Looking at your business from a buyer’s perspective is important. They will be adding and subtracting these various factors when arriving at an asking price. It is perhaps more important to recognize when the buyer arrives at a price at which he or she will leave the negotiations.
Most buyers naturally try to buy the business at the lowest possible price possible. However most also have a top price over which they are probably not willing to go. Here are some of the “high value” indicators as well as some of the “low value” indicators to consider when evaluating your business.
Indications of High Value
- High sustainable cash flow
- Room for the business to grow
- Anticipated industry growth
- Competitive advantage – location, area, etc.
- Business niche
- History and reputation
- Low failure rate in industry
- Modern, well maintained facility
Indications of Low Value
- Customer concentration on a few major customers/clients
- Reliance on owner
- Poor financials
- Distressed circumstances
- Few assets
- Product or service sensitivity
- Poor outlook for industry – regulations, foreign competition, price cutting, discount stores, etc.
When owners want to add value to their business, they need to look at it from the perspective of a potential buyer. By considering the many factors that buyers look at when examining a business, business owners can create a strategy that will increase the value of their company.
Professional business brokers can help business owners identify and address key areas that buyers consider when assessing a business. This includes things like funding, sustainability, and impact. By working with a professional broker, business owners can create a plan that will help them increase the value of their company and make it more attractive to potential buyers.