At the Entrepreneur’s Hub, many business owners will ask what will impact the value of their business.
Of course, there are numerous things that make your business attractive to a buyer. You may fit in with their needs for expansion, for instance, or there could be greater for potential for growth or the chance to combine two different businesses for strategic reasons.
Whatever the reason for buying, here’s our quick look at 5 factors that could well impact the value you achieve.
Consistent Good Performance
A potential buyer will want to know that your business has performed well over the last three to five years. They’ll want to take a look at the balance sheets and see a demonstration that profits are on the rise rather than starting to fall. Strong performance is key if you are going to attract the right kinds of buyers and get a good price.
The Potential for Growth
No one wants to buy a business that is going to remain static. While you may have not taken your company as far forward as you wanted, if there is the potential for growth then you are going to look a lot more attractive to buyers. While in many cases this will boost the asking price, it’s not always the case.
That’s because it may require more investment on the part of the buyer and this financial aspect alone may well be a determining factor when a bid is put in. It’s much like buying a house that needs a lot of work completing on the infrastructure.
Your Customer Base
How many loyal customers you have managed to pick up and whether these are likely to stay when the company changes hands is another issue that can affect the price. A healthy, evenly spread customer base that brings in a steady revenue is a good place to start and combined with the potential for good growth can give buyers a strong platform on which to develop.
One aspect of the customer base that can be problematic is if you have just a few top customers who contribute a large proportion of the revenue. This can present a potential risk that can reduce the value of your company. If 80% of your income is coming from just two or three major customers, then the question a buyer will ask is what happens if they suddenly bail out.
The Influence of You
How much the running of the company depends on you personally as the owner is also another important factor. Most don’t tend to hang around when a company is sold and that can impact on the value. Essentially, the less dependent your business is on you, the higher you should expect the valuation.
Another side point to this is that if some of your top customers are only doing business because you own the company, they might well want to shop around once you leave. That may be a risk a potential buyer doesn’t want to take on.
A Well-Prepared Business
If you are serious about selling your business at some point in the future make sure you and your business are well prepared for the process. If you were buying a car you want to make sure it’s well serviced, valeted and no nasties under the bonnet, it’s no different with a business. At the Entrepreneurs Hub we believe this is key to achieving a premium valuation; and ensuring your deal completes quickly.
Of course, there are many other factors that affect the value of your business. These five points are crucial though when you are considering preparing to sell – understanding them means you can put in the processes and changes that are more likely to make your business an appealing asset and improve the price you get for it.