Well lets re-phase this – what are the key factors potential buyers will be looking at when acquiring your business – each of which adding a premium to the asking price. Achieving these is no overnight fix and only come from focus and planning, however will offer your business resilience ready for whenever you plan to sell it.
Value Driver 1 – A Predictable and Consistent Cash Flow
Sales turnover and a positive cash flow will be one of the first business areas a buyer looks at. Established growth patterns carry a premium which will be higher depending on the level of recurring sales. This demonstrates a level of stability and a lower risk of being lost with a transfer of ownership. Examples of recurring sales are maintenance contracts, subscriptions or service agreements/warranties. Buyers are willing to pay the highest amount when they feel a positive cash flow is predictable and repeatable.
Value Driver 2 – Broadness of the Customer and Product sales base
Aim at ensuring no single customer or product makes up more than 10% of total sales. This helps to protect the business from a loss of a significant customer or product and the cash impact this will cause. Ideally products should be sold to multiple market sectors too.
Value Driver 3 – Reliable Financial Information
Goes without saying reliable financial records are critical for ongoing business management which in the company sale process can be used by the buyer to carry out due diligence to have proof of the figures. Any level of doubt will have a negative impact to the purchase price.
Value Driver 4 – Quality of the Employees
Employees should be a business’ greatest asset. Developing a low employee turnover ensures experience and depth of knowledge together with less time spent with recruitment (and its associated costs) and newbee training. An in-place team will provide continuity and assist with business growth under any new ownership and as such are a desirable asset.
Value Driver 5 – Potential future Growth
At least annually a business should prepare a sales forecast and business plan for the coming year on which actual performance should be assessed. The sales forecast should be derived from a growth plan which identifies realistic opportunities and profit. Such a plan will be of significant value to a buyer which might identify areas they had not considered. Areas to consider in a growth plan
- If the business in a growth industry are there additional markets to pursue
- What existing products could be sold to existing customers
- Which products make the best profit margins – how can their sales be increased or margins replicated in other product lines?
- Are there technology licencing or product franchising opportunities
Value Driver 6 – Operating Systems and Procedures
Documented standard business procedures and systems help ensure product quality and aid employee learning in how the product is delivered. This enables continuity under any new ownership. The following are examples of business systems which enhance value –
- Employee recruitment, training and retention
- Product development and improvement
- Product quality control
- Business or product certification (for example ISO 9001/14001 or 18001)
- Employee manual
- Customer, supplier and employee communication
Value Driver 7 – Facility and Equipment Condition
Well maintained, tidy and modern facilities & equipment are not only likely provide the lower overhead running costs but also to realise a higher business sale value. Potential buyers will be put off by poorly maintained equipment and facilities perceiving other aspects of the business may be similarly disorganised. Buyers will also be looking for a modest amount of space capacity to accommodate some sales growth.
Value Driver 8 – Barriers to Entry
Businesses should look at how they can protect themselves from competitors to strengthen its strategic position – their effectiveness of this adds a premium to a business sales price such as –
- Aside trademarks, patients or hard to get licences
- Trade secrets
- Developed processes and propriety know-how
- Hard to get contracts (for example government)
- Goodwill – brand name, customer awareness or a good reputation.
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