What are the Universal Value Drivers when it Comes Time to Sell a Business?

Mike Ginsberg

The value of a business, like beauty, lies in the eye of the beholder, right? Yes but only to a point. Some buyers may place a higher value than others on particular aspects of a selling business.

One such aspect is the business’s client base. Perhaps the selling business has a longstanding and contractual engagement with a large government client, for example. That particular client may drive value for certain buyers seeking access to that client. However, some desirable industry buyers may already service that client and they stand to lose market share if they acquire your business. In this case, the same client becomes a value detractor.

Here are the top 5 universal value drivers for all size service businesses:

Sustainable Financial Performance

The leading value driver for most buyers is sustainable, and profitable, yearly revenue growth. Some businesses may achieve multiple years of revenue growth followed by a period of relatively flat revenue performance. Historically these businesses grow once again after they experience a period of flat performance. Provided these businesses remain profitable on a yearly basis, they are still perceived as a growth business by most buyers.

Capital Expenditures Are Consistently Addressed

Businesses with owners that consistently reinvest back into systems and infrastructure improvements will be viewed positively as well positioned on a competitive basis to sustain performance.

Skilled and Tenured Staff in Place

Some industry buyers may not see value in retaining key executive level staff because they believe they already have their own team in place. However, retaining a well trained and experienced staff post-closing provides great comfort to buyers that financial performance will not deteriorate.

Minimizing Legal Exposure

Most ARM companies that service a lot of accounts have some amount of consumer lawsuits being filed against them. Knowledgeable buyers understand this and will not be deterred provided they perceive the business is compliant and being properly managed to minimize exposure.

Does the Business Show Well?

Buyers will quickly determine if a business is profitable because employees don’t have enough space to operate or desks are run down. Conversely, buyers will be concerned about businesses that show too well. Striking the right balance is critical to achieving maximizing value when it comes time to sell.

The good news is that management can continuously strive to address these areas regardless of the owner’s interest in selling the business. These attributes not only influence value in a sale, they are good business practices universally.