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    Seven Factors of Business Selling Price Growth

    August 20, 2020 by Mezba Uddarain Leave a Comment

    Most small and medium-sized business owners often think about the prospect of exiting one day, selling their stake in the company in order to receive funds to ensure the desired lifestyle in retirement or withdraw funds to start or buy another business.

    Of course, the owners want to sell their company as expensive as possible.

    Therefore, all businessmen should be aware of the steps that need to be taken to increase the value of their business for sale – be it next year or 10 years from now. These steps require important strategic decisions.

    What do potential buyers want to see?

     The main factors that buyers consider when deciding how much they will pay for a business are their future income and cash flow. Specifically, they want to know what future earnings and cash flows will be and when they will be realized.

    The best ways to increase the future selling price of your business is to make decisions that aim to maximize profits and shorten the money cycle on the one hand, and distribute risks among different types of customers, products, services and market areas on the other.

    So, here are the factors that can increase the potential selling price of your business:

    1. Good financial performance.

    It is not surprising that it is this part that is most interesting to buyers and in it they will conduct the most thorough verification. In particular, they tend to want to see strong cash flow, stable sales and revenue, and profit growth. Identify a few key performance indicators (KPIs) that best reflect your financial performance and focus on improving them over the months or years leading up to your planned exit.

    2. The quality of financial reporting and organization of accounting.

    Poor quality reporting is one of the most common reasons many owners fail to determine the optimal selling price. Buyers usually want to see high quality and detailed financial statements in accordance with international standards that have been audited by professional auditors, rather than basic accounting forms that do not provide the necessary “insider”.

    3. The strength of your management team.

    Too many owners, through carelessness or inexperience, end up making themselves indispensable for their business, which can significantly reduce the value of the business in the eyes of buyers.

    To avoid this, start strengthening your management team well before it is time to sell your company so that they are ready to help ensure a smooth transition to new owners. This includes the delegation of real authority and responsibility for decision making to managers and line managers.

    4. Prospects for further growth.

    Acquirers do not usually buy a business in order to maintain the status quo. They are looking for businesses that can show solid growth in sales, profits and market share. Create a strategic growth plan that outlines potential business opportunities such as entering new markets or leveraging new technologies.

    5. Your competitive advantage.

    What is your company’s unique selling proposition? Why are customers working with you and not your competitors? It can be outstanding quality or low price – but whatever it is, make sure you highlight it in your sales channels and marketing promotions. Also, be prepared to demonstrate that your competitive advantage will be sustainable over the long term.

    6. The level of concentration of the client base.

    Does a large percentage of your sales and revenue depend on one or more large customers? If so, it poses a great risk to potential buyers, as the loss of a large client can threaten the business financially. Strive to diversify your customer base to reduce risks.

    7. The quality of your relationships with suppliers and suppliers.

    These relationships form the backbone of many businesses, especially manufacturers and wholesalers, so it is important to strengthen them before you put your business up for sale. Introduce managers to your key suppliers so that they can begin the transition of this relationship to your successors themselves. And enter into as many long-term contracts for the supply of raw materials as possible to help stabilize the cost of goods sold.

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