Boost Your Business Valuation By Focusing On Value Drivers
Boost your Business by Focusing on Value Drivers. Get tips for how to focus on value drivers via Fresh Insights and Cadence Bank. Learn more.
As we discussed in a recent article, the ultimate goal of many closely held business owners is to exit the company by selling to an acquirer at the highest possible price. Owners may then use the proceeds from the sale to fund their retirement or perhaps launch another business.
Maximizing the sale price of your business requires years of planning and preparation. “Potential buyers will be looking for certain characteristics in your business that will increase their potential return on investment,” notes Cadence Bank Senior Vice President and Business Banker Andrew Smith. These characteristics are referred to in the M&A world as business value drivers.
How to Value a Business
According to Smith, business buyers and sellers often don’t see eye to eye when it comes to the value of a closely held business. “Typically, sellers think their company is worth more than it actually might be because they have worked hard for many years nurturing and growing it,” he says. Buyers, on the other hand, usually view companies less emotionally — they are looking at objective criteria that can be measured and monitored so they can project their future ROI.
There are three primary metrics most buyers look at when examining companies they might want to acquire and determining how much they will pay for them:
1. What are the projected future cash flow and earnings?
2. When will these earnings and cash flow materialize?
3. How certain are these earnings and cash flow projections?
Therefore, a key to increasing the value and selling price of your company from the perspective of acquirers is to maximize and accelerate potential future cash flow and earnings and reduce their uncertainty. One way to do this is to diversify your sales and revenue streams among different types of products and services, customers and geographic sales areas. “Diversification is the first value driver,” says Smith.
More Value Drivers
Helping Smooth the Transition
This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.