Potential buyers are always looking for investments that minimize risk and maximize return.  To maximize the value of your privately-held business, you need to understand your value drivers, ensure optimal business operations, and reduce risk and maximize return as much as possible.

If you are planning to sell your business in the next few years, here are a few questions you should ask yourself regarding potential risks and returns:

Potential Risks:

  • Management/Processes/Systems – Do you have a key person you risk? What is the depth and capability of your management team? Is your readership innovative? Do you have the appropriate employment and NCA agreements in place?
  • Revenue –Do you have contracts in place with your customers or key customers?  Do you have multiple revenue streams? Buyers love recurring and predictable revenue streams. Any customer concentration issues? What is your historical customer attrition rate and how can you improve it?
  • Diversification – Along with customer diversification, do you have supplier diversification?  Is revenue tied to one specific industry? Do you or your customers work in a highly-regulated industry?
  • Due Diligence – Can you survive? Many deals fall apart because things come up during due diligence; these could be financial, legal, or IT related. You should be prepared and have your business in order before due diligence starts.

Potential Returns: 

  • Growth – Companies with higher growth tend to trade at higher multiples. Has your company grown historically?  What is the plan for future growth?
  • Scalability – Can you meet increased demand? Can your management team, systems, and processes handle more volume?
  • Differentiation – What is your competitive advantage?  Is it sustainable?
  • Profitability – Are you making money? How do your profit margins compare to industry averages?

Before You Exit
The key to all these factors is what can be done to address the issue or foster growth and profitability.  Every company is unique and what works for one may not work for another.  Regardless of your current situation, you can start working to either reduce risk or increase returns by focusing on any of these areas.

The key is to understand your value drivers and work to get your business in the best possible shape before exit.  You would do the same if you were selling your house, so why not your business?

A qualified business valuation advisor can assist you in these matters. A business valuation is a complex analysis that should be completed by a qualified valuation professional with the appropriate credentials.