Using valuation models to create value

You have your 2012 budgets set, you have aligned your resources to the key initiatives and objectives in your multi-year strategic plans and you have dashboards set to measure your organization's progress at least monthly.  Can you now answer the question- will my company be more valuable to all shareholders, customers and employees?  How do you benchmark how aggressive the management team's commitment is to increasing the value of your company?  There is one more best practice I recommend senior financial executives put in place and get the entire senior management team fluent in interpreting.  That is the appropriate valuation model.  While public companies have the stock market to interpret the success of your performance, it is entirely based on the confidence of forward looking statements and projections which by practice need to be somewhat more conservative than internal goals in order to avoid disappointing the market with downward revisions.  Private companies have much less pressure outside of banking relationships to quantify financial projections and are less likely to be measured on incremental value added unless a good phantom stock plan or equivalent long term incentive system is in place.
Which valuation model should you use?  If you are a privately held company I would argue the best measure is your EBITDA (earnings before interest, tax, depreciation and amortization) with an appropriate industry multiple reflective of your size and the ratio of EBITDA to net sales.  The multiple becomes a big variable here because if relies on outside verification of other competitors that are publicly held and past transactions.  However, it focuses that management team on not only growing the profit, but maintaining your financial standing relative to your competitors and rewards consistency of  profitable growth relative to sales which reduces the risk for outside financiers and merger and acquisition professionals when viewing your company for sale even if you have no intention to sell but may in the future seek "growth capital" that is non-bank funding for your companies growth.  Another method that is more simple to track is a discounted cash flow model that allows you to view the last few years of history and project your 5-10 year business plans to arrive at the value of your business.  This method is particularly good when replacing your projections each year with actuals and maintaining  a consistent level of conservative modeling.  The key to each of these methodologies is rewarding the management team for some type of quantifiable risk reduction (bigger balance sheets with more history are lower risk or lower beta than the small companies without a longer term history). 
While many valuation firms are excellent at this exercise, I am of course happy to share templates to get you started.  Several people on linkedin have already requested these templates and if you like, please send me an email to jevanoff@fona.com.  Keep in mind, the exercise is of little value unless you review this for consecutive years and do some analysis on what drives the incremental or decremental value from the prior analysis.  Also, don't fool yourself with increasing levels of optimism for future growth or the amount of risk.  If an independent professional would not arrive at the same conclusion with an intimate knowledge of your company, you should re-examine your assumptions.

Best of luck creating more valuable companies across the world!