VALUING A BUSINESS FROM A BUYER’S PERSPECTIVE

Sellers and buyer’s perspective vary greatly when looking at the value of companies. When it comes time to sell, it is important that the seller consider those factors that are important to a buyer. Buyers look at the expectation of future earnings; then use the characteristics below as risk factors affecting, both positively and negatively, the future earnings potential of a target business:

  • Growth Prospects; being in a growth industry places the company at a higher value
  • History of Earnings; sustained year-over-year revenue growth is highly valued
  • Type of Business and Competition
  • Management Team; strength and depth commands a higher price
  • Employees; established, reliable workforces demand a premium price
  • Customer Focus & Retention; long-term relationships, cross-selling opportunities are preferred
  • Diversification; can products be expanded or fill a niche
  • Location & Facilities; desirable geographic areas and well-maintained facilities command a better price
  • Terms of the Sale; debt financing or equity capital

Certainly buyers and sellers should be aware of the characteristics above as they heavily influence the ultimate value, the time it takes to sell, and sometimes whether a company will sell at all.

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