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What Makes a Business More Valuable to Potential Buyers?

What Makes a Business More Valuable to Potential Buyers?

If a business owner is considering the sale of his/her company in the future, there are several variables that are looked at when placing a value on that company.

One of the main factors in determining the value of a business is the amount of revenue it generates and how much it is expected to earn in the future. Investors will also look at the quality of the revenue because that helps determine the recurrence of the generated revenue.

A person looking to buy a company looks at the amount of revenue that is produced through sales. One of the most important factors is how much of the revenue is brought in from repeat customers.
Having a large portion of sales stemming from repeat customers makes a brand much more valuable in the eyes of an investor. Knowing that the company is offering a product or service that keeps people coming back means that the business can expect to stay profitable.

Another factor that investors will look at is whether or not the company has a built-in customer base. A business that has clients on retainer is a guarantee of incoming revenue each year. The investor sees this as a lower risk if they decide to buy.

For instance, if an accounting firm has 50 percent of its clients on retainer, then the buyer knows that there is a guarantee that the revenue from those clients will be there from day one. It is a more sound investment than buying a firm that only has 25 percent of its clients on retainer.

Businesses that do not rely on having clients on retainer will need to show as much sales information as possible. How many sales were completed over the lifetime of the business? Is there a steady increase of sales each year? Are there repeat customers?

This information will help the buyer to see the potential of the brand and its projected sales forecast.

Buyers will also look at the key parts of the business itself: staff, equipment, location, sales process. Each plays a role in how successful a business will be down the road.

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