What is the value of your business?? In 2018 it is estimated that approx. 13 percent of business owners valued between $5MM and $50MM sold as a result of an unsolicited offer, according to the Q4 2017 Market Pulse Report published by the International Business Brokers Association, M&A Source, and the Pepperdine Private Capital Market Project. Recently passed corporate tax reform means quite a few business owners may find themselves in a position to sell sooner than they thought possible.
Identifying your business’s internal value drivers should be your very first step whether you are considering a sale now or in the future. Buyers and investors will want to know exactly how and why your operations are successful. Understanding your company’s unique business value will ensure that you arrive at the negotiating table prepared when the time comes.
Revenue, Cash Flow and Profits
If your company is weak or volatile in any of these areas, you may want to wait to put it on the market until things improve. Buyers almost always see financial under performance as risky. Even if they are willing to overlook the risk, they will be expecting a steep discount. Higher risk equals lower value for your business. However, if you can demonstrate strong, sustainable, and reliable revenue, cash flow and profits, you will obtain a higher price for your business
Your customer base will be a key aspect suitors will want to see. They look at things like:
- How many customers you currently have.
- Demographic profile.
- Acquisition methods and retention (i.e., keeping them engaged)
- How do you earn their loyalty
Be prepared to answer these types of questions in the negotiating process. A buyer never wants to see a large portion of your revenue coming from one customer or a select few.
Your must have a variety of places to source the labor, materials, products and services necessary to run your business. Having options in terms of suppliers on hand makes your business more reliable in its delivery methods and thus then value of your business higher. Just like customers, investors and buyers do not want to see you dependent on one single supplier with limited or no backup options. It would be beneficial identifying several that could replace them should the need arise.
Management and Financial Record keeping
Management teams can make or break a deal, and experience, competence, organization and professionalism are key factors in determining their value. Depth in management is also very important. Identify weak links, and do not hesitate to retrain or replace management personnel who are not adding value .
Finally, it’s more important to have detailed, accurate and honest bookkeeping. It is much easier to prove your business has value if your finances are meticulously documented. Inaccurate and sloppy P&L’s, balance sheet, etc. cause uncertainty and this add risk (decrease to your value).
Call me at 770-380-2406 to discuss value drivers and your specific circumstance in more detail regarding the value of your business.