In the fall of 2023, the owners of a successful industrial company asked us to hire an experienced CEO. The CEO was tasked with transforming the family-owned business into a professionally managed company and helping to separate the role of owner from that of manager. The company needed to prepare future owners, management, employees, and even business partners. It also needed to fundamentally change its strategy so that it could continue to grow under the leadership of the next generation. Over the course of three years, we succeeded in increasing the company’s value by more than 400 million crowns. You’ll find out how in this article.
“We need a capable director from you…”
That was the owners’ opening statement. Yet the company wasn’t in crisis. It was profitable, had high-quality products, a good reputation, a stable customer base, and experienced employees. However, the founders asked themselves a question that many entrepreneurs put off: What do we need to change so that the company will be significantly more valuable in a few years and our children will be able to successfully take it over and grow it?
The Project in Numbers:
| 650 million CZK annual revenue | 35 million CZK operating EBITDA | 8 for future homeowners | 5 Successors in the Company | November 2023 Project Launch |
“We realized that they weren’t just looking for an ordinary CEO. They are looking for the future of their company. That is why, in November 2023, we took over responsibility for its day-to-day management—not merely as advisors, but as a management team accountable for results, strategy implementation, and long-term value growth,” says Ing. Stiva Jokeš, Managing Partner at BA4U.
Three Decisions That Determine Future Value
1. Prepare the family, not just a single successor
Over the course of thirty years, the founders took on many roles themselves: they were the owners, statutory bodies, strategic managers, and the ones responsible for maintaining relationships with banks, suppliers, and customers. The second generation was already working at the company—five of the eight future owners. But no one could answer a few fundamental questions, such as: Who will eventually own the company? How will the legal transfer and handover take place? Who will be responsible for managing the family’s assets? And then there was the crucial question: What must each successor learn over the next few years to be prepared for their future responsibilities (roles!)?
We realized that the company needed more than just to prepare a successor or a CEO who would take over some of the owners’ responsibilities. It was necessary to establish an entire system for future ownership, asset management, and corporate governance.
2. Separate ownership from day-to-day management
The second area was corporate governance itself. In most Czech family-owned companies, the roles of owner, statutory body, and executive management are combined in one or two individuals. As long as the founders are running the company, this model often works very well.
With the arrival of the next generation, this approach becomes one of the greatest risks. Often, this risk is fatal. Our goal, therefore, was not merely to hand over and take over “roles.” It was necessary to clearly separate roles, responsibilities, and decision-making authority so that the company would not depend on individuals, but rather on a functional management system. It is precisely this change that significantly reduces the company’s risk. What’s more, lower risk in this area means a substantially higher company value.
3. Move the company up the value chain
However, we found the greatest potential in the business model. The company manufactured—and continues to manufacture—technically sophisticated products with high added value, but as a subcontractor, it left a significant portion of the value it created to other links in the chain. The problem, therefore, was not with production or quality, but with the company’s position within the industry.
We have therefore begun to develop a strategy that combines organic growth, acquisitions, the integration of other companies, the professionalization of management, and a shift toward a stronger position with respect to both customers and partners. This is where the greatest long-term value potential lies.
A company’s value is not determined solely by its accounting profit
Many business owners believe that a company’s value increases only when its profits grow or its assets—in accounting terms, “assets”—accumulate. In reality, it is much more complex. A company’s value is influenced, for example, by: the quality of management, risk management, the company’s dependence on its founders, the potential for long-term and stable future growth, readiness for acquisitions, the ability to secure financing, process maturity, digitalization, the use of artificial intelligence, position in the supply chain, and the level of risk, among many other factors.
Logically, the more risks a company faces in individual areas, the more significantly its value declines. Handing over the company to children—who cannot even know what risks the business model entails—most often leads, combined with the second generation’s lack of preparation, to the “sentence” of even a company that has been successful for over 30 years.
From approximately 120 million crowns to more than 500 million crowns in three years!
In just under three years, operating profit increased by approximately 30%. Even more important, however, was reducing dependence on the founders, professionalizing management—including the implementation of standardized systems and processes—and preparing successors. The key factor was the creation of a credible growth strategy. According to the standard model (for company valuation), the indicative value of our clients’ company rose from approximately 120 million CZK to more than half a billion CZK. Let’s repeat that: in three years! This represents an increase of over 400 million CZK.
This is neither an accounting revaluation nor a guaranteed selling price. It is an economic estimate based on the company’s sustainable performance, risks, and future potential. Earnings accounted for only part of the shift. However, a significant portion of the difference came from managing the factors that influence the “multiple” at which investors are willing to value comparable companies. Paradoxically, profit is growing much faster than the “multiple” itself.
Another billion is not just a wish, but a strategic opportunity
The biggest changes are just beginning. The upcoming acquisitions of two companies could propel the client into a position where it will be impossible to ignore them in the industry. This will be followed by group integration, process standardization, the digitization of administrative tasks, broader use of artificial intelligence, and further strengthening of management. Thanks to us, the founders—and especially their children—have broadened their horizons, and what’s more, they’ve stopped being afraid…
This could lead to the creation of a company that is not only a high-quality manufacturer but also one of the leaders in its field in Central Europe. This is the basis for an additional potential value of approximately one billion—not as today’s valuation, but as the goal of a long-term strategy.
Meanwhile, the second generation is working on developing their skills. They’re working hard on themselves and furthering their education. Two of their children have even started working as assistants to our directors at other companies owned by our clients. Experience and skills are key. They’ve understood the difference between the roles of owner, asset manager, statutory body, and manager. They’ve also accepted that they don’t have to repeat their parents’ model and handle everything on their own. They, too, will be ten times more valuable. Their task is to know how to collaborate, make decisions, and select professionals who will move the company forward. And they’ll propel Czech business kilometers ahead.
A company’s value isn’t built in the year before it is sold or handed down to the next generation.
As we mentioned at the beginning of this article, a company’s value is crucial for its owner, whether they want to sell it or keep it. A company’s value is built every day. It is built through every strategic decision. Every change in management. Every acquisition in the works. By every future leader who is groomed. And by every step that reduces the company’s dependence on a single generation and increases its ability to grow over the long term.
Because the true goal of a successful family business is not just to build a thriving company. The real goal is to create value that will stand the test of time, even in the hands of future generations.
How is the value calculated?
The concept is simple. Most often, it’s based on past performance—specifically, past operating results—to which you add depreciation. Then, you subtract so-called net debt from that figure and add cash. The magic happens at the end: the result is multiplied by a multiple historically used by investors in that industry. But this “multiple” is adjusted to reflect the company’s actual circumstances, which are heavily influenced by assessments of risks and future prospects—specifically those of the market, the industry, and the company itself.
If you’d like to learn more about this topic or get a rough estimate of your current value anonymously, click here.
A company’s value isn’t built in the year before it’s sold or handed over to the next generation
At the beginning of this article, we asked a simple question: What is your company worth today? As you were reading, you may have thought, “But I don’t want to sell my company.” That is precisely the most common misconception.
An owner should increase the value of the company regardless of whether he or she intends to sell it one day, pass it on to their children, or keep it for the rest of their life. After all, the value of the company represents the value of their assets. Just as you take care of your family home, investment portfolio, or other long-term investments, you should also consciously nurture the value of your company.
The real goal is to create value that will stand the test of time, even in the hands of future generations.
