There are many factors that affect the market value or price of a particular business. Here are the main factors that have the biggest influence on selling price of any business.
1 Type of business
- A manufacturing company with a proprietary product will sell for more than a job-shop based business.
- A distributor that adds value by offering installation, repair, and/or engineering / design input will sell for more than a non-value-added distributor.
- A service company with a special expertise and/or on-going contract maintenance will sell for more than a similar service business without these characteristics.
2 Industry outlook
If the outlook for your industry is bright, the price of your business will go up.
3 Stage of industry consolidation
If a company’s industry is experiencing consolidation with medium to big companies getting bigger through acquisition, then prices for smaller companies will rise.
4 Market position
A company that dominates or has a unique niche in the market will sell for a premium over other companies not dominating their markets.
5 Depth of management & sales team
If the business owner wears all of the hats, the price goes down.
6 Customer base
If a company has limited customer concentration with no single customer representing more than, say, 5% of revenue the price goes up.
7 Revenue size
The larger a company’s revenue, generally the higher the selling price. A business with $25 million of annual sales will sell for more than a company with $5 million in sales.
8 Financial track record
If a company can show a track record of consistently growing sales and profits, buyers will pay more. A company with multiple revenue sources and/or multiple sales channels will sell for more than a similar business without these characteristics.
9 A good story to tell
Being able to tell a good (and truthful) company story is critical in helping the buyer recognise the full value of a business. An experienced broker will compile a good story that best showcases your business to potential buyers.
10 Having multiple buyers – this is clearly one of the most important factors
Multiple buyers vying for a business increases the price to be paid for a business sold without competitive tension and bids. All too often owners are approached, negotiate and sell and do not really know where the market value of their business lies.
To ensure you are in a good situation get the right advice from experienced professionals who know all the problems and pitfalls. If you need assistance in selling a business, you’re welcome to call us on (02) 8221 8818.