Value Drivers – The Building Blocks of Business Value

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Have you ever wondered why one business has buyers lining up to pay top dollar, while another sits on the market for months or years? What do buyers look for in a prospective business acquisition?

The characteristics buyers seek are called Value Drivers, and they must exist long before the sales process even begins. Value Drivers are specific business characteristics that drive growth in the value of a business, either by reducing the risk associated with owning the business or by enhancing the prospect that the business will grow significantly in the future.

While every business is unique, and each of these characteristics vary in their importance to fostering business growth, the top five characteristics that buyers look for when evaluating business value are:

  1. Next-level management
  2. Operating systems demonstrated to increase cash flow sustainability
  3. Diversified customer base
  4. Proven growth strategy
  5. Recurring revenue that is sustainable and resistant to commoditization

Focusing on these characteristics in the years leading up to sale of your business can provide the following benefits, beyond the enormous benefit of being able to leave your business on your own terms:

  • Perspective. You begin to view your business through the eyes of a prospective buyer. This can help you overcome sentimental attachments to your business, which gives you a better opportunity to address issues within the business, as well as getting top dollar upon transferring your ownership.
  • Where the rubber hits the road. By focusing on these characteristics, you can act and make practical changes to your business and actively move toward your post-exit life.
  • Triage. By identifying the Value Drivers in your business, you can concentrate your efforts (and management’s efforts) on areas that need the greatest improvement and will yield the greatest results.

Whether a buyer will pay a premium price for a business depends, in large part, on the efforts of the owner to adopt and implement the characteristics that buyers look for in a prospective business acquisition. Not only that, focusing on the unique Value Drivers in your business can increase the income you earn from the business in the years leading up to your exit!

This article was excepted from articles and white papers published by the Business Enterprise Institute, Inc., of which Porte Brown is a member.

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