Value Drivers


What do buyers look for in a possible business acquisition? Does your business have it? Are you ready to sell?

Do you every wonder why some businesses sell at a premium while others languish on the market, or don’t sell at all? What do the businesses that sell have that the ones that don’t are missing?

Put on the buyers shoes for a moment.  If you were the buyer what would you want? How much more would you pay for a business that has a strong management team in place that would keep most of the day to day knowledge in the company long after the sale?

Without these types of “value enhancers” in place, many Chartered Mergers and Acquisition Professionals have found that the purchase price often decreases by as much as 75%. Since value enhancers play such a vital role, let’s look at some of them.

-A strong and stable management team that is motivated to stay long after the close of the sale. Sophisticated purchasers know that if the managers are in place there is a strong likelihood of long-term success.  Without one, it is hard for an outside third party to be interested in purchasing because most of the knowledge leaves with the owner at the sale.

-Operating systems that help sustain cash flows. Operating systems include the automated and manual systems used in business to generate sales and control costs, creating cash flows, as well as processes used to track customer identification and the delivery of products and services. The documentation of everyday business procedures and systems show a potential buyer that the business can continue to be profitable into the future.

-A diverse customer base. Buyers look for a customer base that has no customer accounting for more than 10 percent of total sales. That way the loss of a single customer does not adversely affect the company. A company with a highly concentrated customer base is risky. If you find yourself in this position, you may want to consider reinvesting your profits into creating additional capacity in an attempt at broadening the customer base.

-A comprehensive growth strategy. Buyers tend to pay large premiums for companies that are growing. A written plan describing how future growth will happen is very important. The plan should be based on industry metrics, increased demand for current company products, potential new products, marketing plans, acquisition strategies, territory augmentation expansion methods, etc. and should be effectively communicated to attract potential buyers.

-Effective internal controls. Internal controls not only are an important part of financial management, but also safeguard the company’s assets. Also, effective internal controls enable a company to document that it can be profitable consistently in the future. The best way to document effective financial controls is through an audit by a certified public accountant.

-Consistent and improving cash flows. Ultimately, all value enhancers contribute to consistent and growing cash flow. It is very important in the years immediately preceding the sale of the company, to show that cash flows are growing. You can start to increase your cash flows today by focusing on the things that help you operate your business more efficiently, increasing productivity and decreasing costs.