You know your business is valuable, but that isn’t enough when you’re selling. The profitability of your business sale is dependent on its value in the eyes of the buyer.
While that idea may sound difficult to wrap your head around, it’s easy to comprehend if you break it down into the 10 main indicators that drive the value of your business.
The 10 Best Drivers of Business Value
- Stable Cash Flow: The most important indicator of value is a steady pattern of cashflow. Obviously, a business that doesn’t generate much profit will be a hard sell.
- Reliable Financial Information: This goes hand in hand with your stable cash flow. A qualified buyer won’t just take your word for it, they’ll want to see the numbers to prove your business’s financial health. Get to know your financial statements.
- Customer Diversity: A broad customer base is important for the security of your business. If you have more than 1 type of customer, your business is better insulated, since the loss of any single customer won’t do you in.
- Quality of Workforce: No one wants to buy a business and then have to immediately hire a whole new team. Make sure you have well-trained employees and hold onto them during the sale.
- Growth Potential: You will get a higher price for your business if you can make a good case for why the buyer can expect the business to continue to grow in the future.
- Operating Systems and Procedures: Establishing documents that outline procedures for things like quality control, vendor communication, and human resource management can help your business to be more profitable when you sell it.
- Facility and Equipment: If you keep your facility and equipment well-maintained, this can be a selling feature for your business. Updating a building will just be another headache for your buyer to take on.
- Goodwill: This indicator deals with the trustworthiness of your business. If people recognize your name and your business has a good reputation, that will benefit you here.
- Barriers to Competitive Entry: It’s a good idea to put protections for your business in place. Copyrights, trademarks, and other protections on your intellectual property will give your buyer some peace of mind.
- Product Diversity: A set of products and services that is too narrow is risky. Try to ensure that your business has a healthy mix in order to protect its value.
While you want to get the right price, you should also make sure you aren’t pricing your business too high. You may want to also think about some of the reasons a buyer wouldn’t want to buy your business.
If you need help evaluating your business, don’t hesitate to reach out to The Bridlebrook Group! We can help you determine the value of your business.