this value driver is to take vacations. Te longer you can stay away without the wheels falling off, the more valuable your business will be to a buyer and the easier it will be to sell.
Diversified Customer Base Aſter looking at the business’ dependence on the owner, buyers oſten analyze its customer base. In Bentonville, AR, many businesses have one relatively large customer: Walmart. While this may seem like a good thing on the surface, buyers are incredibly sensitive to customer concentration. If more than 10 to 20 percent of your annual sales come from one big customer, like Walmart, it may be time to broaden your customer base and lower that concentration. As with the value drive above, a diverse customer base equals less business risk—and more business value—to potential buyers.
Growth Opportunities My firm recently worked with a TPA that did the bulk of its business within two industries: long-haul trucking, and oil and gas. While the company had a diverse and desirable customer base, it also had numerous opportunities for additional growth in its current industries (like rail and air within the transportation industry), as well as new industries like retail where the acquirer had connections. While buyers typically value a business based on historic
financial performance, few buyers are atracted to a business with no expansion opportunities. Regardless of how much growth you try to capture during your tenure as the owner, making sure there are several options for the next owner to pursue will contribute to both the value and sellability of your business.
Financial Controls Every year I participate in M&A surveys that ask the following question: Why do some businesses fail to sell? And without fail, one of the top three reasons always revolves around the strength of the company’s financial statements. Te financial statements associated with your business—namely
Profit & Loss Statements and Balance Sheets—are the foundation of both its value and its sellability. Your books should tell a clear story of how your business operates, its sources of revenue, what affects key operating margins, and what makes it profitable. Financials should be kept in a universally-accepted accounting soſtware, like Quickbooks, and updated regularly (Te inability to produce accurate and timely interim financial statements can make a business difficult or even impossible to sell). Looking at your financial statements from a buyer’s point of view
oſten reveals which areas of the business contribute the most to its overall value, and which ones may be pulling it down. It may also be the first time your business metrics have been compared to industry
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averages. A business with clean, accurate financials that show above- average performance for the industry will atract more and beter buyers, as well as a higher valuation. Building value can just as easily be thought of as an informed
way of operating your business as relegated to a “someday” exercise when you’re ready to sell and exit. While it may seem like a chore at first, building a sellable business with transferrable value typically comes with immediate benefits; valuable businesses tend to be more profitable, as well as more enjoyable to run and own. Don’t wait until late in the game to understand what your
business is worth and how to increase its value. You have nothing to lose by building value in your business today, and more than just insight to gain.
Barbara Taylor is the co-founder of Allan Taylor & Co., a national mergers and acquisitions firm located in Bentonville, AR. She is a regular contributor to Forbes. com and a former New York Times blogger. You can follow her on Twitter @ballantaylor or visit her company website at
www.AllanTaylor.co.
P.O. Box 1708 Cushing, OK 74023
bluingproducts@hotmail.com
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