Determine the value of a business

There are seven attributes that are considered as the key factors that determine the marketability and value of a business.

1. Financial Performance

A buyer sees the purchase of your business as a pay today, one that can provide a revenue stream in the future. That is why very often businesses are bought and sold using a multiple of annual profits. There are several criteria used to indicate how many annuities the buyer is willing to offer for that kind of activity. In general, the higher the risk of a fall profits in the years ahead and it lowers the amount the buyer is willing to pay.

Image Source: Google image
Image Source: Google image

2. Growth potential

Buyers are usually willing to pay more for companies with a high growth potential. In some cases, a buyer can also pay handsomely for a business with little turnover, as glimpsed the opportunity to use their skills to rapidly grow the business.

3. Independence of the business

In addition to the potential of the business, usually an investor is willing to pay more for a company that is not linked in particular to a specific customer (if I lose I lose the customer business), to a specific employee (if the employee leaves I lose the business) or supplier (if the supplier changes the product or the price increases could embarrass the business). An activity to be reliable must be independent of particular customers (having more customers and ability to attract new customers), employees (not need specific skills or “genes” to advance the activities), suppliers (at all times there must be the ability to switch providers without the activity being affected).

4. Forecast Revenue

One of the biggest factors in determining the value of a business is the extent to which a buyer can predict how they will be future sales. If you are in a business that each month has to start from scratch, the value will be lower. If the business has a recurring revenue stream each month and you can predict revenue and plan for the future, then your business will be more valuable.

5. Competitive Advantage

If your business is protected from attacks of competitors it is worth more. If your competitors are difficult to compete with your business, if you have an important competitive advantage and long-lasting, then your company has more value. In fact, the competitive advantage gives the buyer more control of prices, profitability and cash flow.

6. Customer Satisfaction

Customer satisfaction is an important factor in the evaluation of the activity, so if you have a method to measure the satisfaction of your customers in a consistent and rigorous will surely be a point in your favor during a negotiation. Often the business owner perceives its customers are happy or not, but a method to measure reliably certainly will be helpful both in the case of sales activity, both to improve the loyalty of your existing customers.

7. Autonomy Business

This factor indicates the extent to which your business can thrive without you. For the buyer it is important that the business is able to grow and succeed without you in command. Employees should be simple spokes of a spinning wheel independently. Often entrepreneurs directly serve their customers and often their activity is closely linked to their presence, in this sense a likely buyer might be discouraged or willing to spend less because they do not know what will be the performance of the business without the figure of the owner.

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