There are several factors that can positively and negatively affect the value of a business from the point of view of the buyer. Some common factors that add value to a business include:
- The organization, including its employees and internal processes
- Its reputation in the industry
- How well the business fits with the acquiring business, including the culture
- Terms of the final deal
- How “hot” the industry is and if it’s getting hotter
- Overall market conditions
- Other intangibles
- Timing of the offer
- Number of competing offers
When I sold my first business, the payment was to be made in the acquiring company’s public stock. Since it was during the dot com era, stock prices reflected the good market conditions and were on the rise. Also, the acquiring company had a hard deadline for the transaction since it needed to complete the transaction prior to its year-end close. This deadline added value to my business so I began to increase my demands as the closing date got closer.
Therefore, I was able to leverage several factors that enhanced the value of my business from the perspective of the buyer. On the flip side, there are factors that can discount the value of a business from the perspective of the buyer, including:
- Employment-related liabilities
- Environmental liabilities
- Litigation liabilities
- Tax liabilities
- Product warranty liabilities
- Contract liabilities
- Duress by sellers such as health or monetary issues
- Lack of time to complete the deal on the part of the seller
- Not using an intermediary to remove emotions
- Coming to an agreement too quickly/easily
- Only one offer
- Overall seller naïvety since a buyer may buy many businesses while a seller often only sells a business once
For more information on buying to selling a business, check out our FREE course Buying or Selling a Small Business.
What are the factors that can add value to your business or acquisition target? What factors subtract from its value?
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