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What make a business worth more?
              

The sale of a privately held company is significantly different than the sale of any other asset you’ve ever owned. It’s not the same as selling your home, real estate or property. It’s not the same as selling any other tangible asset, such as an auto or boat. Acquirers of an operating company are acquiring the future profitability of your company, and they are willing to pay you multiples of that future profitability today.

The amount a buyer is willing to pay comes down to return-on-investment (ROI) and relative risk. The goal is to present your company to the buyer showing the positive return potential with the least amount of risk.

Here are a few factors that increase the value of a business:

  You’re in the growth stage business cycle. If your company is in the growth stage business cycle a buyer will value your company higher because they know revenues and customers will continue to increase over the next several years.  You’ll want to show you have processes in place to manage the increased sales and customers.

  You have multiple sources of income. Make sure to document multiple sources of income, so that a potential buyer feels secure that he is protected from the unavoidable ups and downs of economic and industry cycles.

  You have a healthy customer base. Buyers want to know that your customer base is broad and diverse so if you lose a few, it won’t significantly impact the business. If you only have a few big clients, try to get more clients prior to selling the business to diversify the risk.

  You have a solid management team in place. A prospective buyer wants to make sure that the company can succeed without you at the helm.  Make sure you have a solid management team covering the major aspects of driving a successful business (Operations, Marketing, Finance, Customer Service, etc.). You can also show that you regularly call upon the expertise of outside consultants, attorneys and accountants as needed in the running of your business.

   You have a repeatable marketing strategy. If the buyer sees you have a repeatable marketing strategy that consistently generates new clients, then they know they will be able to replicate that system and keep the same positive momentum once they take over. If you haven’t perfected or documented your marketing strategy, do it prior to finding a buyer

   You have goodwill. Goodwill is the value of a company's reputation which gives it a competitive edge and earning power. Accounting wise it is the amount paid above the book value of the company's assets.  If your company has built up an excellent reputation, or a valuable trade name, or has important customer contacts, it most likely will enjoy a higher multiply in selling.

Prior to finding a buyer, it is important that your business is in top operating order and appearance. Prospective business buyers won’t simply take you on your word. You need to have documents ready to support every claim you make during the sales process.