What Do Buyers Value The Most?

If you are considering selling your business, you are probably wondering what parts of your company a buyer will place the most value on, and how you can improve those areas to boost value in a sale—also known as valuation drivers. These drivers increase cash flow to the business and reduce potential risks. Ideally, you will have focused on preparing these drivers for several years in advance of a sale in order to allow time for the improvements to materialize fully. But there is no better time than right now to get started. No matter what sector your business operates within, certain value drivers will always apply in helping to increase your company valuation. 

 

Strong Financials

Obviously, the financial health of your company is critical to its value. Acquirers will need to see your financial statements, EBITDA (Earnings Before Interest, Taxes Depreciation, and Amortization), margins, and past growth as well as expectations for future growth. You should also expect potential buyers to assess your company’s performance versus your competitors. If you can demonstrate year-over-year growth, it’s a good thing. However, if your competitors demonstrate higher growth rates, it can be an issue for buyers.  

 

Customer Base

Having a diversified customer base is another key value driver for your business. If a high percentage of your revenue stems from a small concentration of your largest customers, it is seen as a risk and a problem, which decreases value for buyers. This is because if you were to lose a large client, you would lose a large chunk of your cash flow. If one customer accounts for at least 10% of your revenue, or your five biggest clients represent 25% or more of your revenue, you need to focus on diversifying your customer base. 

 

Additionally, even if you have many customers, it can be a risk if they are too similar. One change in the market could impact them all. While it is important to have long-standing, loyal client relationships, you should always be looking to cultivate new ones. 

 

Technology & Innovation

These days—more than ever—technology is rapidly and continually evolving. Your business’s value depends significantly on its relevance in the market. It would help if you always were dedicating proper resources to research and development so that you can stay ahead of your competitors. Buyers will want to know what you are doing to drive innovation, and they will want to see that your company can keep up with current trends and shifts and be a leader in the game. Granted, this isn’t always easy for smaller companies. However, you can seek out strategic partnerships to help bridge any gaps, using another company’s established products or services to keep your company at the forefront. 

 

Products & Services

Just as customer diversification and technological evolution are essential, so is the diversification of your product or service offerings. Potential acquirers will see your business as more valuable if you offer a range of products because it lowers your risk of losing customers or prospects due to not being able to meet all their needs. This is especially true if your competitors can meet all those needs. Buyers will also assess to what extent your products or services may be exposed to economic swings, as well as the potential for vertical or horizontal integration.

 

Business Strategy

A short-term business strategy is good, but a long-term vision is even better. A large part of valuation includes the future of the business. Buyers will expect you to have a strategic plan that defines where your company will be five years down the road and how you plan to get it there. Or how the new owner can get it to that point if they decide to buy your business. 

 

Talent

Having a skilled workforce is another critical value driver for buyers. This includes a talented leadership team and trained and knowledgeable workers. It also makes a difference if your staff is happy because it means you are less likely to lose valuable talent. Experienced buyers will want to spend time with key personnel and walk away feeling good about their attitudes about their roles within the company. It would help if you also considered the level of dependency on certain team members. If one or two people leave the company, will it bring the business to a screeching halt? You want to avoid this issue, so you want to make sure the knowledge is spread around correctly. Buyers will feel more confident about your company if they see contingency plans to keep operations on track no matter who is in charge.  

 

Keep Your Value on Track

It is important to note that other value drivers impact company valuations, some of which can vary depending on the sector, but the drivers listed above tend to be industry agnostic and apply across the board for all business owners. Each of these key value drivers will be important to any buyer interested in your company. Ensuring that you have all of these factors buttoned-up will demonstrate to potential buyers that you are serious about selling your business. And that you have paid careful attention to keeping the company in the best possible health, all of which will drive up its value in the eyes of buyers.