Communicating Company Valuation: Beyond the Basics
At the 2024 New England Fall Conference, Jennie Msall, Director at Ventura Trust Company, delivered a compelling session on how employee-owned companies can better understand and communicate their valuation. Her presentation emphasized that valuation is not just a financial metric—it’s a strategic tool for engagement and long-term growth.
Understanding What Drives Value
A company’s value is largely influenced by two key elements: cash flow and risk. Strong, consistent cash flow—typically measured by EBITDA—boosts valuation, while reducing risk enhances it further. Risks can stem from internal factors like management depth or customer concentration, or external ones such as economic conditions and interest rates.
Strategies to Improve Value
To increase the company’s value, companies should focus on growing revenue and improving efficiency. This can be achieved by taking on more or larger projects, raising prices, cutting unnecessary costs, reducing rework, and minimizing employee turnover.
Valuation is Dynamic
Valuation isn’t static—it evolves year to year. Internally, it’s affected by revenue growth, profit margins, operational efficiency, debt levels, and the company’s capacity for future growth. Externally, it’s shaped by broader economic trends, industry demand, supply chain issues, and regulatory or political developments.
A Practical Example: Schoolbuilders, Inc.
Jennie shared a fictional case study of Schoolbuilders, Inc., a Pennsylvania-based construction firm specializing in public schools. Despite project delays, the company saw a 10% revenue increase in 2023 and improved profitability. Key wins included diversifying its customer base and expanding business development. However, staffing shortages and subcontractor reliance remained challenges. Looking ahead to 2024, the company expects continued growth, though margins may tighten due to onboarding new staff.
Industry Context Matters
The broader environment also plays a role. For Schoolbuilders, federal funding and high demand for school renovations are positive signs, while rising costs and interest rates, along with reduced competition, shape the competitive landscape.
Engaging Employees in Valuation
For employee-owned companies, communicating valuation effectively is essential to building a strong ownership culture. This means regularly sharing performance updates, explaining how employee actions influence cash flow and risk, and using real-world examples to connect strategy with share value. Providing context for valuation changes—like shifts in backlog or industry trends—helps employees see the bigger picture.
Final Thoughts
Valuation is more than a number—it’s a story about where the company is headed and how every employee plays a part. By making valuation a shared conversation, companies can inspire accountability, deepen engagement, and drive long-term success.