Transform Your Company: Ten Smart Moves To Maximize Enterprise Value

Enterprise valuation is fascinating because it can be actively created. Unlike the arduous task of growing revenue, cash flow, and profit, enterprise value can be achieved through smart, strategic work. While this requires intentional focus and effort, the payoffs can be massive.

In this article, you’ll discover nine ways midmarket companies can create enterprise value.

1. From Founder Dependence to a Leadership Structure

The number one barrier to company value is founder dependence. When a potential buyer sees that key functions of the company rely on the founder, they discount their offer to compensate and build in long earn-outs with contingent payments to hedge their bets. Both of these issues demonstrate how founder dependence drains a company’s value.

Create enterprise value by developing a multi-tier leadership structure. Put people in charge, be clear about their roles, equip them with the necessary resources, and hold them accountable for results. Founders often struggle to let go of control, but by putting a second-in-command in place—like an implementer in the EOS world—founders can ensure the company continues to operate smoothly without them. Potential buyers will then feel confident that the company can thrive independently of the founder.

2. From an Operator Mindset to an Owner Mindset

When a business begins, the founder often assumes the operator role, handling every aspect of the operation. As the company grows, it’s easy to remain involved in the day-to-day operations.

Create enterprise value by adopting an owner mindset. Spend significant time each week evaluating your business as an asset, similar to how you would assess an investment in stock or real estate. Understand the valuation, consider how it can be protected and grown, and hire an ownership team with advisors who can help you unlock value in your company. Legal and financial advisors can assist in protecting and growing your enterprise value.

3. Shift From One Visionary to an Entrepreneurial Culture

One specific area of founder dependence often overlooked is who generates the strategy. In many companies, the visionary founder is the primary source of ideas. However, if most entrepreneurial ideas come from the founder, it can drain the company's valuation.

Create enterprise value by fostering an entrepreneurial culture. Engage people across your company with Working Geniuses® of Wonder, Invention, and Discernment. Develop cross-functional teams in key areas like innovation, revenue growth, and process automation. These teams will not only generate new ideas but also become the farm team for future leadership, enhancing the company’s entrepreneurial culture.

4. From Weak Financial Discipline to Professional Financial Management

Financial statements are the scorecard for value, and they need to be rock solid. Sloppy bookkeeping and insufficient financial software can significantly drag on value. If the company goes on the market, a painful due diligence process is guaranteed as auditors find numerous opportunities to discount the company.

Create enterprise value by implementing professional financial management practices. Engage a controller, develop meaningful reports for strategic planning, create budgets, benchmark against industry peers, and establish a consistent audit cadence. Additionally, manage your company to enterprise value by measuring it quarterly, tracking increases and decreases, and rewarding your leadership team based on value growth.

5. From One-and-Done Revenue to Contracted Recurring Revenue

While the rush of cash from a big project is enjoyable, one-and-done revenue does not create enterprise value because it is not predictable.

Create enterprise value by focusing on developing recurring revenue. Ensure that recurring revenue is backed by more than a handshake by creating enforceable contracts. Bundle your products and services, and train and support your sales team to create predictable future cash flows that are far more valuable than one-and-done deals.

6. From Collections to Up-Front Cash

Most companies have payment terms that lead to large accounts receivable balances, which I refer to as the 30/60/never approach.

Create enterprise value by finding ways to get cash upfront. Michael Dell was famous for selling a computer, collecting payment, and then buying the parts to fulfill the order. Consider how you could implement a similar strategy in your business.

7. From Undocumented Processes to Process Optimization and Automation

“We’ve always done it this way” is a massive signal that value is being left on the table. Industries, customer expectations, and technology change, while labor costs continue to rise. This suggests there is likely value being left on the table.

Create enterprise value by optimizing and automating processes. Document processes and ensure they are followed by all. Regularly revisit these processes to identify areas for improvement. With advances in artificial intelligence, machine learning, and robotic process automation, every process can be optimized to unlock enterprise value.

8. From Sales Rep Dependence to a High-Performing Sales Team

Profit growth drives valuation, and profit growth requires revenue growth, which is often driven by the sales team. In many companies, the 80/20 rule applies, with most sales coming from a few key salespeople. This dependence on rock-star salespeople can hurt valuation.

Create enterprise value by developing a high-performing sales team. Develop solid sales leaders who can coach their teams, measure sales competencies, and provide targeted training. Create sales processes, enable the team with tools, and use predictive data models to screen potential hires, maximizing their chances of success.

9. From “Our Customers Love Us!” to Data-Driven Customer Satisfaction

Many business owners claim to have excellent customer service, yet data often shows that most customers are unhappy or underwhelmed. A potential buyer needs more than the owner's opinion to determine if the company truly has loyal customers.

Create enterprise value by measuring customer satisfaction. Use data to back up claims of excellent service, resolve issues promptly, and ensure a system is in place to address and fix problems. This data will give potential buyers confidence in the company’s customer satisfaction levels.

10. From No Intellectual Property Protection to a Legal Strategy

In a litigious culture, companies without a comprehensive legal strategy are at risk, reducing their valuation.

Create enterprise value by ensuring you have a robust legal strategy. Protect your intellectual property with trademarks, establish strong terms and conditions, evaluate employment contracts, and develop a compliance management strategy. While this may not be enjoyable, it is essential for long-term value protection, much like maintaining good health through exercise and diet.

Do You Have a Plan?

This list is not exhaustive, but it should prompt serious reflection. If you plan to sell your company within the next 10 years (and 8 out of 10 business owners do), these items must be a priority. Even if you plan to hold onto your business long-term, unplanned events like death, divorce, disability, or disagreement can force a sale. Companies unprepared for such events often end up being sold at a loss.

Every business needs a Value Creation Plan:

1. First, understand your company's current value.

2. Second, implement systems to protect that value.

3. Third, develop a plan to grow value.

It all begins with knowing what your company is currently worth and what it could be worth if barriers were removed. To get started, visit Value Creation Engines to learn more about a data-backed process that shows your company's current and potential value.

Originally published on Darrell Amy's LinkedIn.