Business Valuation Variables
As this video from the International Business Brokers Association (www.IBBA.org) states there are five (5) main factors that can affect a business’s valuation.
They are;
- Size matters. Investors will pay more for larger companies, if it means larger EBITDA, Bigger profits.
- If you’re not growing, you’re dying. The higher the expectation for expanding profits in the future, the higher multiple they are willing to pay on the current Earnings. In a exaggerated sense, think of the ridiculous multiples that stock investors will pay for promising Tech companies. Sometimes these aren’t even profitable. The higher the growth rate over the general market, or especially within your company’s industry, the more investors are willing to pay.
- The more the current business’s income could support a Buyer’s loan to finance the transaction, the higher the sales price. Buyers are looking for income. They are also looking for yield, ROI – return on their capital investment. Additionally, by the Seller ‘s willingness to carry a note, higher sales prices can be achieved.
- It’s all about Profits. Higher than average industry profits and/or higher expectation of growth, can lead to an increased sales price. Higher revenue, in and of itself, if it leads to lower margins, is not always necessarily beneficial. Unless that additional revenue, via an effective sales strategy, leads to higher revenue from ancillary sources, higher profit margins, in the long run. Then higher revenue is accretive.
- ‘A higher inventory turnover generally leads to increased profits. This is because it indicates efficient inventory management, meaning a company is selling through stock quickly. Thus, minimizing the amount of capital tied up in unsold goods, reducing storage costs, and allowing for more frequent sales cycles. This ultimately boosting profitability’. Says, #GoogleAssistant www.google.com
Brokers can help
A good business broker can help you achieve top dollar for your business. Typically 30% more than if a business owner tried it on their own. They can also assist in finding the right resources to help your business grow. The trend is your friend and growing profits is your BFF when you’re ready to sell. Call Griggs Business Brokers, Austin’s best boutique brokers group when thinking of selling. www.griggsbb.com
TYG!