This is a continuing series of suggestions to owners of privately-held companies to increase the marketability and value of their companies.

Here are the Top 10 ways to increase your company’s market value:

2. Develop Second Tier Management

  • Why? A Buyer will know that an owner will be leaving the company at some point. Buyers are concerned about sustainability and continuity of the business at previous levels; and higher. To the extent that there is an experienced and competent management team that can carry on in the owner’s absence, buyers will deem the purchase less risky and therefore pay more for the company.
  • What to do: Develop an organizational chart with clearly defined roles and responsibilities. Document job descriptions and have a written Employee Handbook with policies and procedures for running the company. Hire competent managers and let those managers execute on their areas of responsibilities and then document performance reviews. Owners then need to work “on” their business as a CEO by managing the managers rather than working “in” their business by performing tasks best handled by subordinates. Non-competition, trade secrets and employment agreements help reduce perceived risk in the eyes of the buyer and therefore increase value.
  • Benefit to you: Lower risk to the sustainability of the company translates into a higher price and better terms and conditions. In an owner’s absence after a sale, an experienced and talented management team will contribute to the sustainability of the business and lower risk for the buyer.

Result — a higher purchase price.