No matter the state of the market, business value drivers remain fairly constant. Buyers’ appetite for certain industries or industry segments reflects the current period. Yet, the attributes that auger for a higher selling price are always in play.
What are the primary value drivers? In no specific ranking, they are the following:
- Management depth and competence beyond the owner(s).
- The expected growth of the business segment and the competitive position of the firm (e.g. number 2 or 3).
- The base of customers that is recurring revenues.
- Solid gross and net profit margins and ability to scale business.
- Development/pipeline of new products or services.
- Ability to increase prices/reduce costs.
- Solid customer retention without concentration.
- Intellectual property (IP) owned and used to advantage versus competition.
- Non-cyclical business.
- Potential to add-on other sellers.
- Clean and clear financials and EBITDA.
- Systems controls and procedures in place and capable to handle growth.
- Business not susceptible to litigation.
- Employee retention is evident.
- Recognizable and positive culture.
- Quality of outside professional advisors.
- Capitalization table that is up-to-date and easily understood.
- Working capital calculation is explainable.