Why Running Your Private Company Like a Public One Can Create Maximum Value

Small businesses often operate as if their sole purpose is to fund the owner’s lifestyle, but the most valuable companies are run with financial rigor. You may be years from wanting to sell, but starting to formalize your operations now will help you predict the future of your business. 

Then, when it does come time to sell, you’ll fetch more for what you’ve built because acquirers pay the most for companies when they are less risky. There’s nothing that gives a buyer more confidence than clean books and proper record keeping. 

In this episode we're diving into a fascinating topic that's often debated among business owners and that’s the idea of running a private company like a public company. 

We'll explore what this means, the potential benefits and challenges, and whether it's the right strategy for your business.  And you'll hear how one business owner applied these principles to sell his business for a ton of money.

What to listen to next:
Episode 31 - Mastering Business Ownership: Ten Tips to Boost Your Company's Value

Want to discuss anything in this week’s episode? Just send an e-mail to grow@schweiger.cpa. You can also follow us on Instagram and join our community on Facebook for bonus tips to grow your business.

And be sure to check out our website at www.TESKPod.com for bonus content and other tips to help you grow your business while enjoying the lifestyle you’re entitled to.

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Transcript

Chip Schweiger 0:00

Also, excessive transparency could potentially reveal sensitive information to competitors or the public, impacting your competitive advantage. For example, public companies must publicly disclose executive compensation, and that can be a little tricky. Now, I'm not suggesting you go that far, but you will need to get comfortable with letting folks have a bit more inside view of your business. And the reason is simple. This transparency builds credibility and credibility builds trust.

Chip Schweiger 0:43

Chip Schweiger here. Welcome to another edition of the Things Entrepreneurs Should Know, the business podcast for entrepreneurs, founders and business owners who want to build lasting financial value and supercharge the growth of their business. Small businesses often operate as if their sole purpose is to fund the owner's lifestyle, but the most valuable companies are run with financial rigor. You may be years from wanting to sell, but starting to formalize your operations now will help you predict the future of your business. Then, when it does come time to sell, you'll fetch more for what you've built, because acquirers pay the most for companies when they're less risky. There's nothing that gives a buyer more confidence than clean books and proper record keeping. So today on the show, we're diving into a fascinating topic that's often debated among business owners, and that's the idea of running a private company like a public company. We'll explore what this means, the potential benefits and challenges, and whether it's the right strategy for your business. Plus, I'll give you an example of how it worked out really well, and we'll do it all in about 10 minutes After the episode, check out the show notes at teskpod. com.

Chip Schweiger 2:11

Hi and welcome back. I had a discussion with a client the other day about how to make his company more valuable and eventually the conversation turned to the reason he wanted to make it more valuable was because he was looking to exit in a few years. Now we've got some work to do between now and then in terms of actually boosting his company's value, and we'll be using a lot of the tips and strategies I've discussed before in episode 31 of this podcast. So if you're interested in those, check out that episode and I'll put a link to it in the show notes. But back to the conversation which turned to me asking him about potential acquirers for his business. He named them off and, interestingly, virtually every one of them was a public company. So that's the background for today's episode and I think you'll find this to be an interesting strategy that can not only make your company more valuable but also easier to run, and if you've been listening to this podcast for any amount of time, you know I'm all about helping business owners own an asset that's less dependent on them. So let's go.

Chip Schweiger 3:14

First, what.

Chip Schweiger 3:15

What does it mean to run a private company like a public company? Typically, publicly traded companies have pretty stringent governance structures, transparency requirements and accountability measures in place. They also often disclose financial information regularly, have independent boards of directors and adhere to regulatory standards. When we talk about applying these principles to a private company, we're essentially advocating for increased transparency, structured decision-making processes and a focus on long-term sustainability and growth. Let's be clear, though if you're looking for a quick buck, this strategy isn't for you, but if you have a long-term lens, this approach can really appeal to investors, employees and stakeholders, who value stability and predictability. Now, one of the primary advantages of running a private company like a public one is enhanced credibility and trust. By adopting transparent reporting practices, clear governance structures and independent oversight, such as advisory boards or external audits, you demonstrate a commitment to accountability, and this can really attract potential investors, reassure current stakeholders and improve your company's reputation in the market. Also, structured governance can lead to better decision making. Check this out when responsibilities are clearly defined and there's a system for evaluating strategies and risks. It often results in more informed choices that align with long-term goals. Now, jay Steinfeld is a great example of the value of running a private business like a public company. Blinds.

Chip Schweiger 4:56

Steinfeld studied accounting at the University of Texas and joined KPMG after college. His wife owned a small retail store selling blinds and window treatments. The store was successful, but by 1994, steinfeld had noticed a little Seattle-based outfit that was trying to hawk books online. This company, with the peculiar name of Amazoncom, started to succeed in selling books online, and Steinfeld wondered if he could get consumers to buy blinds online. Soon after blindscom was born, unlike many of the first generation online companies that were run with little financial controls, steinfeld grew blindscom like an accountant and I just love this story. He was determined to run his business with the same rigor as a publicly listed company. He built an experienced management team and took the unusual step of assembling an outside board of directors, even though Blindscom was private and Steinfeld owned all of the stock. Private and Steinfeld owned all of the stock. The board met quarterly and each of Steinfeld's senior managers were asked to prepare and deliver formal presentations to his board. Steinfeld hired a big four firm to complete a full audit of his financials each year, even though all he needed to satisfy Uncle Sam was a simple tax return. By 2014, blindscom had grown to 175 employees and, at more than 100 million in revenue, was the largest online retailer of blinds in America. Now, even though Home Depot had close to 90 billion in sales at the time, blindscom was outperforming them in its tiny niche, which, coupled with their meticulous bookkeeping, made Blindscom absolutely irresistible to Home Depot. On January 23, 2014, home Depot announced its acquisition of Blindscom. Cool story and a great example of how running your private company like a public company can really pay off.

Chip Schweiger 6:56

Now for the other side of the coin, there are challenges and considerations, and it's essential to acknowledge these challenges. First, emulating public company practices can be somewhat costly and time-consuming for a private business. Small to mid-sized companies may find the compliance burden daunting without the resources of larger corporations. Also, excessive transparency could potentially reveal sensitive information to competitors or the public, impacting your competitive advantage. For example, public companies must publicly disclose executive compensation, and that can be a little tricky. Now, I'm not suggesting you go that far, but you will need to get comfortable with letting folks have a bit more inside view of your business, and the reason is simple. This transparency builds credibility, and credibility builds trust.

Chip Schweiger 7:50

Additionally, not all aspects of public company governance may be suitable for private enterprises. The flexibility and agility that come with being teskpod. com held can be compromised if too many bureaucratic processes are introduced. So is running your private company like a public company the right teskpod. com? Honestly, it depends. Evaluate your company's growth, stage, industry norms and stakeholder expectations. If you're considering fundraising, planning for succession or aiming to scale operations significantly, adopting some public company practices could be beneficial. Conversely, if agility, confidentiality and quick decision-making are crucial for your competitive edge, maintaining a leaner, more flexible structure might be wiser. Ultimately, the decision should align with your long-term vision and the values you uphold as a business owner. As you contemplate the path forward for your company, consider how adopting elements of public company practices could strengthen your operations and relationships with stakeholders. Just remember to balance these considerations against the need for agility and confidentiality in your decision-making process. And if you ever want to strategize on this, just drop me a note at chip at schweigercpa.

Chip Schweiger 9:12

Well, that about wraps up another edition of the Things Entrepreneurs Should Know podcast. Be sure to check out our website at teskpodcom, where you can find the show notes, an archive of our past episodes and other resources to help grow your business. That's teskpodcom, and if you haven't done so already, I'd appreciate if you'd take one minute to give us a review on Apple Podcasts or rate us on Spotify. It helps out a lot to get this to more entrepreneurs and business owners. And if you've done that already, please consider sharing this show with family and friends, who you think would get something out of it. As always, thank you for your support. This is Chip Schweiger, reminding you that if you always do what you've always done, you'll always get what you've always got. We'll see you next time.