What determines the true market value of your business?
Possibly, you have heard about “rules of thumb” and presume that your business will be worth approximately what a similar size company in your industry is worth.
But, it isn't that easy.
There's what your business is worth today to you.
What it's worth to a prospective buyer, now or in the future.
And, there's what it could be worth with a bit of proactive planning.
There are at least eight factors that drive your business value, and each of them is potentially more important than the industry you are in.
Would you like to know what your business is worth? What's more, what it could be worth with a small amount of effort and investment? Business brokers have a variety of methods to determine value. We utilize a number of them. In particular, we process business data through sophisticated proprietary algorithms - a SWOT system used by over 50,000 businesses worldwide. Another is a detailed category-by-category analysis of your business tax returns for the past three years. Some brokers will provide those services for you without charge or obligation.
Want to grow your business value? Here are three of the most important secrets to building business value:
1. Cultivate Your Differentiation from the Pack—Develop Your Unique Selling Proposition
People don't acquire what they could easily build themselves. If favorably low prices are your chief competitive advantage, a prospective business purchaser could conclude that they can merely open up as a competitor and win over your customers with introductory discounts for far less cost than buying you out. You need to develop a unique connection to the market, or an expertise in serving your customers, or a proprietary product or way of doing business, or a technological or logistical advantage, or a team of exceptionally competent employees—one or more exceptional attributes that make buying your business far more attractive than trying to compete with it.
2. Generate Recurring Revenue
A key factor in any business purchase decision is the buyer’s assessment of how the business will perform after they buy it. There is nothing more comforting and reassuring than recurring or “automatic” streams of income from such things as subscriptions, service contracts, or monthly, seasonal, or annual renewals. Almost any company can structure itself so that at least some of its revenue is recurring; and, the more "automatic" income there is, the more valuable the business will be.
3. Build Customer & Market Diversification
Reliance on one or just a few customers for the continued prosperity of your business is extremely precarious and raises an immediate and urgent “red flag” for potential buyers. The most valuable and sustainable businesses have many customers, each representing a small fraction of total sales, rather than one or a few large accounts providing a significant percentage of the revenue. Most potential acquirers will either walk away or greatly devalue your business if any one of your customers represents on average more than 15% of your sales.
About This Contributor - Tim Cunha, JD: I am an experienced entrepreneur, attorney, & business professor. I & my EvergreenGold® team offer business owners sound advice & expertise to build business value & achieve profitable sales. Call me today for a FREE business evaluation & SWOT analysis for your business anywhere in the USA. I can be reached direct at 650-600-3751.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses
Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.
|Elizabeth McGovern: Escrow Services - SF Bay Area
McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.
|Ranvir S. Sandhu, Esq. - Legal Services For Buyers And Sellers
I've worked at top Bay Area law firms and have extensive experience with business entity formation, mergers, dissolutions, conversions, employment matters, including experience in reviewing and negotiating transactional documents such as leases and purchase agreements.
|Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area
Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.
|Diane Boudreau-Tschetter: Escrow And Bulk Sale Services
California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.
|Harry Sidhu, CBB, Broker - SF Bay Area, Central Valley, SAC Region
Assisting both sellers and buyers of businesses - dealing mainly with Liquor Stores, Grocery Markets, Gas Stations, Smoke Shops, Restaurant Related, Retail Related, Service Related. Serving SF Bay Area, North Bay, Sacramento area. Call Harry Sidhu, CBB for assistance at 510-366-6130.
|Chuck Post: Laundry Buyer Representation, Consulting, Due Diligence
Chuck Post has 32 years experience in the laundry industry, specializing in assisting laundry buyers (and entrepreneurs) with buying or starting up, building, re-tooling, laundries throughout California. Laundry buyer representation, consulting, due-diligence, lease negotiations, laundry valuations.
|Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services
Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.
|Related Articles, Events, Blog Posts, Discussions, Videos, Interviews|
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|8 Tough Questions You Most Likely Will Be Asked When Selling Your Business
When selling your small business, you'll be bombarded with questions - from the brilliant to the ridiculous. You need to be prepared. Here are some of the key questions you can expect to be asked. Tim Cunha (SF Bay Area Business Broker at 650-600-3751) reviews many of these possible questions.
|BizBen Index: Weekly Results - 274 California Businesses Sold 5/21 - 5/25
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|How Do I Determine the Value Of My Small Business? Or The One I Want To Buy?
How do you determine the value of your business when you go to sell or even buy a business? There are so many factors and that is usually one of the first items serious buyers inquire about. Tim Cunha JD (SF Business Broker at 650-600-3751) initiates this Discussion On BizBen with other Advisors.
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|Selling Your SF Bay Area Business: 3 Keys To Better Financial Statements
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