Discounted Cash Flow

45 factors that can improve your businesses value

How can you increase the value of your business?

It is obvious that the more profitable your business is, the more value it has. However, there are many other factors that are taken into consideration when determining the value of your business. We have compiled fifty factors that can impact the value of your business. While it is unlikely for you to check off every factor below before you sell your business, reviewing the list should help you see where your business is strongest and where you will need to improve if you expect to get top dollar for your business.

Competition

1.         Limited or weak competition

2.         No threat of potential future indirect competition

3.         No barriers or restrictions to entry (protection from excessive competition)

Customers

4.         Minimal personal relationships between owner and customer base

5.         Limited customer concentration (more than 10% of revenue generated from one customer)

6.         Strong customer contracts and relationships with customers

7.         Strong, referral based business

8.         Strong, stable, diversified customer base

9.         Strong, repeat customer base

10.      Quality customer base (ability and willingness to pay)

Employees

11.      Trained management team

12.      Employment contracts with key employees

13.      Non-solicitation or non-compete agreements in place with key employees

14.      No non-working family members on the payroll

15.      Business not highly dependent on one or a few employees

16.      Key employees willing to stay after the sale

17.      Low employee turnover

Equipment

18.      Up to date equipment

19.      No deferred maintenance on equipment

Finance

20.      Positive revenue growth

21.      Minimal annual capital expenditures (ex: purchasing new equipment)

22.      Short cash flow cycle

23.      Minimal or healthy accounts receivable

24.       Strong gross margins

25.       Tax returns that match financial statements

26.       No unreported income (ex: unreported cash sales)

27.       Stable revenue and gross margins

28.       Clear, accurate financial statements

29.       Favorable pricing (business does not compete on price)

30.       Recurring income (different than “repeat”)

31.       A strong national, regional, or local economy (depending on the location of the customer base)

32.       Strong accounting controls

Products

33.       Highly specialized product or service (no commodities)

34.       Overall market outlook for the industry or specific product or service

35.       Product or service in high demand

36.       Opportunities to create additional related product or service lines

37.       Intellectual property (patents, trademarks, trade secrets, etc.)

38.       Proprietary technology

Running the Business

39.       Excellent location

40.       Strong business controls

41.       Operations manuals

42.       Documented procedures and policies

43.       No regulatory threats

44.       No potential litigation

45.       3-5+ years in business, the longer, the better

It is unlikely that you will be able to adhere to all of the 45 factors above but using this as a guideline to strive to achieve as many of these as possible will lead you towards quicker and more serious interest in buying your business.