Make your company more valuable by adopting one or more of these tips

Would you invest 100 percent of your net worth in a single company? While perhaps not planning to, many owners of small businesses find themselves in this position. Rebalancing requires selling a portion of ownership, at some point.
I’m often asked by owners contemplating a future transaction, “How can I make my company more valuable?” While the answer varies based on the situation, here are some things to consider.
Reduce key-person risk
Many business owners are their company’s hero. They make the top sales, take risks and make the tough calls. As a business grows, however, it needs a complete management team to drive success. Investors often eschew companies where one person holds the keys to most top sales relationships or where it appears there is just “one” member of management.
Investors such as The Riverside Co. want to see a balanced team, capable of growing the company to twice as large or more. Private equity firms typically provide equity ownership incentives across the management team to engage everyone fully, with equity rewards triggered through enterprise value growth.
Optimize your revenue stream
Outside investors seek revenue streams with predictability and a high likelihood of year-over-year growth. Here are some potential features to develop in your revenue stream:

  • Diversity: Outside investors prefer a customer base without significant concentrations — no more than 15 percent of revenue from a single customer is a good benchmark. Revenue from a variety of different industries and geographies is another plus.
  • Recurring revenue: Develop products or services that repeat in need, and track your customers’ behavior across many years of ordering to set and achieve repeat-revenue goals among customers. Avoiding one-time sales opportunities in favor of products or services driven by repetitive needs will increase the value of your company over time.

Form a board
Private equity firms often assemble a high-quality outside board of directors right after their initial investment. These experts provide grounded input on strategy, know-how specific to the company’s unique challenges and fresh, outside perspective.
Great board members include former CEOs who have experience bringing a similar business up the growth curve. If your company lacks one, assembling a thoughtfully composed board and establishing processes for meeting and reporting is a great step.
Tap proven resources
Well-deployed specialists can bring about great business improvements. At Riverside, we’ve built relationships with dozens of experts we have vetted over our 27-year history to help improve our 75-plus portfolio companies.
Called the Riverside Toolkit, this set of experts ranges in focus from pricing, strategic plans or production improvements to marketing and dozens of other tailored services. Identifying the most critical elements to your company’s success and finding and engaging proven, outside specialists can be an important step on the journey to increasing your company’s value.
No matter the size of your company, you can help increase value by applying one or more of these techniques. Adopting tactics used by experienced investors will make your company better regardless of your plans for it.
Cheryl Strom, associate director of origination
The Riverside Co., a global private equity firm that has invested in more than 380 companies with up to $300 million in enterprise value.
(216) 535-2238
[email protected]
www.riversidecompany.com