Buyers will use the same factors a valuation analyst would use to estimate
the worth of your business. Helping them determine their interest, how much they are willing to offer and how they want to structure the deal. Those factors are:
- Are you able to demonstrate stable revenues and profits over the past five years? Large year to year fluctuations in your financial performance look like uncertainty. Consistent numbers reassure buyers they know what they are getting.
- Is your revenue and profit growing or shrinking? It is easy to invest in a growing company. If revenues or profits are falling, ask yourself why and how you can reverse that trend.
Quality of Financial Information-
Audited financial statements are the best, but few companies have them because of the expense. Reviewed financials provide business buyers with some comfort that a professional has looked at the books. A good set of financial records are a must. Invest in Quickbooks and a Quickbooks consultant to get your records straight.
- The more diverse your customer base is and the better your revenue is varied, the more confident a buyer will feel. If 50% of your revenues come from five or fewer customers, there is a greater chance that a significant percent of revenue could walk away.
- Supplier diversification is also something of note for buyers. Multiple supply sources means stable product availability and cost control.
Business owners always talk about wanting to protect their employees. Guess what? Buyers #1 concern is the quality and stability of management and the employees. If you have a really great team, most buyers will fight to keep them and ask you for a lot of help in making that happen.
What are the growth prospects for your industry? Robotics, senior care, software as a solution, and alternative energy firms report higher multiples because buyers expect a higher growth potential.
- How big, how close and how many? All of these factors weigh in on where you stand.
- What unique skills or services do you offer that your competitors do not? The points your sales team use so customers pay more will also enable you to ask for a higher value for your company.
- How much more can you sell to your existing customers?
- How much more of the existing market share can you capture from your competitors?
- Do you have an opportunity to profitably move into another geographic region?
All of this sounds like the business factors you think about everyday, doesn’t it?
Buyers are concerned about the same things as you because they are looking to grow your bottom line and create additional wealth for themselves. The more clearly you can demonstrate that you have acted on these matters, the higher a valuation you will receive.
More importantly, the more of the factors you get right, the more money you will make everyday.
Chuck Harvey, is the owner of International Business Exchange, Inc., one of the oldest, largest and most respected M&A Advisories in the profession. Prior to IBEX served as CEO, COO and CFO’s of Fortune 500 Companies, thriving middle market companies and start-ups. His extensive financial experience with the public market, private equity and venture capitalists includes more than three dozen buy-side and sell-side transactions on three continents. He is also the found of Infusiac, LLC and The One 21, LLC.
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