How to Increase Your Company’s Value through Your Employees
In our previous post, we began a discussion on the impact your company’s employees can have on the value of your business. Whenever you decide to sell, you’ll want to understand the role your team plays in the final price you get.
But even if you aren’t planning to sell anytime soon, helping your employees realize the value they bring to the organization could be a game-changer! Employees can increase your company’s value!
Zig Ziglar used to point out that “…workers have three prime needs:
- Interesting work,
- recognition for doing a good job,
- and being let in on things that are going on in the company.”
Ken Blanchard reminds us to “connect the dots between individual roles and the goals of the organization. When people see that connection, they get a lot of energy out of work. They feel the importance, dignity, and meaning in their job.”
And most relevant to our topic here:
Stephen Covey said, “Always treat your employees exactly as you want them to treat your best customers.”
If you find yourself being more influential than those three folks, feel free to ignore their advice. The rest of us, though, stand to benefit from realizing that our employees are our number one asset.
Based on our experience in doing valuations for hundreds of businesses over 30+ years, we’ve found that employees impact value in four key areas:
- Assets
- Revenue and Earnings
- Growth
- Ownership Mindset
Assets
Your employees are directly responsible for the day-to-day maintenance and efficient use of your company’s property, plant, and equipment (PP&E). How well (or how little) they take care of things determines what they’ll be worth.
They are also responsible for any inventory your business carries as well as your financial receivables. If they are sloppy in shipping the things your customers want or collecting the money your customers owe, it will affect your bottom line.
Revenue and Earnings
Quality employees grow sales, increase efficiency, and reduce costs. The bad ones move those areas in opposite directions. Your company’s success here is one of the biggest factors in the extent of your selling price.
Growth
Are your employees constantly marketing your products or services in ways that keep expanding your reach? Or is their lack of innovation and motivation causing your market share to stagnate?
Are customers drawn to your business again and again by superior service and support? Or are they driven away because the people who are the face of your brand are effectively signaling “we don’t want your money or care if you come back.
Ownership Mindset
You cannot afford for your employees to view their work as just a J-O-B. Simon Senek says, “When people are financially invested, they want a return. When people are emotionally invested, they want to contribute.” Create an environment where each of your team members feels less like a cog in the wheel and more like someone who can help determine where the wheel is going.
Employees who have a sense of ownership are much more likely to be loyal when things get difficult. Their motivation to do good work for your company must ultimately be internal.
In his book, Entreleadership, author and financial guru Dave Ramsey says, “If you don’t own the goal and it doesn’t come from your dream, then you won’t have the toughness to persevere when the going gets tough. And I will promise you that the going will get tough. There is never an exception—everyone who wins must push through obstacles, lots of them. You simply will not get up at dawn for your three-mile run because your wife wants you thinner.”
The simple formula for value is: Benefits x Pricing Ratio = Value
When employees are engaged and have the mindset of an owner they can be empowered to impact the drivers of value that increase either the benefits (revenues, earnings, cash flow) or the pricing ratio (less risk, higher growth, better margins, etc.) or BOTH.
Bottom line?
When the benefits or the pricing ratio (valuation multiple) increases…value increases. Great employees help you get a great price when you sell! Employees increase your company’s value!
To learn more about maximizing the impact employees can have, give us a call (901-761-7500) or contact us online. Our team–who all deliver excellence as if they were the owners–would love to help you discover how to increase your company’s value!
Tags: business valuation, Employee, valuation
