Family Business Value Drivers – The Numerator Side of the Equation

Family business drivers - the denominator side of the equation

In my last two blog posts (here and here) I discussed ways of creating value within a family business. I will now highlight three areas in which you can impact the benefit stream, or the numerator.

Sales Growth

Growing the top line revenues should not come as a surprise. Sales revenues can be influenced in a variety of ways, including:

  1. Attracting brand new customers
  2. Cross-selling products or services to existing customers
  3. Developing or acquiring new products or services to sell to new or existing customers

An estimated 6 million first generation family businesses will see their founders exit within the next ten years. This presents a unique opportunity for well-positioned companies to impact their top line growth through a strategic acquisition.

Margin Growth 

Growing the top line sales is only half the battle; growth in the overall margins is what really adds value. When was the last time you evaluated the margins on the full spectrum of products and services you offer to your customers? Family businesses that carry a large SKU of products or services may increase their opportunities for additional business, but also increase their costs to maintain them. A Product Benefit Analysis is a simple tool you can use to evaluate the profitability of your products and services.

Overhead

Managing overhead is not to be confused with managing investments. Overhead costs are simply that – costs that are necessary to run a family business but do not present the opportunity for a return. A great place to start is to compare your cost structure to that of other companies within your industry. This will allow you to take an unbiased look at areas where you may have opportunities for adjustment.

As you can see, there are many ways to grow the overall benefit stream of your family business and drive the value upward. Start by working on one area and make just one change each year. Do this consistently and you will be surprised by what your family business will look like in a few short years.

Steven E. Staugaitis, Kreischer MillerSteven E. Staugaitis is a director at Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email or 215.441.4600.

 

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