The valuation is a major factor that influences the overall selling price of a business. Business valuations are based upon a multitude of criteria and indisputable records, such as comparables, projections, discount rates, EBITDA multiples, and more.
While the business valuator may have all the information he or she needs, some business elements might be overlooked in the valuation. That’s why it’s extremely helpful for business valuators to first grasp the purpose of a valuation prior to getting started. Unfortunately, the valuator is often unaware of additional considerations that may enhance, or even devalue, a business’ overall worth.
Is There Unwritten Value?
Business owners generally agree that prospective buyers are mostly looking for quality in depth of management, market share, and profitability. Though undoubtedly more subjective than documentation, figures, and calculations alone, information regarding key business elements such as market, operations, post-acquisition, value drivers, and fundamentals is highly valued to potential buyers.
Here are some questions to consider regarding a few crucial elements that may contribute unwritten value or undocumented worth:
- Is there an abundance of market competition?
- Does pricing reasonably align with the demographic?
- Are the company goals consistent with advancing technology?
- Are there various and/or global means of reach and distribution?
- Does the business have more potential beyond a niche?
- What’s the company’s competitive advantage?
- What are the strengths and weaknesses of its competitors?
- Is the company’s location convenient to its target audience?
Increased Success & Valuation
Successful businesses thrive due to company-wide values and consistent customer-centric efforts. In his book The 100 Absolutely Unbreakable Laws of Business, Brian Tracy summarizes this as “a company-wide focus on marketing, sales and revenue generation. The most important energies of the most talented people in the company must be centered on the customer. The failures to focus single-mindedly on sales are the number one causes of business failures, which are triggered by a drop-off in sales.”
Tracy continues by pointing out that trends may be the most pivotal consideration and bottom-line contributor to any given company’s success and, therefore, valuation. For 2017, projected trends include the increased use of video marketing, crowdfunding as a source of product validation, nutrition and fitness tracking products, the use of e-commerce, and the acquisition and training of remote employees.
Start-up companies are likely practicing as many current trends as possible within their limited funding in an attempt to establish market share, while mature companies are hiring millennials to keep their businesses hip with regards to those same trend areas, in an effort to protect their existing share. To add undocumented worth to companies, business owners would benefit from studying, and ultimately executing, these current trends, as well as from acknowledging the successes and mistakes of their competitors.
Tracy suggests that daily conversations that encompass problem-solving, decision-making, and team collaboration are pivotal factors in making a company successful. And the individuals performing these necessary functions? As Tracy reiterates, top companies have the best people.
Copyright: Business Brokerage Press, Inc.
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