Family businesses often put off tackling the topic of valuation.

Then, a crisis occurs: a death in the family, a relative’s firing or a disagreement that leads to litigation. Trying to establish the value of the business becomes more challenging on every level, including emotionally.

“Unfortunately, I think a lot of family business owners are afraid of valuation. We don’t want it so expensive we can’t transition it to our kids. And I want to flip that thinking,” said Nick Adamy, a second-generation owner of Adamy Valuation.

“The things that make your company valuable make it easier to transition, give you more flexibility and give you options for long-term ownership.”

Adamy will share his insight and experience at an upcoming webinar hosted by Prairie Family Business Association at 10 a.m. Nov. 13.

We sat down with him for a preview of what attendees can expect.

Valuation is something a lot of family businesses don’t think about until they have to, but when should they start thinking about it? And what’s the first step to take?

The first thing to do is get a baseline valuation. Understand what the business is worth, why it’s worth what it’s worth and what the factors are or levers to pull that make it more or less valuable. Then, move forward with that perspective because the things that make a company valuable to sell also make it valuable for you to keep and keep in the family. I want to get people thinking differently about building a valuable company. And I would suggest the goal when it comes to approaching ownership should be making it as valuable as possible. You don’t need to update your valuation every year, but it might be worth considering, especially as you get closer to a transition.

Why care about value as a family business if you’re not selling or even planning to sell?

It’s not a perfect analogy, but the one I make is that it’s like when you put your house on the market, and right before that, you do all the repairs and maintenance and upgrades you’ve been putting off. Then you think it would have been nice to have done it 10 years ago. It’s similar if you’re running a company. Run it as though you were going to sell it because it makes it far more enjoyable to own and gives you far more options when the time comes to talk about transitioning.

The companies I see that don’t approach their ownership from a long-term, value-creation perspective are the ones that end up having to sell to private equity because they don’t have other options even if they’d rather have kept it in the family. It’s an education process for owners and leadership but also for the next generation that the idea is about building lasting value over time.

While you help family businesses navigate valuation, you’re also a second-generation owner of your own family business. Did you work through a similar process in your own generational transition?

My dad started the firm as an accounting firm in the 1970s and had some partners in the firm. I joined almost 20 years ago, and we carved out the valuation practice. He sold the accounting practice to partners, and we went through our own leadership transition. The ownership transition was fairly mechanical. We figured out a price, and we can do that because we’re valuation people, and I bought my dad out. The harder part was the leadership transition. My dad and I look a little alike, sound a lot alike, but we did personality testing as part of our outside leadership coaching and found the two most different thinking styles were my dad’s and mine. So I’ll share in the webinar how we navigated that even though it was painful at times.

In a family business, some elements are hard to put a price on. There’s emotional value as much as financial. Do you find that perceptions of value can vary in families, and how do you help families work through that?

That’s where a shareholder agreement can help. Write down the rules and process to go through to transition ownership, especially in times of crisis. Ultimately when they are triggered, it can be a time of crisis, there’s a lot of emotion, so having an existing agreement can be extremely helpful. Plus with it, you’re communicating the plan to all shareholders and next-generation owners, and when the time comes, there are fewer surprises. You’ve talked about it for years, watched value change over time, understand why it’s changed and can hopefully avoid painful conflict.

What are some elements that family businesses can do to add value to their business?

We want to demystify that, so we’ll talk about how investors or valuation professionals value businesses and walk through that methodology at a high level. The message is increase cash flow and reduce risk. Build high-margin, sustainable cash flow. How you do that involves culture, process and strategy, and we’ll touch on that. Having seen a couple thousand companies, there are some patterns I’ve seen related to culture among the few companies that build truly lasting value. Culture can be a durable competitive advantage, and these companies use culture to embed competitive advantage into the organization.

What takeaways can attendees expect from your Prairie Family Business Association webinar?

We’ll ensure you know what you need to know about valuation, even if you’re not selling. We’ll talk about what builds lasting value and some practical ways of avoiding a painful family dispute over value and buyouts.

Make sure the webinar is on your calendar! Click here to learn more and sign up.