This is the second in a series of articles outlining the steps any business owner can take to maximize the value of his/her business when it comes time to sell. If you’d like to see previous articles in this series, visit our website at www.lmaallc.com. If you’d like a copy of the complete list of value drives, e-mail me directly at firstname.lastname@example.org and request the Value Drivers list.
- Favorable Sales & Profit Trends
Buying a business is a lot like buying any other investment, such as stocks or real estate: Everyone wants to buy it when it appears to be going up, and some will even pay a small premium based on this future growth potential. Conversely, few people want to buy stocks or real estate when it appears to be falling, and/or will discount it heavily based on its perceived future decline.
- Defensible Niche
Ideally, there should be good reasons why your customers do business with you that would be difficult, if not impossible for your competitors to ever match. When the barriers to competitive entry are perceived to be very high, buyers will pay a premium price.
- Lack of Customer Concentration
When the loss of any one customer would not have a material effect on the business, buyers will pay a premium. Conversely, when one or a very few customers represent 25% – 50% – 80% of a company’s business, this can be a deal killer for many buyers and their lenders.
- Strong Management Team; Near- Absentee Owner
A new buyer will likely not know everything there is to know about your business, and will look at the strength of the current management team to see if they can be counted on to help him/her manage the business once the current owner departs. This is especially true when it comes to customer relationships. How likely is it that some/many current customers will quit doing business with the company once the current owner leaves? A Seller who fails to develop his/her management team, and insists on doing everything him/her-self, and appears to be indispensible, may optimize the business’ cash flow in the short term, but at the same time may make his/her business unsalable.
To be continued…
If you know of someone who’s thinking of selling or buying a business and who might benefit from a free, confidential, consultation with us, have them contact me at: email@example.com.
By: Mike Ertel, Transworld M&A Advisors