Building the value of your family business is not just about private equity investors and acquiring other firms. There are a variety of internal practices that a family business can undertake to build sustainable value in the enterprise.

Here are four takeaways from the Family Business 360 podcast episode “Building Family Business Value from the Inside Out” featuring Francis Brown of Key Private Bank. Listen to the complete episode online for more insights on building the value of your family business.

Building business value is a good idea whether you plan to transition within the family or not

A high-value business will increase your options when it comes time for an ownership transition. If the next generation of family will take over ownership then you will be transferring a healthy, robust business. If plans change and a sale outside of the family becomes necessary, you will more likely receive your desired value in a sales transaction.

It is easy to lose your sense of objectivity when you think about the value of your business

“Valuation gaps” occur when the market values the business lower than the owner’s expected value. This gap can cause big issues with transitions. Research in 2016 by Pepperdine University confirmed the magnitude of the problem; valuation gaps account for 40% of failed ownership transactions. Using a professional valuation expert can help avoid overestimating the value of your own business.

Short-term value boosts can harm the business in the long-term

Business owners often employ “quick fixes” to increase value. Short-term tactics that aim to boost sales or cut costs can actually have a detrimental effect on business value. A rapid increase in sales may look good on the balance sheet, but your organization may not be able to handle the increased volume, leading to missed orders and lost customers. Sustained cost cutting may lead to lower-quality customer service and employee burnout. Both of these scenarios increase your business risk and lower your business value.

Business value is more than just EBITDA and market growth

One way to increase the value of your business is to reduce your cost of capital. You can achieve this by Increasing your quality of operations in eight key areas: leadership, management, people, operations, sales, marketing, legal and finance. Companies that focus on strengthening these areas will generally have a higher value than similar companies with the same EBITDA and levels of market growth.

Listen to the complete episode online for more comments and insights on growing family business value.

Thank you to Francis Brown of Key Private Bank for appearing on the podcast.

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