Driving Value: Unlocking Share Price in Employee-Owned Companies
At the 2025 TEA (The ESOP Association) North East Chapter event in Nashua, New Hampshire, Jennie Msall, Director at Ventura Trust Company, delivered a compelling presentation on how employee-owned companies can unlock greater share value by focusing on strategic financial and operational improvements. Her message was clear: understanding what drives valuation is not just the responsibility of leadership—it’s something every employee-owner should grasp.
Valuation is the process of determining a company’s worth, and it typically involves three approaches. The market approach compares the company to similar businesses, the income approach evaluates projected cash flows (often using EBITDA), and the asset approach considers the value of the company’s assets and liabilities. A company’s valuation is shaped by both external factors—such as economic conditions, industry trends, and interest rates—and internal factors like revenue, profitability, and management’s financial projections.
Two primary forces drive company value: cash flow and risk. Consistent and growing cash flows increase value, while lower risk also boosts value. Risk is evaluated both internally, through factors like management depth and customer concentration, and externally, through market volatility and interest rate fluctuations.
To improve cash flow, companies can focus on increasing sales—whether by taking on more projects, larger contracts, or raising prices—and reducing expenses by cutting waste, improving efficiency, minimizing rework, and lowering staff turnover. Reducing risk requires a thoughtful approach, often beginning with a SWOT analysis to identify strengths, weaknesses, opportunities, and threats. Strong governance, internal controls, and strategic planning are all essential to mitigating risk and enhancing value.
Valuation is not static; it can change from year to year based on a range of internal and external factors. Internally, growth rates, profit margins, operational efficiency, debt levels, and diversification all play a role. Externally, economic trends, sector performance, supply chain disruptions, political developments, and capital market conditions can all influence a company’s value.
Jennie illustrated these concepts with real-world examples. In a construction company with $20 million in revenue and 60 employees, a 5% increase in productivity could generate an additional $1 million in profit—nearly doubling net income. In an engineering firm with $12.5 million in revenue and 50 employees, adding just 50 extra billable hours per person could result in $625,000 in new revenue and a 62.5% increase in profit. In a manufacturing company with $75 million in revenue and 125 employees, a 1% improvement in material and overhead costs could lead to a $2.25 million profit boost and a 37.5% increase in net income.
To truly drive value, employee-owners need to understand how their actions impact the company’s financial performance. This requires clear and consistent communication of financial metrics and valuation updates. Messaging should be tailored to different audiences—executives, managers, and frontline employees—and supported by accessible tools like infographics, guidebooks, and digital platforms. Reinforcement through training, visual reminders, and peer engagement helps embed this understanding into the company culture.
Ultimately, creating a workplace where employees see the long-term value of their contributions—and their careers—fosters a deeper sense of ownership and commitment. When employees understand how their daily work affects the company’s value, they are more likely to take initiative and drive meaningful results.
Driving value in an ESOP company is a collective effort. By focusing on improving cash flow, reducing risk, and engaging employees with clear, actionable information, companies can unlock greater share value and build a foundation for long-term success.