Creating Value in Privately Held Companies

By Michael D. Rubin, CEO & Founder · Updated September 2026 · 750 words

Value in a privately held company is created in six places: the industry you compete in, the depth of management, the range of products or services, the breadth of customers, your standing against competitors, and how you measure up to peers. Sales and profit are the results; these six are the causes.

Most owners track revenue and earnings closely but have never looked hard at what drives the multiple a buyer would pay. That matters whether you plan to sell, keep running the company, or pass it to the next generation. A company built on these six is worth more in every one of those futures.

Industry and competitive position

It is hard to build value in a shrinking industry. The advantage private companies have is speed: they can change direction without committees or shareholder votes. A manufacturer facing cheap imports can move toward specialized, lower-volume work that commands better margins; a service company can add the services its customers now want; a distributor can shift toward the product lines that are growing.

Market leadership in a niche adds value, and so does a market where competitors are few or weak. Know where you stand, whether that position is improving, and what a well-funded new competitor could do to it. Watch for early signs of change: shifting customer demands, new technology, and consolidation among competitors or suppliers.

Management depth

A company that depends on one person has a ceiling on its value. Building a management layer, with a succession plan for each key role, raises it. Documenting how key decisions are made, and then letting managers make them, builds depth faster than any organization chart. Key employees should have written employment terms and, where appropriate and lawful, non-compete or non-solicitation agreements.

Where there are several owners, a buy-sell agreement settles what happens if one dies, becomes disabled or wants out. Without one, a partner dispute or an unexpected death can freeze the company at exactly the moment it most needs clear decisions.

Products, services and customers

One product or service is a single point of failure. Adding related products or services, especially ones that sell alongside the core offering rather than compete with it on price, broadens revenue and deepens customer relationships. The strongest additions use the customers, skills and equipment you already have.

Customers matter even more. A wide customer base, spread across regions and industries, supports value; reliance on one or two local accounts reduces it. Recurring revenue, from service contracts, maintenance agreements or repeat orders, is particularly prized because it makes future earnings easier to predict. Contracts that renew automatically, and customers who order on a regular schedule, are worth documenting clearly. Our article on how recurring revenue affects sale price explains why buyers pay for it.

Benchmarks: measure against peers

Comparing your company with others of similar size in your industry shows where you are strong and where you lag: gross margin, labor cost, revenue per employee, customer retention, days to collect receivables. Better-than-peer results are evidence a buyer will pay for, and they show up in any business valuation; worse results show where to work next. A simple routine makes this useful:

• Pick five or six measures that matter most in your industry.
• Track them monthly, and compare them yearly with industry data your CPA or trade association can provide.
• Set targets and tie management incentives to them.
• Share the results with your managers so they understand what drives value.

Three habits behind all six

Companies that build value consistently share three habits: a strong management team supported by a loyal workforce; strategies flexible enough to change mid-course when the market moves; and an owner who is surrounded by capable advisors, from CPA and attorney to banker and M&A advisor. Pre-exit consulting applies these habits to the 12 to 24 months before a sale. None of the three depends on size; a company with thirty employees can practice them as well as one with three hundred.

For family companies, the choice between selling and passing the business on raises its own questions. Our article on selling a family-owned business covers them.

How MDR & Associates helps

Our free, confidential opinion of value looks at your company through these six areas and shows which ones would move your price most. You leave knowing where the value is and where it is leaking, and what the company would look like to a buyer today, even if a sale is years away. Start with the free valuation snapshot.

Where this fitsBusiness valuation in Texas →

Questions owners ask next

Does building value matter if I never plan to sell?

Yes. The things buyers pay for, such as reliable management, broad customers and steady margins, make a company more profitable and less stressful to own. They also protect your family if something happens to you unexpectedly, since a company that runs without you is easier to keep, pass on or sell.

What is a buy-sell agreement?

It is a contract among co-owners that sets out what happens to an owner's shares if they die, become disabled, retire or want to leave, including who may buy them and how the price is set. It is often funded with insurance. Your attorney drafts it, and it prevents disputes that can freeze a company.