“I’d like to sell my business.” That’s the first step. Now, there’s a whole world of possibilities waiting for you, and getting your business valuation complete is the next step in the process.
As an owner, you’ve crunched the numbers, found your EBITDA, factored in growth potential, assets and liabilities, and even your competitive position in an ever-changing industry. What you might not know are all the other elements of your business that are critical factors in the final number at which you––and your potential buyers––value your business.
That’s why finding the right partner to help you find the true value of your business comes in. More than just completing a check box, working with the right partner can help get you a more accurate business valuation and even include some things you might not be considering.
Here’s five factors that we often see business owners ignoring when valuing their business.
Your business might be running smoothly, but what about your customers? The quality, loyalty and diversity of your customer base can make or break your business’s valuation.
Buyers often place a high value on customer loyalty and retention. High performing recurring revenue models like subscriptions can add significant value to your businesses for their reliability and future opportunity. For technology-driven and SaaS companies, customer acquisition costs and lifetime value metrics are also important to consider.
If most of your revenue hinges on just a handful of customers, buyers notice—and not in a good way. In B2B and high-value B2C businesses, customer concentration is a red flag. Lose one, and your bottom line could take a serious hit.
When buyers are looking to acquire your business, they are also looking at the company’s leadership team. Buyers look for an experienced and capable leadership and management team who are committed to the company.
When acquisitions are made, buyers often want to bring in people from their own network who they’ve worked with before. Therefore, it is important to factor in your leadership and management team’s adaptability to new processes and structures.
In your business valuation, you need to ask yourself, “if I sell my businesses, will it still run smoothly without me?” If it relies heavily on you to keep operations or strategy on track, buyers may view that as a risk. A company that can’t function without its owner is harder to sell and often valued lower. As you assess your business’s worth, consider how independent and empowered your team is to run the company long-term.
That’s where succession planning comes in. At SSC, we help business owners build leadership structures that increase enterprise value and make future transitions smoother, for you and your buyer.
You know your business is worth more than just physical assets. Trademarks, copyrights, patents, proprietary processes, software, and data can be very valuable—but are often undervalued or undocumented.
Create an intellectual property database to catalogue and value your intangible property that makes your business truly unique. This includes everything from exclusive artistic and distribution copyrights to customer data and even registered domain name ownership.
In additional intellectual property ownership, buyers care deeply about intangible assets like your business’s culture, community engagement, and overall reputation. While some factors like patents and data may be easier to measure and value, it is important to include the impact of your intangible assets when conducting a business valuation.
In addition to a strong leadership team at the helm, buyers understand the value of the entire employee team, its culture and retention and systems and process performance.
In the same way that an experienced leadership and management team brings value to a buyer, a reliable and high-performing employee team is essential. Buyers don’t want to have to find new employees, invest in large-scale training and development or change internal operations processes. They want to come in and support a thriving business while implementing their own strategic changes.
Document long-term employee contracts and highlight incentives; this proves to buyers that your employees have reasons to stay after the sale of your business. Additionally, low turnover, structured hiring practices and defined key roles give buyers confidence in their purchase.
Take a moment to stop and think, “what would I need to do if I wasn’t going to sell my business?” Are there any projects or upgrades that your business needs? Whether you’ve pushed a parking lot resurfacing project or just haven’t had the resources to upgrade your large equipment, you need to factor those into the valuation of your business.
In addition to deferred maintenance, buyers want to see what kind of investment you’ve made in professional services surrounding your business line. Have you invested in your marketing team? Do you have a reliable administrative team taking care of everything behind the scenes? What about a solid accounting team and regular, consistent financial reporting? A perceived underinvestment in secondary areas of your business may hurt the overall value of your company.
Buyers can be easily scared out of a deal if they know that they will need to take over maintenance that you haven’t yet completed or start from square one on professional support services like marketing. Not to mention, they may take these as signs of stagnation or lack of innovation, even further lowering their valuation of your business.
Valuing your business by yourself is extremely risky. You may think of your business’s quirks as just part of your story, but buyers may have a different reaction. That’s why you need to find a partner who will tell it to you straight.
At SSC, we don’t beat around the bush. We take our job as consultants seriously, helping you identify opportunities and risks and giving you the tools you need to sell your business for what it’s really worth.
We specialize in business valuation across many industries including construction, engineering, professional services, healthcare, manufacturing and more. Our years of expertise in these industries give us the upper hand in identifying essential factors that contribute to your business’ key value drivers and the impact on overall value.
Every business owner is going to exit their business at some point…and it’s either planned for, or it just happens to you. A good plan starts with understanding value and exit strategies five or more years out. It’s never too early to accurately value your business. We’ll be with you every step of the process.
At SSC + CPA Advisors, we consult with business owners to answer the question, “what is the value of my business?” We work closely with you and your business’s stakeholders to identify every asset––tangible and intangible––that makes your business unique.
Get in touch with us today. Let’s figure out just what your business is exactly worth––and kick start your future.
“SSC CPAs + Advisors” and “SSC” are the brand names under which SSC Advisors, Inc. and SSC CPAs, PA provide professional services. SSC Advisors, Inc. and SSC CPAs, PA practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations, and professional standards. SSC CPAs, PA is a licensed independent CPA firm that provides attest services to its clients, and SSC Advisors, Inc. entities provide tax, advisory, and business consulting services to their clients. SSC Advisors, Inc. is not a licensed CPA firm. Our use of the terms “our firm” and “we” and “us” and terms of similar import, denote the alternative practice structure conducted by SSC Advisors, Inc. and SSC CPAs, PA. Advisory services provided through Wealthcare Advisory Partners, LLC doing business as SSC Wealth, LLC. Wealthcare Advisory Partners LLC is a registered investment advisor with the U.S. Securities and Exchange Commission.