What’s in a Value? Surprising Elements of Business Pricing

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Have you been thinking about what your business is worth? Been thinking about selling or putting an exit strategy in place for years down the road?  You should consider the most common metrics of business value first: cash flow, the inventory and what comparable businesses have actually sold for. There are, however, some lesser-known elements that can affect the value of your business to a buyer.

  • The condition of your assets. If you own a limo business and your limos are 20 years old, it’s likely that their condition has an effect on how much you can charge per ride and therefore your bottom line. If your aging fleet of cars needs to be replaced by the next owner, then you can expect prospective buyers to take that replacement cost off the top. What should you do if you have assets that need to be replaced? Have a conversation with your business broker about whether it makes sense to replace those assets or leave that responsibility to the new owner.
  • The amount of work you, as an owner, currently do. Say there are two very similar pizza shops generating about the same amount of revenue and are listed for the same price. In one shop, the owner works 80 hours a week. The other, 20 hours a week. If you were a buyer, which one would you pick? People who are buying a business are essentially buying themselves a job, so the more appealing the hours and workload, the greater the value to a buyer. If your business has you working an insane number of hours, you can make the hours and workload more appealing by hiring a proper staff and delegating some of what you do. In most cases, delegating some of your workload can have many other benefits. It allows time for you to gain more business, transfers knowledge which allows your employees more latitude, gives your employees the capability to step in when someone leaves – and so much more.
  • You can be the face of your company, but yours shouldn’t be the only face. In order for a business to sell, it needs to be able to function without you at the helm. If you are the only contact that your customers ever have, it will be very difficult for a new owner to take over and maintain the trust of those customers. If you don’t teach your staff how to do all of the things you do, it can cause massive problems – especially during a transition to new ownership. These are issues that might cause a buyer to choose another business over yours, so delegate and cross train now.

Buyers care about common business pricing metrics like cash flow – but they also care about replacing assets, the hours they’ll need to work and whether or not the business will survive without the original owner. Paying attention to the elements of your business that are important to buyers will always put you in a better position to sell successfully.

If you have more questions about how businesses are priced or are curious for what businesses like yours have recently sold, please get in touch with us today.