Value Drivers – besides just Cash Flow or EBIDTA
Do you ever wonder why one business has buyers lined up willing to pay top dollar while another sits on the market for months, or even years? What do buyers look for in a prospective business acquisition? …The items, common to all industries, which drive up value, are called “Value Drivers.” They include:
• A stable, motivated management team
• Operating systems that improve sustainability of cash flows
• A solid, diversified customer base
• Facility appearance consistent with asking price
• A realistic growth strategy
• Effective financial controls
• Good and improving cash flow
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 large publicly-traded investment opportunities as well as to private companies.
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. There are many items that create value including: proprietary technology, market position, brand name, diverse product lines, and patented products. In this article, let’s look only at those key Value Drivers that are common to most businesses, including: management team, business systems, customer base, facilities and equipment, business strategy, and financial controls. (To read the entire white paper, by Tim Barrett of Blueprints for Business, click here.)
The Summit Acquisitions Group — Business Brokers and M&A Advisors — specializes in the sale, appraisal, and financing of privately owned companies ranging in valuation from $750,000 to $25,000,000. Contact their offices in Atlanta, GA or Charlotte, NC for a free consultation.