a target market for your company, your chances for building a strong enterprise value will increase. Your vision will help you get what you’re after and avoid what you’re not, which will hopefully lead to growth. And at the end of the day, if you only focused on one thing to build the enterprise value of your company, this would be it. You simply must define a market and aggressively pursue profitable growth in that market year-over-year to build your enterprise value.
2. Evaluate your customer base. The clients who make up your book of business are an important value generator when you’re building your enterprise. What percentage of the total book of business does your largest customer account for? The lower the better.
You also want to actively target clients who fit your vision. You want to decide who you are going to work for rather than agreeing to service clients that don’t fit into where you want to take the business. Find a way to let go of the clients who don’t fit your vision. If you have good relationships with other contractors in your area that can service them, call your client and explain that you can’t service them anymore but they will be in good hands with the company you’re referring them to.
3. Retain your managers. Are you keeping your key players? This is an indicator of how valuable your business really is because if you sell the company, the acquirer will want your top manager to come with the acquisition. Also, enterprise value should matter to your management team because it affects their pay, bonuses and retirement contributions.
4. Establish and promote your differentiators. If you are known for something in your market, most likely that is part of the reason a buyer is attracted to your company. Training and safety programs add value to your business, as do specific skills and services your company provides better than your competitors. Your branding and marketing messages can also add value.
5. Make decisions with your enterprise value in mind. Working for decades without focusing on aligning your day-to-day decisions with increasing your enterprise value isn’t smart. Learn to do both simultaneously so you’re building value. As time goes on, becoming equitable is as significant as growth and earnings.
A View of Your Enterprise Value
A simple check of your balance sheet every year (at a minimum) is a good place to start if you want to put a figure on what your enterprise is worth. Increasing equity each year is what we are working for, so you want to see this every year that you’re in business. You also have to see bottom line profits. Client growth and revenue growth are going to be the biggest influencers of this.
It’s also beneficial to seek outside resources. An accountant, an industry consultant and other contractors in the industry who aren’t competitors are good resources for you to tap into and share information.