How Buyers View the Value of Your Company

Every business is unique, but buyers tend to focus on the same aspects of a business when they are interested in acquiring it. The major factors that influence a buyer's view of your company include:

Tangible Assets
Hard assets have a positive influence on the value of your business. In general, the greater the asset value included as part of a transaction, the greater the overall company value. But since earnings often have a greater impact on valuation than assets, changes in asset values rarely create a proportional change in company valuations. Large amounts of required capital assets may be viewed as a liability to buyers, as they can diminish future available cash flow by requiring larger future investment to replace or maintain.

Recast Earnings
A company's recast pre-tax financials influence buyers more than anything else. To them, your company is an attainable stream of income that will provide a positive return on investment over time, and will justify the purchase price. As such, the most commonly accepted valuation methods rely on multiples of earnings. The stronger the earnings, the greater the value. It is important that you present the financial statements in a format that will maximize the earnings in the eyes of the buyer.

A business can be worth significantly more to one buyer than another. Perceived value depends on the company's strategic fit with the buyer. If there are cost synergies, compatible sales and marketing approaches, or complementary products and services, those will all be perceived as strategic benefits.

Risk Factors
Before committing to acquire your business, buyers weigh future opportunities against economic risk. Aspects of the business that increase risk will decrease the value of the business. Aspects that decrease risk increase the value. Many things can be factors, including: industry life cycle and stability, customer base dependencies or concentrations, employee and supplier dependencies, product or service differentiation, strength and size of market, management and regulation. The better a business can demonstrate the ability to control or offset potential risks, the better the valuation.

Transaction Structure
The way your deal is structured will influence the total financial yield to a seller. Considerations include whether the transaction be an asset sale or a stock sale, whether the seller will retain assets or receive continuing perks and benefits, and whether an earnout will be part of the deal. Transaction allocations and structures will also have an impact on tax implications and the seller's total profit.

Presentation & Packaging
Buyers expect your financial records and tax documentation to be properly prepared. A professionally packaged business boosts buyer confidence and increases the likelihood of a sale. Most buyers turn to an accountant, lawyer, or other business partners to provide feedback. A presentation package ensures that everyone has access to the same information. Retaining the services of your own business broker to properly package the business will bring you closer to inking a deal.