Factors That Influence the Value of Your Business
There are many factors that can affect the value of your business. When it comes to selling you may be asking the question, 'What is my business worth?'
Factors that may influence the value include:
- Industry Outlook: If the outlook for your industry is bright, your sale price will go up.
- Customer Base: An extensive customer base with no single customer representing more than 5-10% of revenue will push the price up.
- Depth of Management & Sales Teams: If you, the business owner, wear all the hats, the price goes down.
- Strong Background: Being able to tell a good (and truthful) business story is critical in helping a buyer recogise the value of a business. Selling through an experienced business broker will compile a good story that best showcases your business to potential buyers.
- Industry Consolidation: If your business’ industry is experiencing consolidation - that is, big companies getting bigger through acquisition - then prices for smaller businesses will rise.
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When selling your business it’s always a good idea to ask your business broker to point out these factors, so you can concentrate on all the positives and potential. Business brokers are not only trained and have the experience to guide you when selling your business, but they can also help you prepare the business for sale.
A well thought out exit strategy and executed plan prior to going to market gives you the best chance of a higher value sale.
What else should I consider?
- Track Record: If you have a track record of constantly growing sales and profits, buyers will be willing to pay you more
- Revenue: The bigger a business’ revenue, generally the higher the selling price. A business with $25 million in annual sales will usually sell for more than a business with $5 million in sales.
- Market Position: If your business dominates your market, or holds a unique niche in the market, it is more likely to sell at a premium.
- Multiple Buyers: This is one of the most important factors; when there are multiple buyers for a business, the price of the business has a good chance of exceeding the price paid for a business sold without competitive bids. Your marketing strategy needs to drive this.
- Contractual Arrangements: A lengthy lease, license, franchise agreement and/or customer contracts all create certainty for a buyer; they will pay you more
- Street Appeal: Last but by no means least, your business needs to be presented so it is appealing to the eye. Consider a fresh coat of paint, new signage, a spotless workshop - you only get one opportunity to make a first impression so get it right!
A business broker will help you maximise your financial return for all the hard work you have done and ensure the transaction runs smoothly. If you would like assistance from one of our experts please contact us today at Advantage Business Sales & Valuations
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