Since buyers, through their offers, largely determine the price for which a business will sell, we have compiled several factors that affect a business’ value in the eyes of a buyer. Here are five of the several factors to consider if you want to achieve more value for your business.
Companies with a monopoly in their market get 50 percent higher offers. This is not saying you need a true monopoly; instead, think of it this way: The way your business’ product or service is different from your competitors makes you more valuable.
Think pizza, and then someone came up with delivery. Think oil change, and someone came up with a 15-minute oil change. Think online shopping, and Amazon came up with Prime two-day delivery.
We all have competitors, but we need to establish ourselves with a unique offering that no one else is currently providing in the market place.
Sell less stuff to more people. Drill down to what your company does extremely well and perfect those few products or services. Establish your business as the dominant, go-to provider for your offering.
Get rid of the products or services where the financial impact is less than 15 percent of your revenues. We all are better at what we do when we work with laser-like focus on a few things instead of being spread over many. Your customer will feel the difference, too.
Create recurring revenue streams. Companies with 75 percent or more recurring revenue get better offers. A buyer will pay more for a business where there is a history of recurring revenues.
Contracting companies typically have a hard time selling for a decent value because most of their work is one and done. But a pool company that does weekly cleanings, or an HVAC company or landscape design firm that also does maintenance, will create more value with recurring revenue.
Reduce reliance on you, the business owner, and any one employee, customer or supplier.
Some questions to ask yourself are, how well would my business function if I were out of it for three months? Does any one of my sales reps account for 40 percent or more of my revenue? How much business would I lose if they left the company? If one of my customers produces 25 percent of my revenue, how will business be if I lose that account? If 60 percent of my inventory comes from one supplier at very favorable terms, how will my business be affected if those terms change?
If any of these questions give you a little heartburn about your business, I can guarantee a buyer will feel the same way and offer you less for your business.
An acquirer needs to know they can grow. Remember, they are not buying your past; they are buying your future growth.
Your business model should ideally be able to be reproduced in another market area or town. How easy would it be to accommodate a five-times growth in your business? If that is a very hard or impossible thought, it highly diminishes your company’s value. Many businesses are bought by strategic buyers who know growth can be achieved through acquisition, but they don’t want to stop where you leave off.
If you’d like more information on where your business value ranks, visit our website and take the Value Builder Assessment. It is a free analysis of your business and will provide you a score and report on where you are doing well and where you might need some improvement. You never know when an unexpected buyer or unforeseen reason to sell your business may appear; you want to be able to capitalize on the value.
This entry was originally posted in The Local Buzz, Today’s Buzz by Tim Dalton. Bookmark the permalink.