Building Corporate Value: The Five Keys

By Charles J. Curto, Managing Principal of Tech Coast Equity Group.

 

At a meeting of the Technology Council’s Entrepreneur Society, David Knecht, Partner with the CPA and

management value consulting firm of Milam, Knecht & Warner, presented Building Corporate Value:

The Five Keys. Below are take-aways from his presentation.

David began by emphasizing that the basis for increasing company value is increasing transferable EBITDA (Earnings Before Interest Taxes Depreciation and Amortization). Based on his value-building research and experience in with hundreds of clients, the five keys to building company value are:

  • Having a written strategic plan,
  • Building diversified revenue,
  • Having engaged employees,
  • Increasing productivity, and
  • Employing a performance management system

A written strategic plan

  • Helps maintain management focus,
  • Establishes direction and provides the basis for filtering opportunities that fit the company’s strategy, and
  • Directs marketing toward implementing that strategy.

Research by PriceWaterhouseCoopers indicates that companies with a written strategic plan

have a written strategic plan enjoy a 68.6% greater growth rate than those that don’t.

Revenue diversification results in greater

  • Revenue and EBITDA stability and
  • Transferability of that EBITDA.

Revenue diversification results from revenue streams from multiple products and customers

with on one or few products or customers being dominant.

Based on research by Gallop, employee engagement results in a workforce that

  • Has greater retention,
  • Works safer,
  • Is more productive,
  • Enjoys greater success with customers, and
  • Is more profitable.

Although compensation is, of course, an important factor in employee engagement, employees

engaged, other factors may have equal or greater impact for a particular workforce or employee

in creating, increasing and maintaining employee engagement, including

  • Recognition,
  • Opportunity for advancement,
  • Quality of supervisor,
  • Flexible hours, and
  • Less pressure.

Increasing productivity results from

  • Increasing the EBITDA from a dollar of revenue or return on sales, which in turn is
  • Strongly influenced by process improvement.

Companies like WalMart and Southwest Airlines have made process improvement and thus

productivity improvement a core value which has been reflected in increases to their company

value.

Based on the research of authors Schiemann and Lingle, “companies with a performance

management system substantially outperformed companies without a system.” Performance

management systems are based on the principle that if you can’t measure it you can’t manage

it. Performance management systems in general and dashboards in particular have the

following characteristics:

  • Relevant (linkage to strategy)
  • Understandable
  • Drillable
  • Actionable
  • Track key indicators, including growth, profitability, productivity and value.

 

 

This summary is not meant to be a transcript of the session nor a primer on building company value.

Instead, its intent is briefly to share a few of the valuable take-aways from the session, take-aways

which are based on the experience of successful entrepreneurs and professionals who work with

entrepreneurs. Hopefully, these will encourage you to attend future Council programs where you can

meet and learn from the experience and wisdom of other thought-leaders.

David Knecht can be reached at (949) 861-4445 and DKnecht@WeAddValue.com .

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