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How to Build Value in Your Family Business

Of course a family business owner wants their company to be valuable u2013 to their family, their clients, and the community. And while the possibility of selling the business typically forces the owners hand in pinpointing its value, it makes sense to think about this now and periodically in the future no matter what direction your family business is headed. One might ask, what specifically does the value of business consist of, how is it identified, and how can value be increased?

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How to Build Value in Your Family Business

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  1. B Y : T H E C U R C H I N G R O U P | W W W . C U R C H I N . C O M

  2. Of course a family business owner wants their company to be valuable – to their family, their clients, and the community. And while the possibility of selling the business typically forces the owners hand in pinpointing its value, it makes sense to think about this now and periodically in the future no matter what direction your family business is headed. One might ask, what specifically does the value of a business consist of, how is it identified, and how can value be increased? W W W . C U R C H I N . C O M

  3. Some obvious measures of value in a family business include its tangible and intangible assets, profitability, work backlog and client list. Digging a little deeper, value can be found in highly qualified management that is well trained, with a strategic plan, positive ties to the community, along with other, less purely financial, measurements. One approach to determine the areas of value in a family business, and therefore how to find areas of improvement, is to have an objective business valuation performed. W W W . C U R C H I N . C O M

  4. It’s difficult to measure an improvement in value in the family business without knowing the pre-improvement value. A business valuation can be performed to identify the value of the company, often identifying specific areas of improvement that could be made to increase the overall value. Cash-flow, forecasted earnings, comparison to competition in the market, and analyzing the net assets (e.g., real estate, machinery) are all areas that are considered when measuring value. Details of these methodologies may be found in this previous post; a professional family business advisor can provide assistance in this area. W W W . C U R C H I N . C O M

  5. As indicated earlier, the sale of the family business isn’t the only reason its value should be known. An unplanned sale, whether due to the untimely departure of the owner or otherwise, may be forced upon the family and any opportunity to improve the value that may have existed would have been lost. A business succession plan generally works best with a known valuation in order to plan for retirement, etc. Obtaining financing for building expansion and other growth needs could require a valuation, and the discovery of any problems later in the process could delay approval. A divorce or other separation of a family member from the business may affect financial agreements in place, thus prompting the need for a review of the company’s value. W W W . C U R C H I N . C O M

  6. An obvious area to increase value is by maximizing profits. By definition a business is intended to make a profit, although this isn’t always the case. Know the market and your competition and its pricing, review your financial statements to ensure profitable operations, and have strategic plans in place to allow for change. While increased profits help your family immediately, they also boost the value of the business in a future sale and could enhance the ability to receive financing. As for strategic plans, putting the thought into the future direction of the company shows long-term focus and therefore increases value. A succession plan adds similar value by outlining the transition of power when the time comes. Training the next generation of leaders and preparing the employees and clients for the direction of the family business makes the company more attractive and valuable whether it is poised for sale or not. W W W . C U R C H I N . C O M

  7. The Curchin Group, LLC, a mid-sized NJ accounting firm serving Monmouth County since 1955, has in-depth experience serving small and mid-sized companies, family enterprises, credit unions, homeowners’ associations, construction companies, and not-for-profits. Our knowledgeable and innovative solutions can meet your needs today and for years to come. The Curchin Group is dedicated to serving and giving back to our local community around Red Bank and Monmouth County, NJ. Curchin believes that our accounting firm must provide service to more than just the bottom line; we invest in the wellbeing of our employees, clients, business partners and the community at large. W W W . C U R C H I N . C O M

  8. Mailing Address 200 Schulz Drive, Suite 400 Red Bank, NJ 07701-6745 Email Address info@curchin.com Phone Number 732-747-0500 Fax Number 732-747-7700

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