As a potential seller of a business, it is essential to understand the key business for sale value drivers of your business. Business owners should begin monitoring their company’s value for several years before deciding to sell it. An experienced business valuator, business broker and mergers and acquisitions advisors are good resources to assist business owners with understanding what non-financial factors drive business value.
Value drivers refer to factors that increase the value of a business in the event of a sale opportunity. These value drivers could be either qualitative or quantitative. Examples of qualitative value drivers could be hiring more skilled labor, whereas quantitative value drivers include improving the company’s financial performance through in-depth analysis of its financial statements. Ultimately, these factors improve the valuation of a company, allowing business owners to maximize its business values.
Many business buyers heavily emphasize identifying the company’s main drivers for future performance to evaluate the business. More value drivers suggest the business has a more significant growth potential, which is vital when buyers weigh the benefits over the company’s risks. Therefore, having strong value drivers in a company would make the sales pitch significantly more attractive and compelling. Although certain value drivers are specific to businesses depending on the nature of the industry, universal valuation drivers are generally applicable to various industries. Again, business valuators, business brokers and mergers and acquisitions advisors are often one of the best resources for business owners to bounce these ideas off to understand what buyers are looking for when they buy a business.
Economies of Scale
Businesses that are engaged in the production of goods would aim to achieve economies of scale. The company can achieve lower costs per unit across higher production volumes. Business owners would need to better understand their products’ production and distribution to realize internal economies of scale and achieve external economies of scale by gradually growing in size. Eventually, companies could engage in bulk purchases from their suppliers and be competitive within their respective industries.
Human capital/Employees
Skilled human capital is essential for a company to be successful. Business owners should dedicate time and effort to performing the hiring process, as well as offering training programs to employees in order to run a successful company. Hiring specialists and training employees could boost the business’s productivity over time and is essential to achieving economies of scale as well. Business owners could identify the key people within the organization to manage small teams and establish an appropriate management style.
Customer base
For companies to solidify revenue sources, business owners must constantly expand their customer base by setting up offices in new geographical areas or innovating to appeal to a wider customer base. Business owners would not want to limit their revenue sources to only a few customers as this increases the dependency on the customers and the risk to the company. Consequently, companies need to manage the distribution of customer concentration to generate various revenue streams to minimize potential revenue risks to the business’s revenue.
Reputation & Brand Awareness
A good reputation brings more customers, better staff, and more profits, which are essential in any business. It not only increases the number of clients you attract but can also improve the quality of those customers. A solid business reputation assures your clients that they can rely on your organization to provide high-quality goods and services. It also conveys that you appreciate your clients and care about their relationships with your company. This provides customers with an incentive to continue to trust the business. At the same time, organizations with a reputation for being fantastic places to work open the door to a more talented pool of potential employees. A competent workforce can also set your company apart, attracting more customers.
Economic & Regulatory Environment
Regulatory institutions create rules and regulations to enhance enterprises’ economic and social well-being in the private sector. Regulations exist to foster a fair and competitive economy while also protecting workers, consumers, and the environment. The government can serve as a resource for institutions that provide funding, consulting, and other services. It also supports the business and the employee by enforcing regulations such as consumer rights protection and labor safety.
If you are considering selling your business in the next few years, it is imperative that you apprise yourself of what value drivers are essential to grow so that you have the best available exit upon a sale. Business valuators, business brokers, mergers and acquisitions advisors are good resources for business owners to understand what buyers want when buying a business.