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Using Value Drivers to Increase Business Value

Have you ever wondered why one business has buyers lining up to pay top dollar while another sits on the market for months or years? What do buyers look for in a prospective business acquisition?

The characteristics buyers seek are called Value Drivers, and they must exist before the sale process even begins. Value Drivers are characteristics of a business that either reduce the risk associated with owning the business or enhance the prospect that the business will grow significantly in the future. It is your job as the owner to create value within your business prior to a sale.

Common Value Drivers include the following:

  • Stable and increasing cash flow
  • A stable, motivated management team
  • Business systems that improve the sustainability of cash flows
  • A solid, diversified customer base
  • A business facility with a physical appearance consistent with the asking price
  • A realistic growth strategy
  • Effective financial controls

The reason a buyer is willing to pay a premium price centers on his or her perception of risk and return. If the characteristics that buyers find valuable—characteristics that both reduce risk and improve return—are present, a buyer will pay top dollar. Buyers will compare both risk and return to alternative investment opportunities. This investment principle applies to both large, publicly traded investment opportunities and private companies. There are many items that create value including proprietary technology, market position, brand name, diverse product lines, and patented products. In this article, we will look only at key Value Drivers that are common to most businesses including a management team, business systems, customer base, facilities and equipment, growth strategy, and financial controls. But first, let’s look at why stable and increasing cash flow is so important in the sale process and what you can do to assure stable and increasing cash flow for your business.

Are You Ready to Get Started?

Download our eBook Using Value Drivers to Increase Business Value for more detail on the Seven Common Value Drivers.

© 2018 Business Enterprise Institute, Inc. All rights reserved.

 

BIZ TIP TOPIC EXPERT: ADAM HANSON

ADAM HANSON

Adam is a Manager with SVA Certified Public Accountants, S.C. and member of the Business Advisory Services group. Adam works closely with business owners to advise them on accounting and tax issues, assist with accounting software implementation and support, and teach them how to better understand their financial statements in order to make critical business decisions.

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