Many companies do not reach their potential valuation or their maximum selling price. While there is no perfect business without flaws or challenges, businesses that sell at the top of the valuation range or have the highest multiple incorporate a number of common characteristics.
1. Increase in income / benefits. Cash is the fuel of business. Companies that have strong finances with year-over-year growth in revenue and earnings will be in demand and should achieve an attractive valuation.
two. Clean books. Having accurate, detailed, up-to-date, and professionally prepared financial statements and records is one of the most critical components to a successful business sale.
3. Bright prospects for the future. Companies operating in an industry that has a strong outlook for continued growth in the coming years will be highly sought after.
Four. No concentration of customers. A company that has a broad and diverse customer base will have a lower risk that the loss of any one customer will have a material impact on the company’s revenue and profits.
5. Multiple providers. Companies with a diversified offering of products and / or services with a wide range of suppliers and partners will be a less risky acquisition than a company that relies on a single manufacturer or service provider to generate revenue.
6. Stable workforce. Having a happy and loyal workforce with long-term employees is always a positive attribute for a buyer looking to acquire a private business.
7. Established processes. A business that has written procedures detailing workflow and operational processes provides greater continuity during the transfer of ownership of a business.
8. The owner not the business. Companies in which the owner contributes his experience working “in” the business vs. “In” business they are less likely to experience a loss of income during a sale. Owners who have become the face of the business where they are one of the main reasons that customers use their products or services create challenges for the new owner to retain these loyal customers.
9. The company qualifies for acquisition financing. A business for sale that qualifies for acquisition financing from a bank or SBA-backed lender will benefit from its ability to market to a wider audience. Certain issues prevent third-party financing from being secured, including poor financial performance or messy books with undeclared cash and questionable additions.
10. Professional advisers. Successful business sales require a team of professional advisers who are experts in their designated field. Members should include a business advisor or broker with experience in mergers and acquisitions, a business attorney who specializes in transactions, and a certified public accountant with experience in tax structuring and asset allocation. Experienced advisers are worth their weight in gold and will add value that far exceeds the fees involved.
Small business ownership involves a certain level of risk. The price at which a company is valued should reflect the degree of risk. While the element of risk can never be removed from small business ownership, the ten characteristics detailed above should mitigate many of the issues that buyers worry about when looking for an acquisition. This, in turn, will allow you to maximize the commercial value and the selling price.