(Editor’s note: This article originally appeared on Bizjournals.com, whose parent company, American City Business Journals, is the largest publisher of metropolitan business newsweeklies in the United States, with 43 business publications across the country.)
We’ve all heard that “Beauty is in the eye of the beholder.”
The origins of this maxim trace to the Greek philosopher Plato, and it’s safe to say that since Plato’s first uttering, these words have been used countless times during discussions of the beauty of people, art and nature.
I’d like to propose another application – determining the value of a business. While you can look at a business through the lens of all sorts of performance metrics, the ultimate value often is in the eye of the beholder.
Potential buyers will certainly look at whether the business is a strong player in a vibrant industry. But human aspects may very well be what close the deal: “Do we like these people? Are their values similar to ours?”
For a business owner considering a sale, the question of fit is critical because a buyer who views your company as a great fit, will be willing to pay more.
To attract the perfect buyer, or one who is pretty darn close, you may have some work to do. Here are six things that will enhance the appeal of your business to any firm that is seeking acquisitions in your industry or market.
With the help of a strong mergers and acquisitions advisor, you should work your way through this list.
If you get through points one through five and are still feeling good about your business, then point six will come as no surprise: your leadership and your team have made it all possible. And in the eye of an acquirer, a great team often is the deciding factor.
But if this list raises questions for which you don’t have good answers, you’ve probably got some work to do.
1. A Scalable Business
Your systems and processes should be relatively easy to replicate in other locations because buyers will be looking for an opportunity to grow. Efficiency is the key. The more customers you can serve, the more profitable and attractive the business will be.
2. A Steady Revenue Stream
Long-term contracts with established customers and a steady growth rate can be a foundation for sales growth in the future. Companies with a broad and diverse customer base are more valuable because their revenue stream is less susceptible to market fluctuations.
3. Proprietary Technology
Technology that you have created provides a competitive advantage and increases company value. It sets your company apart from the competition and is valuable because it would provide the same advantage to new owners.
4. Intellectual Property
Owning patent rights can provide a big boost in company value, especially if the patent is the key to securing future sales. Often, corporate buyers seek out smaller companies that own patents because of the market advantage those patents can offer the acquirer.
5. Brand Recognition
Strong brand awareness built through effective marketing and great customer service will make any company more appealing to potential buyers. \
6. Irreplaceable Employees
Employees with valuable skills, such as strong managers and sales people with well-established industry connections, also enhance value. A strong employee team makes it easy for buyers to envision a smooth transition and continued success once they have acquired the firm. That’s why they will pay more for a company with great employees, especially if you provide your employees “stay packages” to keep them with the firm as it transitions to the new owner.
All of these points of difference help make a great impression on buyers who will want to hit the ground running. Look for ways to enhance the things about your company that clearly stand out to buyers, and you will be able to sell your company quickly and at a greater profit.
About the Author
David J. Mahmood
Founder and Chairman
Phone: (214) 217-7750