Red and Clean

There are 54 factors that affect the price of a closely-held business. The following is a look at the top 10 of these factors that have the biggest influence the selling price of any business:Number 10: Industry OutlookIf the outlook for the industry is bright, the price goes up. Buyers look hard at the outlook for a company’s gross margins, future growth projections, international economic factors, etc.Number 9: Depth of Management and of the Sales TeamIf an owner wears all of the hats, including generating most of the sales, the price will go down. A strong and experienced management team to operate the business is key value driver.Number 8: Customer BaseIf a company has limited customer concentration with no single customer representing more that 5-10% of revenues the price goes up. If the customer base is made up of ?blue chip? companies, the price goes up too.Number 7: A Good Story to TellTelling a company’s story is critical in helping the buyer recognize the full value of a business. When this in-depth marketing ?package? of the business is combined with many years of merger and acquisition experience on the part of the broker/intermediary, the price of the business definitely goes up. A quality business broker/intermediary will prepare an extensive confidential offering memorandum that describes the business operation, the marketing and sales programs, its organizational structure, its facilities and equipment, its financial performance, and provides a financial analysis including a believable 5 year financial forecast.Number 6: Stage of Industry ConsolidationIf a company’s industry is experiencing consolidating with the big companies getting bigger through acquisition, prices for smaller companies will rise.Number 5: Company Track RecordIf a company can show a track record of consistently growing profits and sales, buyers will pay more.Number 4: Type of BusinessA manufacturing company with a proprietary product will sell for more than a job-shop manufacturer. A distributor that adds value by offering installation, repair, and/or engineering/design will sell for more money than a non-value-added distributor. A service company with a special expertise will sell for more than a similar service company without this expertise.Number 3: Revenue SizeThe larger a company’s revenues, generally the higher the price. A business with $25 million of annual sales will sell for more than a company with $5 million in sales.Number 2: Market PositionA company that dominates its market or has a unique niche in the market will sell for a premium over other companies that do not dominate their markets.And now, the single most important factor influencing the price of the business, clearly is?Number 1: Having Multiple Buyers!When there are multiple buyers bidding on a business, the price of the business will exceed the price paid for a business that is sold without competitive bids. We see the price escalation caused by multiple bidders all the time. It does not matter whether the business is priced at $4 million, $8 million, or $150 million; the key to maximizing value is creating a selling environment where competitive market forces work for a company rather than against it.

Article Source: www.iSnare.com