5 Key Factors that Affect the Value of Your Business

handshake-2056021_640“Can you sell my business in Spokane, Nashville, or New York?” It’s the perennial question business brokers hear. There’s a right buyer for every business. But the more potential buyers you can round up, the better. The number of buyers who might be interested in your business is something largely in your control. While the market does matter, your business operations matter more. Working on these five key factors can significantly increase the value of your business in the eyes of potential buyers.

Growth Prospects

A potential buyer is ultimately interested in one thing: your company’s future, not its past. That means they’ll be looking at growth potential. While previous performance plays a significant role in future performance, it’s not the only factor. Competitors in the market, market changes, stagnation in your business, and new legislation can all affect your prospects for growth. A proactive stance to regulations, planning for changes in the market, and zealous financial management can all position you for growth—even when your competitors are struggling.

Streamlined Operations

Your operations are an intangible asset, but an asset nonetheless. A potential buyer will look at operational processes, and assess whether they add value or detract from it. Much of this is accomplished during due diligence. So prepare ahead of time for due diligence by streamlining operations, making operational strategies clear, and addressing any inefficiencies well ahead of the transaction.

Reputation

When the dot-com bubble burst, companies that were once worth millions were suddenly worth nothing. A company that has a bucket full of lawsuits or hundreds of negative reviews is in a similarly bad position. Reputation isn’t everything, of course, since some companies with an excellent reputation are worth virtually nothing. But the company’s reputation—as well as the reputation of the industry as a whole—matters. Cultivate brand recognition and loyalty, and watch your value soar. Just make sure you also plan for inevitable down swings in the market. Are you headed for a burst bubble or a regulatory change? Plan ahead so that you can control the changing tides—and the way those tides affect your reputation. 

Financial Performance

Financial performance is a key factor in your business’s value. A company with $100,000 in profits and no projections for a significant increase is never going to sell for a billion dollars. Looking at previous financial performance, then, can give you a good idea of what your company might be worth. You’ll also need to recruit assistance to project future financial performance. After all, billion-dollar businesses like Facebook once made no money, so it’s about potential future financial performance as much as it is about past performance.

 Business Assets

Your business’s assets are a key factor in its valuation. Owners often focus on large assets like real estate, but the full range of assets matters. Consider the following:

  • Technological assets, including any and all devices, as well as software licenses, custom apps, and other non-physical technical assets.
  • Intellectual property, including any and all publications, work for hire content, or property to which you own the rights, such as photography.
  • Your employees and managers.
  • Your infrastructure and operations.
  • All other physical property, such as furniture, buildings, etc.

Leases to any property.

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