Many companies do not reach their potential valuation or maximum sale 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 have a number of common characteristics.
1. Increase income/profits. Cash is the fuel of business. Companies that have strong financials 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 customer focus. A business that has a diverse and broad customer base will have a lower risk that the loss of a customer will have a material impact on the business’s revenue and profits.
5. Multiple Providers. Companies with a diversified product and/or service offering with a broad bank 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 loyal and happy workforce with long-term employees is always a positive attribute for a buyer looking to take on 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. Owner not the business. Companies where the owner lends his experience working “in” the business vs. “inside” business are less likely to experience a loss of revenue during a sale. Owners who have become the face of the business where they are one of the main reasons customers use their products or services create challenges for the new owner to retain these loyal customers.
9. The business qualifies for acquisition financing. A business for sale that qualifies for acquisition financing from an SBA-backed bank or lender will benefit from its ability to market to a broader audience. Certain issues prevent third-party financing from being secured, including poor financial performance or messy books with unreported cash and questionable additions.
10 Professional advisors. Successful business sales require a team of professional advisors who are experts in their designated field. Members should include an experienced M&A advisor or business broker, a business attorney who specializes in transactions, and a CPA with knowledge of tax structuring and asset allocation. Experienced advisors are worth their weight in gold and will add value that far outweighs the fees involved.
Owning a small business 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 eliminated from small business ownership, the ten features outlined above should mitigate many of the issues buyers worry about when looking to purchase. This, in turn, will allow to maximize the commercial value and the sale price.
