In the realm of business sales, most transactions hinge on industry-standard metrics like EBIT, EBITDA, or SDE multiples. However, there’s a critical question lingering beyond pure profit considerations – why do certain businesses command a premium in the market? What are the elusive value drivers that savvy buyers seek beyond the balance sheets and profit margins?
Indeed, it goes beyond the bottom line. Potential buyers are on the lookout for intangible qualities that can’t be easily quantified. To secure a premium sale, businesses must grasp these “value drivers,” which, while unique to each buyer, can generally be categorized into key areas.
What Buyers Desire in a Business
In a hypothetical scenario where two similar businesses boast identical products, services, and comparable profits, a buyer is inclined to pay a premium for the one deemed more attractive. While all buyers seek value, certain businesses stand out due to factors like prime location, established operating systems, and a proven history of stability.
For businesses aspiring to secure a premium sale, a thorough examination of the following value drivers is paramount:
- Strong Market Position:
A robust market position can encompass repeat clients, long-term contracts, or a niche market foothold. Take, for instance, service-based industries like HVAC or plumbing, where businesses with a diversified clientele command a premium compared to those heavily reliant on new construction or a single major client.
- Business Location:
The geographical location of a business matters. Whether it’s a manufacturing facility or a retail outlet, being in the right place significantly impacts the final sales price. A strategic location aligns with operational efficiency and customer visibility, contributing to overall attractiveness.
- Working Systems & Processes:
Buyers favor companies that invest in cutting-edge technologies and processes, ensuring long-term competitiveness. A business with well-established systems, particularly information systems, demonstrates operational excellence, increased efficiency, and better management practices.
- Long-Term Relationships:
Buyers seek businesses that prioritize cultivating enduring relationships, especially crucial for small or local enterprises. A service-over-sales approach ensures customer retention post-ownership transition, offering the new owner an opportunity to nurture long-term connections.
- Attractive Work:
Beyond profitability, the quality and attractiveness of a business’s work play a pivotal role. Buyers may prioritize factors like interesting and well-communicated products or services, emphasizing that marketing efforts should align with the actual quality of work.
- Long-Term Growth:
Businesses investing in technologies and processes for sustained growth are more appealing to buyers. Demonstrating a commitment to expansion and improvement signals the business’s potential and relevance in the industry over time.
- Clean Financials & Reasonable Terms:
Transparent financial records and reasonable sales or transition terms are critical. Offering favorable terms and aiding the buyer during the transition enhances the overall appeal and can sway the transaction in your favor.
While financial metrics like EBIT, EBITDA, or SDE multiples undoubtedly play a role, it’s the nuanced attention to these value drivers that distinguishes a 3X multiple from a 5X multiple in a business sale. Presenting these drivers professionally through meticulously crafted marketing documents is crucial, influencing the perceived value and, ultimately, the cashflow multiple offered to potential buyers. At Lion Business Advisors, we pride ourselves on setting the standard with professional marketing materials, combining expert copywriting, insightful analysis, and cutting-edge graphic design to showcase businesses at their best.